-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TjFIhG1yD3fdq9SO/3pvw8cRmklDHcd8SeiV3nTaKWIYzF7vZUO0BRwfb18+OSGC x42+jMmkrEjqmi0ca1z+Ww== 0000950134-97-005434.txt : 19970723 0000950134-97-005434.hdr.sgml : 19970723 ACCESSION NUMBER: 0000950134-97-005434 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19970630 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970722 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN INDUSTRIAL PROPERTIES REIT INC CENTRAL INDEX KEY: 0000778437 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 756335572 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09016 FILM NUMBER: 97643749 BUSINESS ADDRESS: STREET 1: 6220 N BELTLINE RD STREET 2: STE 205 CITY: IRVING STATE: TX ZIP: 75063 BUSINESS PHONE: 2145506053 MAIL ADDRESS: STREET 1: 6220 N BELTLINE ROAD STREET 2: SUITE 205 CITY: IRVING STATE: TX ZIP: 75063 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN INDUSTRIAL PROPERTIES REIT DATE OF NAME CHANGE: 19931203 FORMER COMPANY: FORMER CONFORMED NAME: TRAMMELL CROW REAL ESTATE INVESTORS DATE OF NAME CHANGE: 19931203 8-K 1 FORM 8-K DATED JUNY 30, 1997 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): June 30, 1997 ---------------------- AMERICAN INDUSTRIAL PROPERTIES REIT (Exact name of registrant as specified in its charter) TEXAS 1-9016 75-6335572 (State or Other Jurisdiction (Commission File (I.R.S. Employer Identification of Incorporation) Number) Number) 6210 NORTH BELTLINE, SUITE 170, IRVING, TEXAS 75063 (Address of principal executive offices) (zip code) (972) 756-6000 (Registrant's telephone number, including area code) 2 ITEM 5. OTHER EVENTS On June 30, 1997, the Trust held its Annual Meeting of Shareholders for 1995. Results of the items voted on are as follows: 1. Authorization of additional 490,000,000 Shares of Beneficial Interest For Against Abstain 6,981,043 1,100,958 82,758 2. Adoption of Third Amended and Restated Declaration of Trust For Against Abstain 7,109,419 949,729 105,611 3. Authorization of 50,000,000 Preferred Shares For Against Abstain 6,736,036 1,317,008 111,715 4. Elimination of Cumulative Voting For Against Abstain 6,801,305 1,236,479 126,974 5. Conversion of Debt by USAA Real Estate Company For Against Abstain 7,206,715 867,272 90,772 6. Conversion of Debt by MS Real Estate Special Situations Inc. For Against Abstain 7,193,272 867,532 103,955 7. Issuance of $15,000,000 Additional Convertible Debt For Against Abstain 6,915,641 1,142,203 106,915 8. Employee and Trust Manager Incentive Share Plan For Against Abstain 6,751,846 1,281,834 131,080 9. Election of Five Trust Managers
Withhold Withhold For All Authority All Authority Nominees All Nominees Individual William H. Bricker 9,215,881 338,965 68,779 T. Patrick Duncan 9,256,995 338,965 27,665 Robert E. Giles 9,240,266 338,965 44,394 Edward B. Kelley 9,257,670 338,965 26,990 Charles W. Wolcott 9,208,841 338,965 75,819
10. Ratification of Ernst & Young as Independent Auditors For Against Abstain 9,479,693 90,315 53,219 11. Postponement or Adjournment of Annual Meeting For Against Abstain 8,367,838 1,133,297 122,089 All of the preceding proposals were approved by the shareholders of the Trust. 2 3 ITEM 5. OTHER EVENTS On July 7, 1997, the Trust signed definitive merger agreements with USAA Real Estate Income Investments I, A California Limited Partnership, USAA Real Estate Income Investments II Limited Partnership, USAA Income Properties III Limited Partnership, and USAA Income Properties IV Limited Partnership (collectively, the "RELPs") pursuant to which the RELPs will be merged into the Trust (the "Merger"). As a result of the Merger, the Trust will acquire nine real estate properties consisting of three office buildings totaling 550,000 square feet, two industrial properties totaling 320,000 square feet, three office/research and development properties totaling 156,000 square feet, and one retail property totaling 77,000 square feet. In addition, the Trust will acquire a 55.84% joint venture interest in a 291,000 square foot office property. The agreed value of the interests in these properties, including assumption of $31,704,000 in related debt, is $89,622,000. Pursuant to the terms of the agreements, the Trust will issue an aggregate of 22,064,147 shares of beneficial interest at $2.625 per share (for a total value of $57,918,385) in exchange for the limited partnership interests in the RELPs. The number of Shares to be issued to each RELP will be equal to the net asset value for each RELP (as agreed by the Trust and each RELP) divided by $2.625. The number of Shares to be received by a limited partner in each RELP will be computed in accordance with such partner's percentage interest in the RELP. The general partner of each RELP has waived any right it may have to receive Shares in exchange for its general partnership interest. The Merger, which has been approved by the Trust's Board of Trust Managers and the Board of Directors of each of the general partners of the RELPs, is subject to due diligence by both parties and certain other conditions, including approval by the shareholders of the Trust and the limited partners of each of the RELPs. The Merger is a taxable transaction to the partners in the RELPs and will be subject to the completion of a joint proxy statement/prospectus filed on Form S-4 with the Securities and Exchange Commission. No date has been scheduled for the shareholder meeting for the Trust and the joint limited partner meetings for the RELPs to vote on the proposed transaction. Prudential Securities Inc., on behalf of the Trust, and Houlihan Lokey Howard & Zukin, on behalf of the RELPs, have rendered opinions to their respective parties that the transaction is fair from a financial point of view. ITEM 5. OTHER EVENTS Pursuant to a previously announced agreement and approval by the shareholders at the Trust's annual meeting held on June 30, 1997, the Trust sold approximately $12,687,000 of Shares at $2.45 per Share to an investment group headed by Morgan Stanley Asset Management Inc. ("MSAM"). The agreement with MSAM allows the investment group to purchase up to $20,000,000 in Shares at the price of $2.45 per Share. On July 17, 1997, the investment group acquired an additional $4,873,000 in Shares and it will acquire the balance after the Trust places additional equity. 3 4 Also in accordance with approval by the shareholders at the Trust's annual meeting held on June 30, 1997, the Trust sold $15,000,000 of Shares at $2.45 per Share on July 10, 1997 to ABKB/LaSalle Securities Limited and LaSalle Advisors Limited Partnership on behalf of certain of their clients (collectively, "ABKB"). The Trust will use the proceeds from these transactions to acquire additional industrial properties. ITEM 5. OTHER EVENTS As provided in the agreements with MSAM and ABKB, the Board of Trust Managers has amended the Bylaws of the Trust to increase the number of Trust Managers from five to eight and has appointed Russell C. Platt and Theodore R. Bigman from MSAM and Stanley J. Kraska, Jr. from ABKB to fill the vacancies created by the increase in the number of Trust Managers. 4 5 ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (C) EXHIBITS 10.1 Agreement and Plan of Merger by and between the Trust and USAA Real Estate Investments I, A California Limited Partnership dated as of June 30, 1997 10.2 Agreement and Plan of Merger by and between the Trust and USAA Real Estate Investments II Limited Partnership dated as of June 30, 1997 10.3 Agreement and Plan of Merger by and between the Trust and USAA Income Properties III Limited Partnership dated as of June 30, 1997 10.4 Agreement and Plan of Merger by and between the Trust and USAA Income Properties IV Limited Partnership dated as of June 30, 1997 10.5 Common Share Purchase Agreement dated as of June 20, 1997, by and among the Trust, MS Real Estate Special Situations, Inc. ("MSRE") and Morgan Stanley Asset Management Inc.("MSAM") as agent and attorney-in-fact for specified clients (the "MSAM Purchasers") 10.6 Registration Rights Agreement dated as of June 20, 1997, by and among the Trust, MSRE and MSAM on behalf of the MSAM Purchasers 10.7 Common Share Purchase Agreement dated as of July 3, 1997, by and between the Trust and ABKB/LaSalle Securities Limited Partnership as agent for and for the benefit of a certain client. 10.8 Common Share Purchase Agreement dated as of July 3, 1997, by and between the Trust and ABKB/LaSalle Securities Limited Partnership as agent for and for the benefit of a certain client. 10.9 Common Share Purchase Agreement dated as of July 3, 1997, by and between the Trust and LaSalle Advisors Limited Partnership as agent for and for the benefit of a certain client. 10.10 Registration Rights Agreement dated as of July 10, 1997, by and among the Trust, ABKB/LaSalle Securities Limited Partnership as agent for and for the benefit of certain clients, and LaSalle Advisors Limited Partnership as agent for and for the benefit of a certain client. 99.1 Final Report of Inspectors of Election 5 6 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. AMERICAN INDUSTRIAL PROPERTIES REIT /s/ Charles W. Wolcott ----------------------------------------- Charles W. Wolcott President and Chief Executive Officer DATE: July 22, 1997 6 7 INDEX TO EXHIBITS
Sequentially Exhibit Numbered No Description Pages - -------- ----------- ----- 10.1 Agreement and Plan of Merger by and between the Trust and USAA Real Estate Investments I, A California Limited Partnership dated as of June 30, 1997 10.2 Agreement and Plan of Merger by and between the Trust and USAA Real Estate Investments II Limited Partnership dated as of June 30, 1997 10.3 Agreement and Plan of Merger by and between the Trust and USAA Income Properties III Limited Partnership dated as of June 30, 1997 10.4 Agreement and Plan of Merger by and between the Trust and USAA Income Properties IV Limited Partnership dated as of June 30, 1997 10.5 Common Share Purchase Agreement dated as of June 20, 1997, by and among the Trust, MS Real Estate Special Situations, Inc. ("MSRE") and Morgan Stanley Asset Management, Inc. ("MSAM") as agent and attorney-in-fact for specified clients (the "MSAM Purchasers") 10.6 Registration Rights Agreement dated as of June 20, 1997, by and among the Trust, MSRE and MSAM on behalf of the MSAM Purchasers 10.7 Common Share Purchase Agreement dated as of July 3, 1997, by and between the Trust and ABKB/LaSalle Securities Limited Partnership as agent for and for the benefit of a certain client 10.8 Common Share Purchase Agreement dated as of July 3, 1997, by and between the Trust and ABKB/LaSalle Securities Limited Partnership as agent for and for the benefit of a certain client 10.9 Common Share Purchase Agreement dated as of July 3, 1997, by and between the Trust and LaSalle Advisors Limited Partnership as agent for and for the benefit of a certain client. 10.10 Registration Rights Agreement dated as of July 10, 1997, by and between the Trust, ABKB/LaSalle Securities Limited Partnership as agent for and for the benefit of certain clients and LaSalle Securities Limited Partnership as agent for and for the benefit of a certain client. 99.1 Final Report of Inspectors of Election
7 EX-10.1 2 AGREEMENT & PLAN OF MERGER 1 EXHIBIT 10.1 AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of June 30, 1997, is entered into by and between American Industrial Properties REIT, a Texas real estate investment trust ("AIP") , and USAA Real Estate Income Investments I, A California Limited Partnership, a California limited partnership ("RELP"). USAA Real Estate Company, a Delaware corporation ("Realco"), is a party to this Agreement solely for the purpose of binding itself to the provisions of Section 7.10 hereunder. RECITALS A. The Board of Trust Managers of AIP (the "Board of Trust Managers") and the general partner of RELP have each determined that a business combination between AIP and RELP is in the best interests of their shareholders and partners, respectively, and presents an opportunity for their respective businesses to achieve strategic and financial benefits, and accordingly have agreed to effect a merger subject to the terms and conditions set forth herein. B. AIP and RELP desire to make certain representations, warranties and agreements in connection with the merger. NOW, THEREFORE, in consideration of the foregoing, and of the representations, warranties, covenants and agreements contained herein, AIP and RELP hereby agree as follows: ARTICLE I. THE MERGER 1.1. The Merger. Subject to the terms and conditions of this Agreement, at the Effective Time (as defined in Section 1.3), RELP shall be merged with and into AIP in accordance with this Agreement and the Plan of Merger (the "Plan of Merger") in substantially the form attached hereto as Exhibit A, with such completions, additions and substitutions conforming to the terms of this Agreement as the parties shall approve, such approval to be conclusively evidenced by their causing the Plan of Merger containing such completions, additions or substitutions to be filed in accordance with applicable laws; and the separate existence of RELP shall thereupon cease (the "Merger"). AIP shall be the surviving entity in the Merger (sometimes hereinafter referred to as the "Survivor"). The Merger shall have the effects specified in Section 23.60 of the Texas Real Estate Investment Trust Act, as amended (the "Texas REIT Act") and Section 15678.6 of the California Revised Limited Partnership Act (the "LP Act"). 1.2. The Closing. Subject to the terms and conditions of this Agreement, the closing of the Merger (the "Closing") shall take place at the offices of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. ("Liddell, Sapp"), located at 2200 Ross Avenue, Suite 900, Dallas, Texas at 10:00 a.m., local time, within five business days after receipt of approval of the Merger by AIP's shareholders and RELP's partners, or at such other time, date or place as AIP and RELP may agree. The date on which the Closing occurs is hereinafter referred to as the "Closing Date." 2 1.3. Effective Time. If all the conditions to the Merger set forth in Article VIII shall have been fulfilled or waived (and this Agreement shall not have been terminated as provided in Article IX), AIP and RELP shall cause Articles of Merger satisfying the requirements of the Texas REIT Act and Articles of Merger satisfying the requirements of the LP Act to be properly executed, verified and delivered for filing in accordance with the LP Act and the Texas REIT Act on the Closing Date. The Merger shall become effective for accounting and all other purposes to the fullest extent permitted by law as of the close of business on December 31, 1997 (the "Effective Time") or such other date as may be agreed to by the parties. For state law purposes, the Merger shall become effective upon the issuance of a certificate of merger by the Secretary of State of the State of California in accordance with the LP Act or at such later time which AIP and RELP shall have agreed upon and designated in such filings in accordance with applicable law. ARTICLE II. DECLARATION OF TRUST AND BYLAWS OF THE SURVIVOR 2.1. Declaration of Trust. The Declaration of Trust of AIP in effect immediately prior to the Effective Time shall be the Declaration of Trust of the Survivor until duly amended in accordance with applicable law. 2.2. Bylaws. The Bylaws of AIP in effect immediately prior to the Effective Time shall be the Bylaws of the Survivor until duly amended in accordance with applicable law. ARTICLE III. TRUST MANAGERS AND OFFICERS OF AIP 3.1. Trust Managers. The Trust Managers of AIP immediately prior to the Effective Time shall be the Trust Managers of AIP as of the Effective Time. 3.2. Officers. The officers of AIP immediately prior to the Effective Time shall be the officers of AIP as of the Effective Time. ARTICLE IV. RELP PARTNERSHIP INTERESTS 4.1. Conversion of the RELP Partnership Interest. (a) At the Effective Time, each Common Share of Beneficial Interest of AIP outstanding immediately prior to the Effective Time shall remain outstanding and shall represent one Common Share of Beneficial Interest of AIP. (b) At the Effective Time, the general and limited partnership interests of RELP (each a "RELP Interest"), issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of holder thereof, be converted into the right to receive Common Shares of Beneficial Interest, $0.10 par value per share (the "AIP Common Shares"), of AIP. The aggregate number of AIP Common Shares to be issued to the RELP partners in connection with the Merger shall be equal to $11,400,000 (the "Purchase Price") divided by the Share Price (the "Total Shares"). If RELP repays any mortgage indebtedness existing on the date hereof during the period from the date hereof to and including the Closing Date, the Purchase Price shall be appropriately adjusted. The term "Share Price" shall mean $2.625. The number of AIP 3 Common Shares to be received by a partner shall be equal to the Total Shares multiplied by such partner's percentage interest in RELP plus each limited partner's pro rata portion of the general partnership interest of the RELP's general partner. (c) As a result of the Merger and without any action on the part of the holder thereof, at the Effective Time, all RELP Interests shall cease to be outstanding and shall be canceled and retired, and each holder of a RELP Interest shall thereafter cease to have any rights with respect to such RELP Interest, except the right to receive, without interest, the AIP Common Shares and cash for fractional shares of AIP Common Shares in accordance with Sections 4.1(b) and 4.2(e). 4.2. Exchange of RELP Interests. (a) As of the Effective Time, AIP shall deposit, or shall cause to be deposited, with an exchange agent selected by AIP, which shall be AIP's Transfer Agent or such other party reasonably satisfactory to RELP (the "Exchange Agent"), for the benefit of the holders of RELP Interests, for exchange in accordance with this Article IV, certificates representing the Total Shares and the cash in lieu of fractional shares (such cash and certificates for the Total Shares together with any dividends or distributions with respect thereto, being hereinafter referred to as the "Exchange Fund") to be issued pursuant to Section 4.1 and paid pursuant to this Section 4.2 in exchange for outstanding RELP Interests. (b) Promptly after the Effective Time, AIP shall cause the Exchange Agent to mail to each holder of record of a RELP Interest (x) a certificate representing the number of whole shares of AIP Common Shares and (y) a check representing the amount of cash in lieu of fractional shares, if any, and unpaid dividends and distributions, if any, which such holder has the right to receive in respect of the RELP Interest surrendered pursuant to the provisions of this Article IV, after giving effect to any required withholding tax. No interest will be paid or accrued on the cash in lieu of fractional shares and unpaid dividends and distributions, if any, payable to holders of RELP Interests. In the event of a transfer of ownership of RELP Interests which is not registered in the transfer records of RELP, a certificate representing the proper number of AIP Common Shares, together with a check for the cash to be paid in lieu of fractional shares, may be issued to such a transferee if such holder presents to the Exchange Agent, all documents required to evidence and effect such transfer and to evidence that any applicable transfer taxes have been paid. (c) At and after the Effective Time, there shall be no transfers on the transfer books of RELP of RELP Interests which were outstanding immediately prior to the Effective Time. (d) No fractional AIP Common Shares shall be issued pursuant hereto. In lieu of the issuance of any fractional AIP Common Shares pursuant to Section 4.1(b), cash adjustments will be paid to holders in respect of any fractional AIP Common Shares that would otherwise be issuable, and the amount of such cash adjustment shall be equal to such fractional proportion of the Share Price. (e) Any portion of the Exchange Fund (including the proceeds of any investments thereof and any AIP Common Shares) that remains unclaimed by the former partners of RELP one year after the Effective Time shall be delivered to AIP. Any former partners of RELP who have not theretofore complied with this Article IV shall thereafter look only to AIP for delivery of their AIP Common 4 Shares, and payment of cash in lieu of fractional shares and unpaid dividends and distributions on the AIP Common Shares deliverable in respect of each RELP Interest such partners hold as determined pursuant to this Agreement, in each case, without any interest thereon. (f) None of AIP, RELP, the Exchange Agent or any other person shall be liable to any former holder of RELP Interests for any amount properly delivered to a public official pursuant to applicable abandoned property, escheat or similar laws. ARTICLE V. REPRESENTATIONS AND WARRANTIES OF RELP RELP represents and warrants to AIP as set forth below. As contemplated below, a "RELP Disclosure Letter" will be delivered to AIP on or before August 11, 1997. The RELP Disclosure Letter shall provide the information or exceptions described below and shall list all of the assets of the RELP that will not be transferred in connection with the Merger. The RELP Disclosure Letter shall be amended prior to Closing to cause such representations and warranties to be materially true and correct on the Closing Date, but RELP shall remain liable for any material breach of such representations and warranties reflected in such amendment only as provided in Section 9.5(d), below. 5.1. Existence; Good Standing; Authority; Compliance with Law. (a) RELP is a limited partnership, duly formed, validly existing and in good standing under the laws of the State of California. To its actual knowledge, RELP is duly licensed or qualified to do business as a foreign limited partnership and is in good standing under the laws of any other state of the United States in which the character of the properties owned or leased by it therein or in which the transaction of its business makes such qualification necessary, except where the failure to be so qualified would not have a material adverse effect on the business, results of operations or financial condition of RELP (a "RELP Material Adverse Effect"). RELP has all requisite power and authority to own, operate, lease and encumber its properties and carry on its business as now conducted. (b) To the RELP's actual knowledge, it is not in violation of any order of any court, governmental authority or arbitration board or tribunal, or any law, ordinance, governmental rule or regulation to which RELP or any of its properties or assets is subject, where such violation would have a RELP Material Adverse Effect. RELP has obtained all licenses, permits and other authorizations and has taken all actions required by applicable law or governmental regulations in connection with its business as now conducted, where the failure to obtain any such item or to take any such action would have a RELP Material Adverse Effect. A copy of RELP's Agreement of Limited Partnership and Certificate of Limited Partnership (collectively, the "RELP Organizational Documents") have been delivered or made available to AIP and its counsel and such documents will be listed in the RELP Disclosure Letter and were or will be true and correct when delivered or made available. 5.2. Authorization, Validity and Effect of Agreements. RELP has the requisite power and authority to enter into the transactions contemplated hereby and to execute and deliver this Agreement and all other documents, agreements and instruments related to the transactions 5 contemplated by this Agreement (the "RELP Ancillary Agreements"). Subject only to the approval of this Agreement and the transactions contemplated hereby in accordance with the Agreement of Limited Partnership of the RELP, the consummation by RELP of this Agreement, the RELP Ancillary Agreements and the transactions contemplated hereby have been duly authorized by all requisite action on the part of RELP. In reliance upon the legal opinion described in Section 8.2(e), RELP believes this Agreement constitutes, and the RELP Ancillary Agreements (when executed and delivered pursuant hereto for value received) will constitute, the valid and legally binding obligations of RELP, enforceable against RELP in accordance with their respective terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights and general principles of equity (collectively, "Equitable Remedies"). 5.3. Future Issuances. To RELP's actual knowledge, there are not at the date of this Agreement any existing options, warrants, calls, subscriptions, convertible securities, or other rights, agreements or commitments which obligate RELP to issue, transfer or sell any RELP Interests. After the Effective Time, AIP will have no obligation to issue, transfer or sell any RELP Interest. 5.4. Other Interests. Except as set forth in the RELP Disclosure Letter, RELP does not own directly or indirectly any interest or investment (whether equity or debt) in any corporation, partnership, joint venture, business, trust or entity (other than investments in short-term investment securities). 5.5. No Violation. To RELP's actual knowledge, neither the execution and delivery by RELP of this Agreement nor the consummation by RELP of the transactions contemplated hereby in accordance with the terms hereof, will: (i) conflict with or result in a breach of any provisions of the Agreement of Limited Partnership of RELP; (ii) except as contemplated by the RELP Ancillary Agreements or as will be set forth in the RELP Disclosure Letter, violate, or conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination or in a right of termination or cancellation of, or accelerate the performance required by, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties of RELP under, or result in being declared void, voidable or without further binding effect, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust or any license, franchise, permit, lease, contract, agreement or other instrument, commitment or obligation to which RELP is a party, or by which RELP or any of its properties is bound or affected, except for any of the foregoing matters which, individually or in the aggregate, would not have a RELP Material Adverse Effect; or (iii) other than the filings provided for in Article I, any filings required under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Securities Act or applicable state securities and "Blue Sky" laws (collectively, the "Regulatory Filings"), require any consent, approval or authorization of, or declaration, filing or registration with, any domestic governmental or regulatory authority, except where the failure to obtain any such consent, approval or authorization of, or declaration, filing or registration with, any governmental or regulatory authority would not have an RELP Material Adverse Effect. 5.6. SEC Documents. (a) RELP has made available or will make available to AIP prior to July 31, 1997, each registration statement, report, proxy statement or information statement and 6 all exhibits thereto prepared by it or relating to its properties (including registration statements covering mortgage pass-through certificates) since January 1, 1994, each in the form (including exhibits and any amendments thereto) filed with the SEC (collectively, the "RELP Reports"). The RELP Reports, which were or will be filed with the SEC in a timely manner, constitute all forms, reports and documents required to be filed by RELP under the Securities Act of 1933, as amended (the "Securities Act"), the Exchange Act and the rules and regulations promulgated thereunder (collectively the "Securities Laws") for the periods stated above. (b) To the RELP's actual knowledge, as of their respective dates, the RELP Reports (i) complied as to form in all material respects with the applicable requirements of the Securities Laws and (ii) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading. To the RELP's actual knowledge, each of the balance sheets of RELP included in or incorporated by reference into the RELP Reports (including the related notes and schedules) fairly presents the financial position of RELP as of its date and each of the consolidated statements of income, retained earnings and cash flows of RELP included in or incorporated by reference into the RELP Reports (including any related notes and schedules) fairly presents the results of operations, retained earnings and cash flows, as the case may be, of RELP for the periods set forth therein (subject, in the case of unaudited statements, to normal year-end audit adjustments which would not be material in amount or effect), in each case in accordance with generally accepted accounting principles consistently applied during the periods involved, except as may be noted therein and except, in the case of the unaudited statements, as permitted by the Securities Laws. (c) Except as and to the extent set forth on the balance sheet of RELP at March 31, 1997, including all notes thereto, or as set forth in the RELP Reports, RELP has no material liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) that would be required to be reflected on, or reserved against in, a balance sheet of RELP or in the notes thereto, prepared in accordance with generally accepted accounting principles consistently applied, except liabilities arising in the ordinary course of business since such date which would not have a RELP Material Adverse Effect. 5.7. Litigation. To the RELP's actual knowledge, there are (i) no continuing orders, injunctions or decrees of any court, arbitrator or governmental authority to which RELP is a party or by which any of its properties or assets are bound or to which USAA Investors I, Inc. (the "General Partner") or the General Partner's, directors, officers, or affiliates is a party or by which any of their properties or assets are bound, and (ii) except as will be set forth in the RELP Disclosure Letter, no actions, suits or proceedings pending against RELP or against the General Partner or the General Partner's directors, officers or affiliates or, to the knowledge of the General Partner, threatened against RELP or against the General Partner or the General Partner's directors, officers or affiliates, at law or in equity, or before or by any federal or state commission, board, bureau, agency or instrumentality, that in the case of clauses (i) or (ii) above are reasonably likely, individually or in the aggregate, to have a RELP Material Adverse Effect. 7 5.8. Absence of Certain Changes. Except as disclosed in the RELP Reports filed prior to the date hereof, since March 31, 1997, (i) RELP conducted its business only in the ordinary course of such business (which for purposes of this section only, shall include all acquisitions of real estate properties and financing arrangements made in connection therewith or otherwise will be set forth in the RELP Disclosure Letter); (ii) there has not been any RELP Material Adverse Effect; (iii) there has not been any distribution, setting aside or payment of any distribution with respect to any RELP Interest, and (iv) there has not been any material change in RELP's accounting principles, practices or methods. 5.9. Taxes. (a) Except as may be set forth in the RELP Disclosure Letter, RELP (i) has timely filed all federal, state and foreign tax returns including, without limitation, information returns and reports required to be filed by it for tax periods ended prior to the date of this Agreement or requests for extensions have been timely filed and any such request has been granted and has not expired and all such returns are accurate and complete in all material respects, (ii) has paid or accrued all taxes shown to be due and payable on such returns or which have become due and payable pursuant to any assessment, deficiency notice, 30-day letter or other notice received by it and (iii) has properly accrued all taxes for such periods and periods subsequent to the periods covered by such returns. RELP has not received notice that the federal, state and local income and franchise tax returns of RELP has been or will be examined by any taxing authority. RELP has not executed or filed with the Internal Revenue Service (the "IRS") or any other taxing authority any agreement now in effect extending the period for assessment or collection of any income or other taxes. (b) Except as may be set forth in the RELP Disclosure Letter, RELP is not a party to any pending action or proceeding by any governmental authority for assessment or collection of taxes, and no claim for assessment or collection of taxes has been asserted against it. True, correct and complete copies of all federal, state and local income or franchise tax returns filed by RELP since January 1, 1991 and all communications relating thereto have been delivered to AIP or made available to representatives of AIP or will be so delivered or made available prior to July 31, 1997. RELP does not hold any asset (i) the disposition of which could be subject to rules similar to Section 1374 of the Internal Revenue Code of 1986, as amended (the "Code") as a result of an election under IRS Notice 88-19 or (ii) that is subject to a consent filed pursuant to Section 341(f) of the Code and regulations thereunder. For purposes of this Section 5.9, "taxes" includes any interest, penalty or additional amount payable with respect to any tax. 5.10. Books and Records. The books of account and other financial records of RELP are in all material respects true, complete and correct, have been maintained in accordance with good business practices, and are accurately reflected in all material respects in the financial statements included in the RELP Reports. 5.11. Properties. (a) RELP owns fee simple title to each of the real properties reflected on the most recent balance sheet of RELP included in the RELP Reports or as may be identified in the RELP Disclosure Letter (the "RELP Properties"), which are all of the real estate properties owned by it, free and clear of liens, mortgages or deeds of trust, claims against title, charges which are liens or security interests ("Encumbrances") except as will be noted in the RELP Disclosure 8 Letter. To RELP's actual knowledge, the RELP Properties are not subject to any rights of way, written agreements, laws, ordinances and regulations affecting building use or occupancy, or reservations of an interest in title (collectively, "Property Restrictions"), except for (i) Encumbrances and Property Restrictions that will be set forth in the RELP Disclosure Letter, (ii) Property Restrictions imposed or promulgated by law or any governmental body or authority with respect to real property, including zoning regulations, provided they do not materially adversely affect the current use of the property, (iii) Encumbrances and Property Restrictions disclosed on existing title reports or current surveys (in either case copies of which title reports and surveys have been or will be delivered or made available to AIP July 31, 1997), (iv) mechanics', carriers', workmen's, repairmen's liens and other Encumbrances, Property Restrictions and other limitations of any kind, if any, which have heretofore been bonded (and that will be listed in the RELP Disclosure Letter) or which individually or in the aggregate do not exceed $100,000, do not materially detract from the value of or materially interfere with the present use of any of the RELP Properties subject thereto or affected thereby, and do not otherwise materially impair business operations conducted by RELP and which have arisen or been incurred only in its construction activities or in the ordinary course of business. (b) Valid policies of title insurance have been issued insuring either (a) RELP's fee simple title to the RELP Properties or (b) first mortgage liens thereon, subject only to the matters disclosed above and as may be set forth in the RELP Disclosure Letter, and such policies are, at the date hereof, in full force and effect and no claim has been made against any such policy. To RELP's actual knowledge, except as will be set forth in the RELP Disclosure Letter: (i) there is no certificate, permit or license from any governmental authority having jurisdiction over any of the RELP Properties or any agreement, easement or other right which is necessary to permit the lawful use and operation of the buildings and improvements on any of the RELP Properties or which is necessary to permit the lawful use and operation of all driveways, roads and other means of egress and ingress to and from any of the RELP Properties that has not been obtained and is not in full force and effect, or of any pending threat of modification or cancellation of any of same; (ii) RELP has not received written notice of any material violation of any federal, state or municipal law, ordinance, order, regulation or requirement affecting any portion of any of the RELP Properties issued by any governmental authority; (iii) there are no structural defects relating to the RELP Properties and no RELP Properties whose building systems are not in working order in any material respect; and (iv) there is (A) no physical damage to any RELP Property in excess of $100,000 for which there is no insurance in effect covering the cost of the restoration, (B) no current renovation to any RELP Property the cost of which exceeds $100,000 and (C) no current restoration (excluding tenant improvements) of any RELP Property, the cost of which exceeds $100,000. (c) Except as will be set forth in the RELP Disclosure Letter, RELP has not received notice to the effect that and there are no (A) condemnation or rezoning proceedings that are pending or threatened with respect to any of the RELP Properties or (B) zoning, building or similar laws, codes, ordinances, orders or regulations that are or will be violated by the continued maintenance, operation or use of any buildings or other improvements on any of the RELP Properties or by the continued maintenance, operation or use of the parking areas. All work to be performed, payments to be made and actions to be taken by RELP prior to the date hereof pursuant to any agreement entered into with a governmental body or authority in connection with a site approval, zoning 9 reclassification or other similar action relating to the RELP Properties (e.g., Local Improvement District, Road Improvement District, Environmental Mitigation) has been performed, paid or taken, as the case may be, and RELP is not aware of any planned or proposed work, payments or actions that may be required after the date hereof pursuant to such agreements, except as will be set forth in the RELP Disclosure Letter. 5.12. Environmental Matters. To RELP's actual knowledge, RELP has not caused (i) the unlawful presence of any hazardous substances, hazardous materials, toxic substances or waste materials (collectively, "Hazardous Materials") on any of the RELP Properties, or (ii) any unlawful spills, releases, discharges or disposal of Hazardous Materials to have occurred or be presently occurring on or from the RELP Properties as a result of any construction on or operation and use of such properties, which presence or occurrence would, individually or in the aggregate, have a RELP Material Adverse Effect; and in connection with the construction on or operation and use of the RELP Properties, RELP has not failed to comply, in any material respect, with any applicable local, state and federal environmental laws, regulations, ordinances and administrative and judicial orders relating to the generation, recycling, reuse, sale, storage, handling, transport and disposal of any Hazardous Materials. 5.13. Labor Matters. RELP is not a party to, or bound by, any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor union organization. There is no unfair labor practice or labor arbitration proceeding pending or, to the knowledge of the General Partner, threatened against RELP relating to its business, except for any such proceeding which would not have a RELP Material Adverse Effect. To the knowledge of the General Partner, there are no organizational efforts with respect to the formation of a collective bargaining unit presently being made or threatened involving employees of RELP or any of its Subsidiaries. 5.14. No Brokers. Except the fee that is to be paid to Houlihan Lokey Howard & Zukin ("Houlihan") by RELP as described in Section 5.15 below, RELP has not entered into any contract, arrangement or understanding with any person or firm which may result in the obligation of RELP or AIP to pay any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby. RELP is not aware of any claim for payment of any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby. 5.15. Opinion of Financial Advisor. RELP has retained Houlihan to review the transaction contemplated by this Agreement and to issue an opinion to the effect that, as of the date of such opinion, the Purchase Price is fair to the holders of RELP Interests from a financial point of view. 5.16. Related Party Transactions. Except as set forth in the RELP Disclosure Letter, there are no arrangements, agreements or contracts entered into by RELP with (i) any consultant, (ii) any person who is an officer, director or affiliate of RELP or its General Partner, any relative of any of the foregoing or any entity of which any of the foregoing is an affiliate, or (iii) any person who acquired RELP Interests in a private placement. 10 5.17. Contracts and Commitments. The RELP Disclosure Letter will set forth (i) all unsecured notes or other obligations of RELP which individually may result in total payments in excess of $100,000, (ii) all notes, debentures, bonds and other evidence of indebtedness which are secured or collateralized by mortgages, deeds of trust or other security interests in the RELP Properties or personal property of RELP, and (iii) each commitment entered into by RELP which may result in total payments or liability in excess of $100,000. Copies of the foregoing will be delivered or made available to AIP prior to July 31, 1997, will be listed on the RELP Disclosure Letter and will be materially true and correct when delivered or made available. RELP has not received any notice of a default that has not been cured under any of the documents described in clause (i) above or is in default respecting any payment obligations thereunder beyond any applicable grace periods. All options of RELP to purchase real property will be set forth on the RELP Disclosure Letter and such options and RELP's rights thereunder are in full force and effect. All joint venture agreements to which RELP is a party will be set forth on the RELP Disclosure Letter and RELP is not in default with respect to any obligations, which individually or in the aggregate are material, thereunder. 5.18. Development Rights. Set forth in the RELP Disclosure Letter will be a list of all material agreements entered into by RELP relating to the development, rehabilitation, capital improvement or construction of office buildings, industrial facilities or other real estate properties, which development or construction has not been substantially completed as of the date of this Agreement. Such agreements, true and correct copies of all of which will be delivered or made available to AIP prior to July 31, 1997, will be listed in the RELP Disclosure Letter, have not been modified and are valid and binding in accordance with their respective terms. 5.19. Convertible Securities. To RELP's actual knowledge, RELP has no outstanding options, warrants or other securities exercisable for, or convertible into, RELP Interests, the terms of which would require any anti- dilution adjustments by reason of the consummation of the transactions contemplated hereby. ARTICLE VI . REPRESENTATIONS AND WARRANTIES OF AIP AIP represents and warrants to RELP as set forth below. As contemplated below, an "AIP Disclosure Letter" will be delivered to RELP on or before August 11, 1997. The AIP Disclosure Letter shall provide the information or exceptions described below. The AIP Disclosure Letter shall be amended prior to Closing to cause such representations and warranties to be materially true and correct on the Closing Date, but AIP shall remain liable for any material breach of such representations and warranties reflected in such amendment only as provided in Section 9.5(d), below. 6.1. Existence; Good Standing; Authority; Compliance with Law. (a) AIP is a real estate investment trust duly organized and validly existing under the laws of the State of Texas. To AIP's actual knowledge, AIP is duly licensed or qualified to do business and is in good standing under the laws of any other state of the United States in which the character of the properties owned or leased by it therein or in which the transaction of its business makes such qualification necessary, except where the failure to be so qualified would not have a material adverse effect on the business, results 11 of operations or financial condition of AIP and its subsidiaries taken as a whole (an "AIP Material Adverse Effect"). AIP has all requisite power and authority to own, operate, lease and encumber its properties and carry on its business as now conducted. Each of AIP's Subsidiaries is a corporation, limited liability company or partnership duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, has the requisite power and authority to own its properties and to carry on its business as it is now being conducted, and is duly qualified to do business and is in good standing in each jurisdiction in which the ownership of its property or the conduct of its business requires such qualification, except for jurisdictions in which such failure to be so qualified or to be in good standing would not have an AIP Material Adverse Effect. (b) To AIP's actual acknowledge, neither AIP nor any AIP Subsidiary is in violation of any order of any court, governmental authority or arbitration board or tribunal, or any law, ordinance, governmental rule or regulation to which AIP or any AIP Subsidiary or any of their respective properties or assets is subject, where such violation would have an AIP Material Adverse Effect. AIP and its Subsidiaries have obtained all licenses, permits and other authorizations and have taken all actions required by applicable law or governmental regulations in connection with their business as now conducted, where the failure to obtain any such item or to take any such action would have an AIP Material Adverse Effect. Copies of AIP's and its Subsidiaries' Declaration of Trust, Articles of Incorporation, Bylaws, organizational documents and partnership and joint venture agreements have been or will be prior to July 31, 1997, delivered or made available to RELP and such documents will be listed in the AIP Disclosure Letter and were or will be true and correct when delivered or made available. For the purposes of the immediately preceding sentence, the term "Subsidiary"shall include the entities set forth in the AIP Disclosure Letter, which are all of AIP's Subsidiaries. 6.2. Authorization, Validity and Effect of Agreements. AIP has the requisite power and authority to enter into the transactions contemplated hereby and to execute and deliver this Agreement and all other documents, agreements and instruments related to the transactions contemplated by this Agreement to which it is a party (the "AIP Ancillary Agreements"). Subject only to the approval of the issuance of AIP Common Shares pursuant to the Merger contemplated hereby by the holders of two-thirds of the outstanding AIP Common Shares, present and voting thereon, the consummation by AIP of this Agreement, the AIP Ancillary Agreements and the transactions contemplated hereby have been duly authorized by all requisite action on the part of AIP. This Agreement constitutes, and the AIP Ancillary Agreements (when executed and delivered pursuant hereto for value received) will constitute, the valid and legally binding obligations of AIP enforceable against AIP in accordance with their respective terms, subject to Equitable Remedies. 6.3. Capitalization. On June 15, 1997, the authorized capital stock of AIP consists of 10,000,000 Common Shares. As of the date hereof, all 10,000,000 Common Shares are outstanding. AIP has no outstanding bonds, debentures, notes or other obligations (other than to Realco), the holders of which have the right to vote (or which are convertible into or exercisable for securities having the right to vote) with the shareholders of AIP on any matter. Except as set forth in the AIP Disclosure Letter, all such issued and outstanding of AIP Common Shares are duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights. Except as set forth in the AIP Disclosure Letter, there are not at the date of this Agreement any existing options, warrants, calls, 12 subscriptions, convertible securities, or other rights, agreements or commitments which obligate AIP or any of its Subsidiaries to issue, transfer or sell any shares or other equity interest of AIP or any of its Subsidiaries except under any employee incentive plan approved by AIP's shareholders. There are no agreements or understandings to which AIP is a party with respect to the voting of any AIP Common Shares or which restrict the transfer of any such shares, except in order to protect its REIT status. 6.4. Subsidiaries. Except as set forth in the AIP Disclosure Letter, AIP owns directly or indirectly each of the outstanding shares of capital stock or all of the partnership or other equity interests of each of AIP's Subsidiaries free and clear of all liens, pledges, security interests, claims or other encumbrances other than liens imposed by local law which are not material. 6.5. Other Interests. Except as will be disclosed in the AIP Disclosure Letter and except for interests in the AIP Subsidiaries, neither AIP nor any AIP Subsidiary owns directly or indirectly any interest or investment (whether equity or debt) in any corporation, partnership, joint venture, business, trust or entity (other than investments in short-term investment securities). 6.6. No Violation. Neither the execution and delivery by AIP of this Agreement nor the consummation by AIP of the transactions contemplated hereby in accordance with the terms hereof, will: (i) conflict with or result in a breach of any provisions of AIP's Declaration of Trust; (ii) violate, or conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination or in a right of termination or cancellation of, or accelerate the performance required by, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties of AIP or its Subsidiaries under, or result in being declared void, voidable or without further binding effect, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust or any license, franchise, permit, lease, contract, agreement or other instrument, commitment or obligation to which AIP or any of its Subsidiaries is a party, or by which AIP or any of its Subsidiaries or any of their properties is bound or affected, except for any of the foregoing matters which, individually or in the aggregate, would not have an AIP Material Adverse Effect; or (iii) other than the Regulatory Filings require any consent, approval or authorization of, or declaration, filing or registration with, any domestic governmental or regulatory authority, except where the failure to obtain such consent, approval or authorization of, or declaration, filing or registration with, any governmental or regulatory authority would not have an AIP Material Adverse Effect. 6.7. SEC Documents. (a) AIP has made available or will make available to RELP prior to July 31, 1997, the registration statements of AIP filed with the SEC in connection with public offerings of AIP securities since January 1, 1994 and all exhibits, amendments and supplements thereto (the "AIP Registration Statements"), and each registration statement, report, proxy statement or information statement and all exhibits thereto prepared by it or relating to its properties since the effective date of the latest AIP Registration Statement, each in the form (including exhibits and any amendments thereto) filed with the SEC (collectively, the "AIP Reports"). The AIP Reports, which were or will be filed with the SEC in a timely manner, constitute all forms, reports and documents required to be filed by AIP under the Securities Laws. 13 (b) To AIP's actual knowledge, as of their respective dates, the AIP Reports (i) complied as to form in all material respects with the applicable requirements of the Securities Laws, and (ii) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading. To AIP's actual acknowledge, each of the consolidated balance sheets of AIP included in or incorporated by reference into the AIP Reports (including the related notes and schedules) fairly presents the consolidated financial position of AIP and the AIP Subsidiaries as of its date and each of the consolidated statements of income, retained earnings and cash flows of AIP included in or incorporated by reference into the AIP Reports (including any related notes and schedules) fairly presents the results of operations, retained earnings or cash flows, as the case may be, of AIP and the AIP Subsidiaries for the periods set forth therein (subject, in the case of unaudited statements, to normal year-end audit adjustments which would not be material in amount or effect), in each case in accordance with generally accepted accounting principles consistently applied during the periods involved, except as may be noted therein and except, in the case of the unaudited statements, as permitted by the Securities Laws. (c) Except as and to the extent set forth on the consolidated balance sheet of AIP and its Subsidiaries at March 31, 1997, including all notes thereto, or as set forth in the AIP Reports, neither AIP nor any of the AIP Subsidiaries has any material liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) that would be required to be reflected on, or reserved against in, a balance sheet of AIP or in the notes thereto, prepared in accordance with generally accepted accounting principles consistently applied, except liabilities arising in the ordinary course of business since such date which would not have an AIP Material Adverse Effect. 6.8. Litigation. To AIP's actual knowledge, there are (i) no continuing orders, injunctions or decrees of any court, arbitrator or governmental authority to which AIP or any AIP Subsidiary is a party or by which any of its properties or assets are bound or, to which any of its directors, officers, or affiliates is a party or by which any of their properties or assets are bound, and (ii) except as will be set forth in the AIP Disclosure Letter, no actions, suits or proceedings pending against AIP or any AIP Subsidiary or, to the knowledge of AIP, against any of its Trust Managers, officers, or affiliates or, to the knowledge of AIP, threatened against AIP or any AIP Subsidiary or against any of its Trust Managers, officers, or affiliates, at law or in equity, or before or by any federal or state commission, board, bureau, agency or instrumentality, that in the case of clauses (i) or (ii) above are reasonably likely, individually or in the aggregate, to have an AIP Material Adverse Effect. 6.9. Absence of Certain Changes. Except as disclosed in the AIP Reports filed with the SEC prior to the date hereof, (i) AIP and its Subsidiaries have conducted their business only in the ordinary course of such business (which, for purposes of this section only, shall include all acquisitions of real estate properties and financing arrangements made in connection therewith); (ii) there has not been any AIP Material Adverse Effect; (iii) there has not been any declaration, setting aside or payment of any dividend or other distribution with respect to the AIP Common Shares; and (iv) there has not been any material change in AIP's accounting principles, practices or methods. 14 6.10. Taxes. (a) Except as may be set forth in the AIP Disclosure Letter, AIP and each of its Subsidiaries (i) has timely filed all federal, state and foreign tax returns including, without limitation, information returns and reports required to be filed by any of them for tax periods ended prior to the date of this Agreement or requests for extensions have been timely filed and any such request has been granted and has not expired and all such returns are absolute and complete in all material respects, (ii) has paid or accrued all taxes shown to be due and payable on such returns or which have become due and payable pursuant to any assessment, deficiency notice, 30-day letter or other notice received by it and (iii) has properly accrued all taxes for such periods subsequent to the periods covered by such returns. Neither AIP nor any of its Subsidiaries has received notice that the federal, state and local income and franchise tax returns of AIP or any such Subsidiary has been or will be examined by any taxing authority. Neither AIP nor any of its Subsidiaries has executed or filed with the IRS or any other taxing authority any agreement now in effect extending the period for assessment or collection of any income or other taxes. (b) Except as will be disclosed in the AIP Disclosure Letter, neither AIP nor any of its Subsidiaries is a party to any pending action or proceeding by any governmental authority for assessment or collection of taxes, and no claim for assessment or collection of taxes has been asserted against it. True, correct and complete copies of all federal, state and local income or franchise tax returns filed by AIP and each of its Subsidiaries and all communications relating thereto have been delivered to RELP or made available to representatives of RELP or will be so delivered or made available prior to July 31, 1997. AIP (i) has qualified to be taxed as a REIT pursuant to Sections 856 through 859 of the Code for its taxable years ended December 31, 1985 through 1996, inclusive (ii) has operated, and intends to continue to operate, in such a manner as to qualify to be taxed as a REIT pursuant to Sections 856 through 859 of the Code for its taxable year ended on the effective date of the Merger, and (iii) has not taken or omitted to take any action which could result in, and each of the executive officers of AIP, each acting in his respective capacity as such, has no actual knowledge of, a challenge to its status as a REIT. AIP represents that each of its Subsidiaries is a Qualified REIT Subsidiary as defined in Section 856 (i) of the Code. Neither AIP nor any of its Subsidiaries holds any asset (i) the disposition of which could be subject to rules similar to Section 1374 of the Code as a result of an election under IRS Notice 88-19 or (ii) that is subject to a consent filed pursuant to Section 341(f) of the Code and regulations thereunder. For purposes of this Section 6.10, "taxes" includes any interest, penalty or additional amount payable with respect to any tax. 6.11. Books and Records. (a) The books of account and other financial records of AIP and its Subsidiaries are in all material respects true, complete and correct, have been maintained in accordance with good business practices, and are accurately reflected in all material respects in the financial statements included in the AIP Reports. (b) The minute books and other records of AIP and its Subsidiaries contain in all material respects accurate records of all meetings and accurately reflect in all material respects all other corporate action of the shareholders and Trust Managers and any committees of the Board of Trust Managers of AIP and its Subsidiaries. 15 6.12. Properties. (a) AIP and its Subsidiaries own fee simple title to each of the real properties reflected on the most recent balance sheet of AIP included in the AIP Reports or as may be identified in the AIP Disclosure Letter (the "AIP Properties"), which are all of the real estate properties owned by them, free and clear of Encumbrances. To AIP's actual knowledge, the AIP Properties are not subject to any rights of way, written agreements, laws, ordinances and regulations affecting building use or occupancy, or reservations of an interest in title (collectively, "Property Restrictions"), except for (i) Encumbrances and Property Restrictions that will be set forth in the AIP Disclosure Letter, (ii) Property Restrictions imposed or promulgated by law or any governmental body or authority with respect to real property, including zoning regulations, provided they do not materially adversely affect the current use of the property, (iii) Encumbrances and Property Restrictions disclosed on existing title reports or surveys (in either case copies of which title reports and surveys have been or will be delivered or made available to RELP prior to July 31, 1997), and (iv) mechanics', carriers', workmen's, repairmen's liens and other Encumbrances, Property Restrictions and other limitations of any kind, if any, which have heretofore been bonded (and that will be listed in the AIP Disclosure Letter) or which individually or in the aggregate, do not exceed $100,000, do not materially detract from the value of or materially interfere with the present use of any of the AIP Properties subject thereto or affected thereby, and do not otherwise materially impair business operations conducted by AIP and its Subsidiaries and which have arisen or been incurred only in its construction activities or in the ordinary course of business. (b) Valid policies of title insurance have been issued insuring AIP's or any of its Subsidiaries' fee simple title to the AIP Properties, subject only to the matters disclosed above and as may be set forth in the AIP Disclosure Letter, and such policies are, at the date hereof, in full force and effect and no material claim has been made against any such policy. To AIP's actual knowledge, except as will be set forth in the AIP Disclosure Letter, (i) there is no certificate, permit or license from any governmental authority having jurisdiction over any of the AIP Properties or any agreement, easement or other right which is necessary to permit the lawful use and operation of the buildings and improvements on any of the AIP Properties or which is necessary to permit the lawful use and operation of all driveways, roads and other means of egress and ingress to and from any of the AIP Properties that has not been obtained and is not in full force and effect, or of any pending threat of modification or cancellation of any of same; (ii) neither AIP nor its Subsidiaries has received written notice of any material violation of any federal, state or municipal law, ordinance, order, regulation or requirement affecting any portion of any of the AIP Properties issued by any governmental authority; (iii) there are no structural defects relating to the AIP Properties and no AIP Properties whose building systems are not in working order in any material respect; and (iv) there is (A) no physical damage to any AIP Property in excess of $100,000 for which there is no insurance in effect covering the cost of the restoration, (B) no current renovation to any AIP Property the cost of which exceeds $100,000 and (C) no current restoration (excluding tenant improvements) of any AIP Property the cost of which exceeds $100,000. (c) Except as will be set forth in the AIP Disclosure Letter, AIP or its Subsidiaries have received no notice to the effect that and there are no (A) condemnation or rezoning proceedings that are pending or threatened with respect to any of the AIP Properties or (B) any zoning, building or similar laws, codes, ordinances, orders or regulations that are or will be violated by the continued maintenance, operation or use of any buildings or other improvements on any of the AIP Properties 16 or by the continued maintenance, operation or use of the parking areas in any material respect. All work to be performed, payments to be made and actions to be taken by AIP or its Subsidiaries prior to the date hereof pursuant to any agreement entered into with a governmental body or authority in connection with a site approval, zoning reclassification or other similar action relating to the AIP Properties (e.g., Local Improvement District, Road Improvement District, Environmental Mitigation) has been performed, paid or taken, as the case may be, and AIP is not aware of any planned or proposed work, payments or actions that may be required after the date hereof pursuant to such agreements, except as will be set forth in the AIP Disclosure Letter. 6.13. Environmental Matters. To the actual knowledge of AIP, none of AIP, any of its Subsidiaries or, any other person has caused or permitted (i) the unlawful presence of any Hazardous Materials on any of the AIP Properties, or (ii) any unlawful spills, releases, discharges or disposal of Hazardous Materials to have occurred or be presently occurring on or from the AIP Properties as a result of any construction on or operation and use of such properties, which presence or occurrence would, individually or in the aggregate, have an AIP Material Adverse Effect; and in connection with the construction on or operation and use of the AIP Properties, AIP and its Subsidiaries have not failed to comply, in any material respect, with any applicable local, state and federal environmental laws, regulations, ordinances and administrative and judicial orders relating to the generation, recycling, reuse, sale, storage, handling, transport and disposal of any Hazardous Materials. 6.14. Labor Matters. Neither AIP nor any of its Subsidiaries is a party to, or bound by, any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor union organization. There is no unfair labor practice or labor arbitration proceeding pending or, to the knowledge of the executive officers of AIP, threatened against AIP or its Subsidiaries relating to their business, except for any such proceeding which would not have an AIP Material Adverse Effect. To the knowledge of AIP, there are no organizational efforts with respect to the formation of a collective bargaining unit presently being made or threatened involving employees of AIP or any of its Subsidiaries. 6.15. No Brokers. Except for the fee payable to Prudential Securities Incorporated ("Prudential") as described in Section 6.16 below, AIP has not entered into any contract, arrangement or understanding with any person or firm which may result in the obligation of AIP or RELP to pay any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby. AIP is not aware of any claim for payment of any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby. 6.16. Opinion of Financial Advisor. AIP has retained Prudential to review the transaction contemplated by this Agreement and to issue an opinion as to the fairness to AIP, from a financial point of view, of the consideration to be paid by AIP pursuant to the Merger. 6.17. RELP Share Ownership. Except as may be set forth in the AIP Disclosure Letter, neither AIP nor any of its Subsidiaries owns any RELP Interests or other securities convertible into RELP interests. 17 6.18. AIP Common Shares. The issuance and delivery by AIP of AIP Common Shares in connection with the Merger and this Agreement have been duly and validly authorized by all necessary action on the part of AIP except for the approval of its shareholders contemplated by this Agreement. The AIP Common Shares to be issued in connection with the Merger and this Agreement, when issued in accordance with the terms of this Agreement, will be validly issued, fully paid and nonassessable, except that shareholders may be subject to further assessment with respect to certain claims for tort, contract, taxes, statutory liability and otherwise in some jurisdictions to the extent such claims are not satisfied by AIP. 6.19. Convertible Securities. AIP has no outstanding options, warrants or other securities exercisable for, or convertible into, shares of AIP Common Shares, the terms of which would require any anti-dilution adjustments by reason of the consummation of the transactions contemplated hereby, except the preemptive rights held by certain clients of Morgan Stanley Asset Management, Inc. and held by MS Real Estate Special Situations, Inc. and the convertible debt securities held by Realco. 6.20. Related Party Transactions. Set forth in the AIP Disclosure Letter will be a list of all arrangements, agreements and contracts entered into by AIP or any of its Subsidiaries with (i) any person who is an officer, Trust Manager or affiliate of AIP or any of its Subsidiaries, any relative of any of the foregoing or any entity of which any of the foregoing is an affiliate or (ii) any person who acquired AIP Common Shares in a private placement. The copies of such documents, all of which have been or will be delivered or made available to RELP prior to July 31, 1997, are or will be true, complete and correct when delivered or made available. 6.21. Contracts and Commitments. The AIP Disclosure Letter will set forth (i) all unsecured notes or other obligations of AIP and AIP Subsidiaries which individually may result in total payments in excess of $100,000, (ii) notes, debentures, bonds and other evidence of indebtedness which are secured or collateralized by mortgages, deeds of trust or other security interests in the AIP Properties or personal property of AIP and its Subsidiaries, and (iii) each commitment entered into by AIP or any of its Subsidiaries which individually may result in total payments or liability in excess of $100,000. Copies of the foregoing have been or will be delivered or made available to RELP prior to July 31, 1997, will be listed on the AIP Disclosure Letter and are or will be materially true and correct when delivered or made available. None of AIP or any of its Subsidiaries has received any notice of a default that has not been cured under any of the documents described in clause (i) or (ii) above or is in default respecting any payment obligations thereunder beyond any applicable grace periods. All options of AIP or any of its Subsidiaries to purchase real property will be set forth on the AIP Disclosure Letter and such options and AIP's or its Subsidiaries' rights thereunder are in full force and effect. All joint venture agreements to which AIP or any of its Subsidiaries is a party will be set forth on the AIP Disclosure Letter and AIP or its Subsidiaries are not in default with respect to any obligations, which individually or in the aggregate are material, thereunder. 6.22. Development Rights. Set forth in the AIP Disclosure Letter will be a list of all material agreements entered into by AIP or any of its Subsidiaries relating to the development, rehabilitation, capital improvement or construction of office buildings, industrial facilities or other 18 real estate properties which development or construction has not been substantially completed as of the date of this Agreement. Such agreements, true, complete and correct copies of all of which have been or will be delivered or made available to RELP prior to July 31, 1997, will be listed in the AIP Disclosure Letter. 6.23. Certain Payments Resulting From Transactions. The execution of, and performance of the transactions contemplated by, this Agreement will not (either alone or upon the occurrence of any additional or subsequent events) (i) constitute an event under any AIP Benefit Plan, policy, practice, agreement or other arrangement or any trust or loan (the "Employee Arrangements") that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any employee, director or consultant of AIP or any of its Subsidiaries unless such rights have been waived by any such person, or (ii) result in the triggering or imposition of any restrictions or limitations on the right of AIP or RELP to amend or terminate any Employee Arrangement and receive the full amount of any excess assets remaining or resulting from such amendment or termination, subject to applicable taxes. No payment or benefit which will be required to be made pursuant to the terms of any agreement, commitment or AIP Benefit Plan, as a result of the transactions contemplated by this Agreement, to any officer, director or employee of AIP or any of its Subsidiaries, will be characterized as an "excess parachute payment" within the meaning of Section 280G(b)(1) of the Code. ARTICLE VII. COVENANTS 7.1. Acquisition Proposals. Prior to the Effective Time, RELP and AIP each agree (i) that neither of them nor any of their Subsidiaries shall, and each of them shall direct and use its best efforts to cause its respective officers, General Partner, limited partners, Trust Managers, employees, agents, affiliates and representatives (including, without limitation, any investment banker, attorney or accountant retained by it or any of its Subsidiaries), as applicable, not to, initiate, solicit or encourage, directly or indirectly, any inquiries or the making or implementation of any proposal or offer (including, without limitation, any proposal or offer to its shareholders) with respect to a merger, acquisition, tender offer, exchange offer, consolidation or similar transaction involving, or any purchase of all or any significant portion of the assets or any equity securities (or any debt securities convertible into equity securities) of, such party or any of its Subsidiaries, other than the transactions contemplated by this Agreement (any such proposal or offer being hereinafter referred to as an "Acquisition Proposal") or engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, any person relating to an Acquisition Proposal, or otherwise facilitate any effort or attempt to make or implement an Acquisition Proposal; (ii) that it will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing and each will take the necessary steps to inform the individuals or entities referred to above of the obligations undertaken in this Section 7.1; and (iii) that it will notify the other party immediately if any such inquiries or proposals are received by, any such information is requested from, or any such negotiations or discussions are sought to be initiated or continued with, it; provided, however, that nothing contained in this Section 7.1 shall prohibit the Board of Directors of the General Partner of RELP (the "Board of Directors") or the Board of Trust Managers from (x) 19 furnishing information to or entering into discussions or negotiations with, any person or entity that makes an unsolicited bona fide Acquisition Proposal, if, and only to the extent that, (A) the Board of Directors or Board of Trust Managers, as applicable, determines in good faith that such action is required for it to comply with its fiduciary duties to limited partners or shareholders, as applicable, imposed by law as advised by counsel, (B) prior to furnishing such information to, or entering into discussions or negotiations with, such person or entity, such party provides written notice to the other party to this Agreement to the effect that it is furnishing information to, or entering into discussions with, such person or entity, and (C) subject to any confidentiality agreement with such person or entity (which such party determined in good faith was required to be executed in order for the Board of Directors or Board of Trust Managers, as applicable, to comply with its fiduciary duties to limited partners or shareholders, as applicable, imposed by law as advised by counsel), such party keeps the other party to this Agreement informed of the status (but not the terms) of any such discussions or negotiations; and (y) to the extent applicable, complying with Rule 14e-2 promulgated under the Exchange Act with regard to an Acquisition Proposal. Nothing in this Section 7.1 shall (i) permit any party to terminate this Agreement (except as specifically provided in Article IX hereof), (ii) permit any party to enter into any agreement with respect to an Acquisition Proposal during the term of this Agreement (it being agreed that during the term of this Agreement, no party shall enter into any agreement with any person that provides for, or in any way facilitates, an Acquisition Proposal (other than a confidentiality agreement in customary form)), or (iii) affect any other obligation of any party under this Agreement. 7.2. Conduct of Businesses. (i) Prior to the Effective Time, except as may be set forth in the RELP Disclosure Letter or the AIP Disclosure Letter or as contemplated by this Agreement, unless the other party has consented in writing thereto, AIP and RELP: (a) Shall use their reasonable efforts, and shall cause each of their respective Subsidiaries to use their reasonable efforts, to preserve intact their business organizations and goodwill and keep available the services of their respective officers and employees; (b) Shall confer on a regular basis with one or more representatives of the other to report operational matters of materiality and, subject to Section 7.1, any proposals to engage in material transactions; (c) Shall promptly notify the other of any material emergency or other material change in the condition (financial or otherwise) of the business, properties, assets or liabilities, or any material governmental complaints, investigations or hearings (or communications indicating that the same may be contemplated), or the breach in any material respect of any representation, warranty, covenant or agreement contained herein; (d) Shall not pay quarterly dividends or make distributions payable with respect to the AIP Common Shares and RELP Partnership Interests, respectively; and 20 (e) Shall promptly deliver to the other true and correct copies of any report, statement or schedule filed with the SEC subsequent to the date of this Agreement. (ii) Prior to the Effective Time, except as may be set forth in the RELP Disclosure Letter, unless AIP has consented (such consent not to be unreasonably withheld or delayed) in writing thereto, RELP: (a) Shall conduct its operations according to its usual, regular and ordinary course in substantially the same manner as heretofore conducted; (b) Shall not amend the RELP Organizational Documents; (c) Shall not (i) except pursuant to the exercise of options, warrants, conversion rights and other contractual rights existing on the date hereof and disclosed pursuant to this Agreement, issue any RELP Interests, make any distribution, effect any recapitalization or other similar transaction, (ii) grant, confer or award any option, warrant, conversion right or other right not existing on the date hereof to acquire any RELP Interest, (iii) increase any compensation or enter into or amend any employment agreement with any of its present or future officers or directors of the General Partner, or (iv) adopt any new employee benefit plan or amend any existing employee benefit plan in any material respect, except for changes which are less favorable to participants in such plans; (d) Shall not declare, set aside or make any distribution or payment with respect to any RELP Interest or directly or indirectly redeem, purchase or otherwise acquire any RELP Interest, or make any commitment for any such action; (e) Shall not sell or otherwise dispose of (i) any RELP Properties, or (ii) except in the ordinary course of business, any of its other assets which are material, individually or in the aggregate; (f) Shall not make any loans, advances or capital contributions to, or investments in, any other person; (g) Shall not pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business consistent with past practice or in accordance with their terms, of liabilities reflected or reserved against in, or contemplated by, the most recent consolidated financial statements (or the notes thereto) of RELP included in the RELP Reports or incurred in the ordinary course of business consistent with past practice; (h) Shall not enter into any commitment which individually may result in total payments or liability by or to it in excess of $250,000 in the case of any one commitment or in excess of $500,000 for all commitments; 21 (i) Shall not, and shall not permit any of its Subsidiaries to, enter into any commitment with any officer, director or affiliate of RELP or its General Partner except to the extent the same occur in the ordinary course of business consistent with past practice and would not have a RELP Material Adverse Effect; and (j) Shall not enter into or terminate any lease representing annual revenues of $100,000 or more. (iii) Prior to the Effective Time, except as may be set forth in the AIP Disclosure Letter, unless RELP has consented (such consent not to be unreasonably withheld or delayed) in writing thereto, AIP: (a) Shall, and shall cause each of its Subsidiaries to, conduct its operations according to their usual, regular and ordinary course in substantially the same manner as heretofore conducted; (b) Shall not amend its Declaration of Trust or Bylaws except as contemplated by this Agreement; (c) Shall not (i) except pursuant to the exercise of options, warrants, conversion rights and other contractual rights (including AIP's existing dividend reinvestment plan) existing on the date hereof and disclosed pursuant to this Agreement, issue any shares of its capital stock, effect any share split, reverse share split, share dividend, recapitalization or other similar transaction, (ii) grant, confer or award any option, warrant, conversion right or other right not existing on the date hereof to acquire any shares of its capital shares (except pursuant to any employee incentive plan approved by shareholders), (iii) amend any employment agreement with any of its present or future officers or Trust Managers, or (iv) adopt any new employee benefit plan (including any share option, share benefit or share purchase plan) except the employee incentive plan to be voted on at its shareholder meeting for the fiscal year ended December 31, 1995; (d) Shall not declare, set aside or pay any dividend or make any other distribution or payment with respect to any Common Shares or directly or indirectly redeem, purchase or otherwise acquire any Common Shares or capital stock of any of its Subsidiaries, or make any commitment for any such action; (e) Except as will be set forth in the AIP Disclosure Letter, shall not, and shall not permit any of its Subsidiaries to, sell or otherwise dispose of (i) any AIP Properties or any of its capital stock of or other interests in Subsidiaries or (ii) except in the ordinary course of business, any of its other assets which are material, individually or in the aggregate; 22 (f) Shall not, and shall not permit any of its Subsidiaries to, make any loans, advances or capital contributions to, or investments in, any other person other than in connection with the sale of properties; (g) Shall not, and shall not permit any of its Subsidiaries to, pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business consistent with past practice or in accordance with their terms, of liabilities reflected or reserved against in, or contemplated by, the most recent consolidated financial statements (or the notes thereto) of AIP included in the AIP Reports or incurred in the ordinary course of business consistent with past practice; (h) Shall not, and shall not permit any of its Subsidiaries to, enter into any commitment which individually may result in total payments or liability by or to it in excess of $500,000 in the case of any one commitment or in excess of $500,000 for all commitments; and (i) Shall not, and shall not permit any of its Subsidiaries to, enter into any commitment with any officer, Trust Manager or affiliate of AIP or any of its Subsidiaries, except as herein or in the AIP Disclosure Letter provided and except in the ordinary course of business. For purposes of this Section 7.2, any consent shall be deemed to be unreasonably delayed if notice of consent or withholding of consent is not received within three days of request. Further, if no response is received by the end of business on such third day, the party receiving the request shall be deemed to have consented to such action. 7.3 Meetings of Shareholders and Partners. Each of AIP and RELP will take all action necessary in accordance with applicable law and its organizational documents to convene a meeting of its shareholders or partners, as applicable, as promptly as practicable to consider and vote upon or otherwise to obtain the consent of its shareholders or partners, as applicable, to (i) in the case of AIP, approve this Agreement and the transactions contemplated hereby, and (ii) in the case of RELP, approve this Agreement and the transactions contemplated hereby. The Board of Trust Managers and the General Partner shall each recommend such approval and AIP and RELP shall each take all lawful action to solicit such approval, including, without limitation, timely mailing the Proxy Statement/Prospectus (as defined in Section 7.7); provided, however, that such recommendation or solicitation is subject to any action taken by, or upon authority of, the Board of Trust Managers or the General Partner, as the case may be, in the exercise of its good faith judgment as to its fiduciary duties to its shareholders or partners, as applicable, imposed by law as advised by counsel. AIP and RELP shall coordinate and cooperate with respect to the timing of such meetings and shall use their best efforts to hold such meetings on the same day. 7.4. Filings; Other Action. Subject to the terms and conditions herein provided, RELP and AIP shall: (a) use all reasonable efforts to cooperate with one another in (i) determining which filings are required to be made prior to the Effective Time with, and which consents, approvals, 23 permits or authorizations are required to be obtained prior to the Effective Time from governmental or regulatory authorities of the United States and the several states in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and (ii) timely making all such filings and timely seeking all such consents, approvals, permits or authorizations; (b) use all reasonable efforts to obtain in writing any consents required from third parties in form reasonably satisfactory to RELP and AIP necessary to effectuate the Merger; and (c) use all reasonable efforts to take, or cause to be taken, all other action and do, or cause to be done, all other things necessary, proper or appropriate to consummate and make effective the transactions contemplated by this Agreement. If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purpose of this Agreement, the proper officers and directors of AIP and the General Partner shall take all such necessary action. 7.5. Inspection of Records. From the date hereof to the Effective Time, each of RELP and AIP shall allow all designated officers, attorneys, accountants and other representatives of the other access at all reasonable times to the records and files, correspondence, audits and properties, as well as to all information relating to commitments, contracts, titles and financial position, or otherwise pertaining to the business and affairs of RELP and AIP and their respective Subsidiaries. 7.6. Publicity. RELP and AIP shall, subject to their respective legal obligations (including requirements of stock exchanges and other similar regulatory bodies), consult with each other, and use reasonable efforts to agree upon the text of any press release before issuing any such press release or otherwise making public statements with respect to the transactions contemplated hereby and in making any filings with any federal or state governmental or regulatory agency or with any national securities exchange with respect thereto. 7.7. Registration Statement. AIP and RELP shall cooperate and promptly prepare and AIP shall file with the SEC as soon as practicable a Registration Statement on Form S-4 (the "Form S-4") under the Securities Act, with respect to the AIP Common Shares issuable in the Merger, a portion of which Registration Statement shall also serve as the joint proxy statement with respect to the meetings of the shareholders and partners, respectively, of AIP and RELP in connection with the Merger (the "Proxy Statement/Prospectus"). The respective parties will cause the Proxy Statement/Prospectus and the Form S-4 to comply as to form in all material respects with the applicable provisions of the Securities Act, the Exchange Act and the rules and regulations promulgated thereunder. AIP shall use all reasonable efforts, and RELP will cooperate with AIP to have the Form S-4 declared effective by the SEC as promptly as practicable. AIP shall use its best efforts to obtain, prior to the effective date of the Form S-4, all necessary state securities law or "Blue Sky" permits or approvals required to carry out the transactions contemplated by this Agreement and will pay all expenses incident thereto. AIP agrees that the Proxy Statement/Prospectus and each amendment or supplement thereto, at the time of mailing thereof and at the time of the respective meetings of shareholders and partners, respectively, of AIP and RELP, or, in the case of the Form S-4 and each amendment or supplement thereto, at the time it is filed or becomes effective, will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the foregoing shall not apply to the extent that any such untrue statement of a material fact or omission to state a 24 material fact was made by AIP in reliance upon and in conformity with written information concerning RELP furnished to AIP by RELP specifically for use in the Proxy Statement/Prospectus. RELP agrees that the written information provided by it specifically for inclusion in the Proxy Statement/Prospectus and each amendment or supplement thereto, at the time of mailing thereof and at the time of the respective meetings of shareholders and partners, respectively, of AIP and RELP, or, in the case of written information provided by RELP specifically for inclusion in the Form S-4 or any amendments or supplement thereto, at the time it is filed or becomes effective, will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. AIP will advise RELP, promptly after it receives notice thereof, of the time when the Form S-4 has become effective or any supplement or amendment has been filed, the issuance of any stop order, the suspension of the qualification of the AIP Common Shares issuable in connection with the Merger for offering or sale in any jurisdiction, or any request by the SEC for amendment of the Proxy Statement/Prospectus or the Form S-4 or comments thereon and responses thereto or requests by the SEC for additional information. 7.8. Listing Application. AIP shall promptly prepare and submit to the NYSE a listing application covering the AIP Common Shares issuable in the Merger, and shall use its reasonable efforts to obtain, prior to the Effective Time, approval for the listing of such AIP Common Shares, subject to official notice of issuance. 7.9. Further Action. Each party hereto shall, subject to the fulfillment at or before the Effective Time of each of the conditions of performances set forth herein or the waiver thereof, perform such further acts and execute such documents as may reasonably be required to effect the Merger. 7.10. Expenses. Subject to Section 9.5, if the Merger is approved by RELP's partners, all transaction costs of the proposed consolidation shall be paid by AIP. If three of the four limited partnerships party to the Proxy Statement/Prospectus (the "Other RELPS") do not approve their proposed merger into AIP, Realco shall reimburse AIP for AIP's expenses relating to the proposed merger up to $250,000. If RELP and the Other RELPS approve their proposed merger into AIP, but the shareholders of AIP do not approve the proposer merger, and if Realco voted its AIP Common Shares in favor of such mergers, AIP will reimburse RELP and the Other RELPS for all expenses they incurred in connection with the proposed merger. Any expenses to be reimbursed hereunder shall include, but not be limited to, costs of fairness opinions, property appraisals, engineering and environmental reports, title policies, accounting fees, legal fees, printing and solicitation expenses. RELP will bear the costs of preparing its initial fairness opinion, with later reimbursement by AIP in the event the Merger is approved by RELP's partners. If the limited partners of RELP fail to approve the proposed Merger, then Realco will reimburse AIP for the RELP's expenses (to the extent paid by AIP) as follows: the actual cost of such RELP's fairness opinion, legal fees up to $80,000, and the actual cost or the Allocable Share (if the actual cost is not separately determined), of RELP's accounting fees, engineering and environmental reports, printing and solicitation expenses. Allocable Share, for this purpose, shall be the ratio of such RELP's net book value of assets at March 31, 1997 to the total net book value of all of the assets of RELP and the Other RELPS at March 31, 1997. 25 7.11. Indemnification. For a period of six years from and after the Effective Time, AIP shall indemnify the partners, or agents of RELP who at any time prior to the Effective Time were entitled to indemnification under the Agreement of Limited Partnership of RELP existing on the date hereof to the same extent as such partners or agents are entitled to indemnification under such Agreement of Limited Partnership in respect of actions or omissions occurring at or prior to the Effective Time (including, without limitation, the transactions contemplated by this Agreement). 7.12. Reorganization. From and after the date and until the Effective Time, neither AIP nor RELP nor any of their respective Subsidiaries or other affiliates shall (i) knowingly take any action, or knowingly fail to take any action, that would jeopardize qualification of the Merger as a reorganization within the meaning of Section 368(a)(1)(A) of the Code; or (ii) enter into any contract, agreement, commitment or arrangement with respect to the foregoing. Following the Effective Time, AIP shall use its best efforts to conduct its business in a manner that would not jeopardize the characterization of the Merger as a reorganization within the meaning of Section 368(a)(1)(A) of the Code. 7.13. Survival of RELP Obligations; Assumption of RELP Liabilities by AIP. All of the obligations of RELP that are outstanding at the Closing shall survive the Closing and shall not be merged therein. Upon the consummation of the Merger, such obligations shall be assumed, automatically, by AIP; provided, however, that such assumption shall not impose upon or expose AIP to any liability for which RELP was not liable, and provided, further, that AIP shall be entitled to the same defenses, offsets and counterclaims to which RELP would have been entitled, but for the Merger. 7.14. Third Party Consents. AIP and RELP each shall take all necessary corporate and other action and will use its commercially reasonable efforts to obtain the consents and applicable approvals from third parties that may be required to enable it to carry out the transactions contemplated by this Agreement. 7.15. Efforts to Fulfill Conditions. AIP and RELP each shall use commercially reasonable efforts to insure that all conditions precedent to its obligations hereunder are fulfilled at or prior to the Closing. 7.16. Representations, Warranties and Conditions Prior to Closing. AIP and RELP each shall use its commercially reasonable efforts to cause its representations and warranties contained in this Agreement to be true and correct on and as of the Closing Date in all material respects. Prior to Closing, AIP and RELP each shall promptly notify the other in writing (i) if any representation or warranty contained in this Agreement is discovered to be or becomes untrue or (ii) if AIP or RELP fails to perform or comply with any of its covenants or agreements contained in this Agreement or it is reasonably expected that it will be unable to perform or comply with any of its covenants or agreements contained in this Agreement. 7.17. Cooperation of the Parties. AIP and RELP each will cooperate with the other in supplying such information as may be reasonably requested by the other in connection with obtaining consents or approvals to the transactions contemplated by this Agreement. 26 7.18. Lock-Ups. The General Partner shall use its best efforts prior to the Closing to have each of its directors and officers and Realco execute a 90-day lock-up agreement in a form (reasonably acceptable to RELP) supplied to RELP by AIP. The executed agreements will be delivered to AIP at the Closing. AIP shall use its best efforts prior to the Closing to have each of its Trust Managers and officers execute a 90-day lock-up agreement, in a form (reasonably acceptable to AIP) supplied to AIP by RELP. The agreements will be delivered to RELP at the Closing. ARTICLE VIII. CONDITIONS 8.1. Conditions to Each Party's Obligations to Effect the Merger. The respective obligation of each party to effect the Merger shall be subject to the fulfillment at or prior to the Closing Date of the following conditions: (a) This Agreement and the transactions contemplated hereby shall have been approved in the manner required by the Declaration of Trust and Bylaws and Agreement of Limited Partnership of AIP and RELP, respectively, and by applicable law or by applicable regulations of any stock exchange or other regulatory body by the holders of the AIP Common Shares and RELP Interests entitled to vote thereon. (b) Neither of the parties hereto shall be subject to any order or injunction of a court of competent jurisdiction which prohibits the consummation of the transactions contemplated by this Agreement. In the event any such order or injunction shall have been issued, each party agrees to use its reasonable efforts to have any such injunction lifted. (c) The Form S-4 shall have become effective and all necessary state securities law or "Blue Sky" permits or approvals required to carry out the transactions contemplated by this Agreement shall have been obtained and no stop order with respect to any of the foregoing shall be in effect. (d) AIP shall have obtained the approval for the listing of the AIP Common Shares issuable in the Merger on the NYSE, subject to official notice of issuance. (e) All consents, authorizations, orders and approvals of (or filings or registrations with) any governmental commission, board, other regulatory body or third parties required in connection with the execution, delivery and performance of this Agreement shall have been obtained or made, except for filings in connection with the Merger and any other documents required to be filed after the Effective Time and except where the failure to have obtained or made any such consent, authorization, order, approval, filing or registration would not have a material adverse effect on the business, results of operations or financial condition of AIP and RELP (and their respective Subsidiaries), taken as a whole, following the Effective Time. 27 8.2 Conditions to Obligations of RELP to Effect the Merger. The obligation of RELP to effect the Merger shall be subject to the fulfillment at or prior to the Closing Date of the following conditions, unless waived by RELP: (a) AIP shall have performed its agreements contained in this Agreement required to be performed on or prior to the Closing Date and the representations and warranties of AIP contained in this Agreement shall be true and correct in all material respects as of the Closing Date as if made on the Closing Date, and RELP shall have received a certificate of the President or an Executive or Senior Vice President of AIP, dated the Closing Date, certifying to such effect. (b) RELP shall have received the opinion of Liddell, Sapp or another recognized law firm selected by AIP and approved by RELP, dated the Closing Date, to the effect that the Merger will be treated for Federal income tax purposes as a reorganization within the meaning of Section 368(a)(1)(A) of the Code, and that RELP and AIP will each be a party to that reorganization within the meaning of Section 368(b) of the Code. In rendering its opinion, said counsel shall be entitled to rely as to any factual matter upon certificates given by executive officers of RELP and AIP and shall be entitled to assume that the covenants of AIP pursuant to Section 7.15 shall be fully complied with. (c) From the date of the Agreement through the Effective Time, there shall not have occurred any change in the financial condition, business or operations of AIP and its Subsidiaries, taken as a whole, that would have or would be reasonably likely to have an AIP Material Adverse Effect other than any such change that affects both RELP and AIP in a substantially similar manner. (d) The opinion of Houlihan addressed to RELP that the Purchase Price is fair, from a financial point of view, to the partners of RELP shall not have been withdrawn or materially modified. (e) RELP shall have received the opinion of Liddell, Sapp or another recognized law firm selected by AIP and approved by RELP, dated the Closing Date, as to such customary matters as RELP may reasonably request, such opinion to be reasonably satisfactory to RELP. 8.3 Conditions to Obligation of AIP to Effect the Merger. The obligations of AIP to effect the Merger shall be subject to the fulfillment at or prior to the Closing Date of the following conditions, unless waived by AIP: (a) RELP shall have performed its agreements contained in this Agreement required to be performed on or prior to the Closing Date and the representations and warranties of RELP contained in this Agreement shall be true and correct in all material respects as of the Closing Date as if made on the Closing Date and AIP shall have received 28 a certificate of the Chief Executive Officer, President or an Executive Vice President of the General Partner dated the Closing Date, certifying to such effect. (b) AIP shall have received the opinion of Liddell, Sapp or another recognized law firm selected by RELP and approved by AIP, dated the Closing Date, to the effect that the consummation of the Merger will not result in AIP's failure to continue to satisfy the requirements for qualification as a REIT for federal income tax purposes. In rendering its opinion, said counsel shall be entitled to rely as to any factual matter upon certificates given by executive officers of AIP and RELP and shall be entitled to assume that the covenants of Section 7.15 shall be fully complied with. (c) From the date of this Agreement through the Effective Time, there shall not have occurred any change in the financial condition, business or operations of RELP and its Subsidiaries, taken as a whole, that would have or would be reasonably likely to have an RELP Material Adverse Effect, other than any such change that affects both RELP and AIP in a substantially similar manner. (d) Each person listed on Exhibit 8.3(d) attached hereto shall have delivered to AIP a written agreement to the effect that such person will not offer to sell, sell or otherwise dispose of any shares of AIP Common Stock issued in the Merger, except, in each case, pursuant to an effective registration statement or in compliance with Rule 145, as amended from time to time, or in a transaction which, in the opinion of legal counsel reasonably satisfactory to AIP, is exempt from the registration requirements of the Securities Act and that the certificates representing the AIP shares issued to him or her in the Merger may bear a legend to such effect. (e) The opinion of Prudential addressed to the Board of Trust Managers of AIP that the consideration to be paid by AIP pursuant to the Merger is fair, from a financial point of view, to AIP shall not have been withdrawn or materially modified. (f) AIP shall have received the opinion of Liddell, Sapp or another recognized law firm selected by RELP and approved by AIP, dated the Closing Date, as to such customary matters as AIP may reasonably request, such opinion to be reasonably satisfactory to AIP. (g) The limited partners of at least two of the Other RELPS shall have approved the merger of such limited partnership with and into AIP. ARTICLE IX. TERMINATION 9.1 Termination by Mutual Consent. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, before or after the approval of this Agreement by the partners of RELP or the shareholders of AIP or by the mutual written consent of AIP and RELP, with the prior approval of their respective Board of Trust Managers and General Partner. 29 9.2 Termination by Either AIP or RELP. This Agreement may be terminated and the Merger may be abandoned by action of the General Partner of RELP or the Board of Trust Managers of AIP if (i) the Merger shall not have been consummated by March 31, 1998, (ii) a meeting of RELP's partners shall have been duly convened and held and the approval of RELP's partners required by Section 8.1(a) shall not have been obtained at such meeting or at any adjournment thereof, (iii) a meeting of AIP's shareholders shall have been duly convened and held and the approval of AIP's shareholders required by Section 8.1(a) shall not have been obtained at such meeting or at any adjournment thereof, (iv) as a result of due diligence investigation by one of the parties hereto, it is determined in good faith by such party that certain facts or circumstances not previously known by such party constitute a Material Adverse Effect on the business, results of operations or financial condition of the other party, (v) a United States federal or state court of competent jurisdiction or United States federal or state governmental, regulatory or administrative agency or commission shall have issued an order, decree or ruling or taken any other action permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree, ruling or other action shall have become final and non- appealable, provided that the party seeking to terminate this Agreement pursuant to this clause (v) shall have used all reasonable efforts to remove such order, decree, ruling or injunction, or (vi) any of the conditions set forth in Article VIII shall not have been satisfied, and provided, in the case of a termination pursuant to clause (i) or (vi) above, that the terminating party shall not have breached in any material respect its obligations under this Agreement in any manner that shall have proximately contributed to the occurrence of the failure referred to in said clause. AIP and RELP each shall (i) deliver its Disclosure Letter to one another not later than 5:00 P.M., Central Time, August 11, 1997, and (ii) shall complete its due diligence investigations not later than 5:00 P.M., Central Time, on July 31, 1997 (the period from the date of this Agreement through July 31, 1997 being hereinafter referred to as the "Due Diligence Period"). Until the expiration of the Due Diligence Period, either party may terminate this Agreement without liability or penalty due to (i) the discovery of a fact or circumstance that reasonably could be expected to constitute a Material Adverse Effect on the business, results of operations or financial condition of the other party, or (ii) the party's failure to receive a written fairness opinion as described herein within seven business days from the date of execution of this Agreement. 9.3 Termination by RELP. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, before or after the adoption and approval by the partners of RELP referred to in Section 8.1(a), by action of the General Partner, if (i) in the exercise of its good faith judgment as to its fiduciary duties to its partners imposed by law, as advised by counsel, the General Partner determines that such termination is required by reason of a RELP Acquisition Proposal being made, (ii) the Board of Trust Managers withdraws, materially modifies or changes in a manner materially adverse to RELP its recommendations to AIP's shareholders of this Agreement or the Merger, other than as a result of the occurrence of an event that in the good faith judgment of the Board of Trust Managers has or is reasonably likely to have a RELP Material Adverse Effect, (iii) the Board of Trust Managers postpones the date scheduled for the meeting of shareholders of AIP to approve this Agreement and the transactions contemplated hereby beyond March 31, 1998 or fails to set a date for such meeting by such date, except with the written consent of RELP, (iv) there has been a breach by AIP of any representation or warranty contained in this Agreement which would have or would be reasonably likely to have an AIP Material Adverse Effect, 30 which breach is not curable by March 31,1998, or (v) there has been material breach of any of the covenants or agreements set forth in this Agreement on the part of AIP, which breach is not curable or, if curable, is not cured within 30 days after written notice of such breach is given by RELP to AIP, or (vi) the condition set forth in Section 8.3(g) is not satisfied.. 9.4 Termination by AIP. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, before or after the approval by the shareholders of AIP referred to in Section 8.1(a), by action of the Board of Trust Managers, if (i) in the exercise of its good faith judgment as to its fiduciary duties to its shareholders imposed by law, as advised by counsel, the Board of Trust Managers determines that such termination is required by reason of an AIP Acquisition Proposal being made, (ii) the General Partner withdraws, materially modifies or changes in a manner materially adverse to AIP its recommendation to RELP's partners of this Agreement or the Merger, other than as a result of the occurrence of an event that in the good faith judgment of the General Partner has or is reasonably likely to have an AIP Material Adverse Effect, (iii) the General Partner postpones the date scheduled for the meeting of partners of RELP to approve this Agreement and the transactions contemplated hereby beyond March 31, 1998, or fails to set a date for such meeting by such date, except with the written consent of AIP, (iv) there has been a breach by RELP of any representation or warranty contained in this Agreement which would have or would be reasonably likely to have a RELP Material Adverse Effect, which breach is not curable by March 31, 1998, or (v) there has been a material breach of any of the covenants or agreements set forth in this Agreement on the part of RELP, which breach is not curable or, if curable, is not cured within 30 days after written notice of such breach is given by AIP to RELP. 9.5. Effect of Termination and Abandonment. (a) If an election to terminate this Agreement is made pursuant to (i) Section 9.2(i) (except as a result of a default or breach hereunder by AIP) or Section 9.2(ii), and a RELP Acquisition Proposal relating to RELP shall have been made and, within one year from the date of such termination, RELP consummates a RELP Acquisition Proposal or enters into an agreement to consummate a RELP Acquisition Proposal which is subsequently consummated, or (ii) Section 9.3(i), RELP shall pay to AIP, provided that AIP was not in material breach of its obligations hereunder at the time of such termination, as liquidated damages and not as a penalty or forfeiture, an amount equal to the lesser of (m) $393,600 (the "Liquidated Damages Amount") and (n) the sum of (1) the maximum amount that can be paid to AIP without causing AIP to fail to meet the requirements of Sections 856(c)(2) and (3) of the Code determined as if the payment of such amount did not constitute income described in Sections 856(c)(2)(A)-(H) and 856(c)(3)(A)-(I) of the Code ("Qualifying Income"), as determined by AIP's certified public accountants, plus (2) an amount equal to the Liquidated Damages Amount less the amount payable under clause (1) above in the event AIP receives a letter from AIP's counsel indicating that AIP has received a ruling from the IRS to the effect that Liquidated Damages Amount payments constitute Qualifying Income. In addition to the Liquidated Damages Amount, AIP shall be entitled to receive from RELP (or its successor in interest) all documented out-of-pocket costs and expenses, up to a maximum of $196,800 in connection with this Agreement and the transactions contemplated hereby (the "AIP Expenses") incurred by AIP. The payments to which AIP is entitled under this Section 9.5(a) shall be its sole remedy with respect to the termination of the Agreement under the circumstances contemplated in this Section 9.5(a). 31 (b) If an election to terminate this Agreement is made pursuant to Section 9.2(i) (as a result of the condition set forth in Section 8.3(c) not being satisfied), RELP shall, provided that AIP was not in material breach of its obligations hereunder at the time of such termination, pay AIP for the AIP Expenses, up to a maximum of $196,800, although it shall not be required to pay the Liquidated Damages Amount, which payment of the AIP Expenses shall be AIP's sole remedy for termination of the Agreement in such circumstances. (c) If an election to terminate this Agreement is made pursuant to (i) Section 9.2(i) (except as a result of a default or breach hereunder by RELP) or Section 9.2(iii), and an AIP Acquisition Proposal relating to AIP shall have been made and, within one year from the date of such termination, AIP consummates an AIP Acquisition Proposal or enters into an agreement to consummate an AIP Acquisition Proposal which is subsequently consummated, or (ii) Section 9.4(i), AIP shall pay to RELP, provided that RELP was not in material breach of its obligations hereunder at the time of such termination, as liquidated damages and not as a penalty or forfeiture, an amount equal to the Liquidated Damages Amount. In addition to the Liquidated Damages Amount, RELP shall be entitled to receive from AIP (or its successor in interest) all documented out-of-pocket costs and expenses, up to a maximum of $196,800, in connection with this Agreement and the transactions contemplated hereby (the "RELP Expenses" and, together with the AIP Expenses, the "Expenses") incurred by RELP. The payments to which RELP is entitled under this Section 9.5(c) shall be its sole remedy with respect to the termination of the Agreement under the circumstances contemplated in this Section 9.5(c) (d) If an election to terminate this Agreement is made pursuant to Section 9.2(i) (as a result of the condition set forth in Section 8.2(c) not being satisfied), AIP shall, provided that RELP was not in material breach of its obligations hereunder at the time of such termination, pay RELP for the RELP Expenses, up to a maximum of $196,800, although it shall not be required to pay the Liquidated Damages Amount, which payment of the RELP Expenses shall be RELP's sole remedy for termination of the Agreement in such circumstances. (e) If this Agreement is terminated pursuant to Section 9.3(iv), Section 9.3(v), Section 9.4(iv), or Section 9.4(v), the non-terminating party shall, provided that the terminating party was not in material breach of its obligations hereunder at the time of such termination, pay the terminating party all Expenses, up to a maximum of $196,800, incurred by it and the non- terminating party shall remain liable to the terminating party for its breach. (f) If either party terminates this Agreement during the Due Diligence Period described in Section 9.2 above other than for a due diligence related reason, the non-terminating party shall be entitled to receive the Liquidated Damages Amount and the Expenses as provided in this Article IX. (g) RELP agrees to amend this Section 9.5 at the request of AIP in order to (x) maximize the portion of the Liquidated Damages Amount that may be distributed to AIP hereunder without causing AIP to fail to meet the requirements of Sections 856(c)(2) and (3) of the Code or (y) improve AIP's chances of securing a favorable ruling described in this Section 9.5, provided that no such amendment may result in any additional cost or expense to such other party. 32 (h) In the event of termination of this Agreement and the abandonment of the Merger pursuant to this Article IX, all obligations of the parties hereto shall terminate, except the obligations of the parties pursuant to this Section 9.5 and Section 7.10 and except for the provisions of Section 10.3, 10.4, 10.5, 10.6, 10.7, 10.9, 10.10, 10.13, 10.14 and 10.16. In the event AIP or RELP has received the Liquidated Damages Amount, such recipient shall not assert or pursue in any manner, directly or indirectly, any claim or cause of action against the other party hereto or any of its officers, Trust Managers, or General Partners, as applicable, based in whole or part upon its or their receipt, consideration, recommendation or approval of an Acquisition Proposal or the exercise by AIP of its right to termination under Section 9.4(i) or the exercise by RELP of its right to termination under Section 9.3(i). Notwithstanding the foregoing, in the event AIP or RELP is required to file suit to seek all or a portion of such Liquidated Damages Amount, and it ultimately succeeds, it shall be entitled to all expenses, including attorney's fees and expenses, which it has incurred in enforcing its right hereunder. (i) If either party willfully fails to perform its duties and obligations under this Agreement, the non-breaching party is additionally entitled to all remedies available to it at law or in equity and to recover its expenses from the breaching party. 9.6 Extension; Waiver. At any time prior to the Effective Time, any party hereto, by action taken by its Board of Trust Managers or General Partner, as applicable, may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (ii) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto and (iii) waive compliance with any of the agreements or conditions for the benefit of such party contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. ARTICLE X. GENERAL PROVISIONS 10.1. Nonsurvival of Representations, Warranties and Agreements. All representations, warranties and agreements in this Agreement or in any instrument delivered pursuant to this Agreement shall not survive the Merger; provided, however, that the agreements contained in Article IV, the last sentence of Section 7.4 and Sections 7.10, 7.11, 7.12, 7.13, 7.14, 7.15 and 7.16 and this Article X shall survive the Merger. 10.2. Notices. Any notice required to be given hereunder shall be in writing and shall be sent by facsimile transmission (confirmed by any of the methods that follow), courier service (with proof of service), hand delivery or certified or registered mail (return receipt requested and first-class postage prepaid) and addressed as follows: If to AIP: American Industrial Properties REIT 6220 N. Beltline Road, Suite 205 Irving, Texas 75063 Attention: Charles W. Wolcott, President Telecopy: (972) 550-6037 33 If to RELP: USAA Real Estate Company 8000 I-H 10 West, Suite 600 San Antonio, Texas 78230 Attention: Patrick Duncan, Senior Vice-President Telecopy: (210) 498-6214 or to such other address as any party shall specify by written notice so given, and such notice shall be deemed to have been delivered as of the date so delivered. 10.3. Assignment; Binding Effect; Benefit. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. Notwithstanding anything contained in this Agreement to the contrary, except as provided in the following sentence, nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective heirs, successors, executors, administrators and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. The provisions of Article IV and Sections 7.11, 7.12, 7.13, 7.14 and 7.15 (collectively, the "Third Party Provisions") shall benefit the persons identified therein, but the aggregate liability of AIP with respect thereto shall not exceed the amount specified in Article IX. 10.4. Entire Agreement. This Agreement, the Exhibits, the RELP Disclosure Letter, the AIP Disclosure Letter, the RELP Ancillary Agreements, the AIP Ancillary Agreements and any documents delivered by the parties in connection herewith constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings among the parties with respect thereto. No addition to or modification of any provision of this Agreement shall be binding upon any party hereto unless made in writing and signed by all parties hereto. 10.5. Confidentiality. (a) As used herein, "Confidential Material" means, with respect to either party hereto (the "Providing Party"), all information (written or oral) furnished (whether before or after the date hereof) by the Providing Party and its directors, officers, employees, affiliates or representatives of advisors, including counsel, lenders and financial advisors (collectively, the "Providing Party Representatives") to the other party hereto (the "Receiving Party") or such Receiving Party's directors, officers, employees, affiliates or representatives of advisors, including counsel, lenders and financial advisors or the Receiving Party's potential sources of financing for the transactions contemplated by this Agreement (collectively "the Receiving Party Representatives") and all analyses, compilations, forecasts and other studies or other documents prepared by the Providing Party or the Providing Party Representatives in connection with its or their review of the transactions contemplated by this Agreement which contain or reflect such information. The term "Confidential Material" does not include, however, information which (i) at the time of disclosure 34 or thereafter is generally available to and known by the public other than as a result of a disclosure directly or indirectly by the Receiving Party or the Receiving Party Representatives in violation of this Agreement, (ii) at the time of disclosure was available on a nonconfidential basis from a source other than the Providing Party or the Providing Party Representatives, providing that such source is not and was not bound by a confidentiality agreement with the Providing Party, (iii) was known by the Receiving Party prior to receiving the Confidential Material from the Providing Party or has been independently acquired or developed by the Receiving Party without violating any of its obligations under this Agreement, or (iv) is contained in any RELP Reports or AIP Reports or Proxy Statement/Prospectus. (b) Subject to paragraph (c) below or except as required by law, the Confidential Material will be kept confidential and will not, without the prior written consent of the Providing Party, be disclosed by the Receiving Party or its Representatives, in whole or in part and will not be used by the Receiving Party or its Representatives, directly or indirectly, for any purpose other than in connection with this Agreement, the Merger or the evaluating, negotiating or advising with respect to a transaction contemplated herein. Moreover, each Receiving Party agrees to transmit Confidential Material to its Representatives only if and to the extent that such Representatives need to know the Confidential Material for purposes of such transaction and are informed by such Receiving Party of the confidential nature of the Confidential Material and of the terms of this Section. (c) In the event that either Receiving Party, its Representatives or anyone to whom such Receiving Party or its Representatives supply the Confidential Material, are requested or required (by oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demand, any informal or formal investigation by any government or governmental agency or authority or otherwise in connection with legal processes) to disclose any Confidential Material, such Receiving Party agrees (i) to immediately notify the Providing Party of the existence, terms and circumstances surrounding such a request, (ii) to consult with the Providing Party on the advisability of taking legally available steps to resist or narrow such request and (iii) if disclosure of such information is required, to furnish only that portion of the Confidential Material which, in the opinion of such Receiving Party's counsel, such Receiving Party is legally compelled to disclose and to cooperate with any action by the Providing Party to obtain an appropriate protective order or otherwise reliable assurances that confidential treatment will be accorded the Confidential Material (it being agreed that the Providing Party shall reimburse the Receiving Party for all reasonable out-of- pocket expenses incurred by the Receiving Party in connection with such cooperation). (d) In the event of the termination of this Agreement in accordance with its terms, promptly upon request from either Providing Party, the Receiving Party shall, except to the extent prevented by law, redeliver to the Providing Party or destroy all tangible Confidential Material and will not retain any copies, extracts or other reproductions thereof in whole or in part. Any such destruction shall be certified in writing to the Providing Party by an authorized officer of the Receiving Party supervising the same. Notwithstanding the foregoing, each Receiving Party and one Representative designated by each Receiving Party shall be permitted to retain one permanent file copy of each document constituting Confidential Material. 35 (e) Each party hereto further agrees that if this Agreement is terminated in accordance with its terms, until one year from the date of termination, (1) it will not offer to hire or hire any person currently or formerly employed by the other party with whom such party has had contact prior hereto other than persons whose employment shall have been terminated by such other party prior to the date of such offer to hire or hiring and (2) neither it nor its affiliates shall directly or indirectly, (a) (w) solicit, seek or offer to effect or effect, (x) negotiate with or provide any information to the Board of Trust Managers or General Partner, as applicable, of the other party, or officer of the other party or any shareholder or partner, as applicable, of the other party with respect to, (y) make any statement or proposal, whether written or oral, either alone or in concert with others, to the Board of Trust Managers or Board of Directors of the General Partner of the other party, any director, Trust Manager or officer of the other party or any shareholder or partner of the other party or any other person with respect to, or (z) make any public announcement (except as required by law in respect of actions permitted hereby) or proposal or offer whatsoever (including, but not limited to, any "solicitation"of "proxies"as such terms are defined or used in Regulation 14A of the Exchange Act) with respect to, (i) any form of business combination or similar or other extraordinary transaction involving the other party or any affiliate thereof, including, without limitation, a merger, tender or exchange offer or liquidation of the other party's assets, (ii) any form of restructuring, recapitalization or similar transaction with respect to the other party or any affiliate thereto, (iii) any purchase of any securities or assets, or rights or options to acquire any securities or assets (through purchase, exchange, conversion or otherwise), of the other party or any affiliate thereof, (iv) any proposal to seek representation on the Board of Trust Managers or the Board of Directors of the General Partner, as applicable, or otherwise to seek to control or influence the management, Board of Trust Managers or the Board of Directors of the General Partner, as applicable, or policies of the other party or any affiliate thereof, (v) any request or proposal to waive, terminate or amend the provisions of this Section 10.5 or (vi) any proposal or other statement inconsistent with the terms of this Section 10.5 or (b) instigate, encourage, join, act in concert with or assist (including, but not limited to, providing or assisting in any way in the obtaining of financing for, or acting as a joint or co-bidder for the other party with) any third party to do any of the foregoing, unless and until such party has received the prior written invitation or approval of a majority of the Board of Trust Managers or the General Partner, as applicable, to do any of the foregoing; provided that without such invitation or approval, either party may at any time, on a confidential non-public basis, submit to the Chief Executive Officer of AIP or the General Partner, as applicable, a proposal to (a) amend any of the provisions of this Section 10.5(e) or (b) effect a business combination or other extraordinary transaction with the other party providing for the acquisition of all or substantially all of the assets or the securities of the other party, including, without limitation, a merger, tender offer or exchange offer. Each party hereto agrees that it will not agree with any third party to waive its rights under this Section 10.5. 10.6. Amendment. This Agreement may be amended by the parties hereto, by action taken by the Board of Trust Managers or the Board of Directors of the General Partner, as applicable, at any time before or after approval of this Agreement or any other matter presented in connection with the Merger by the shareholders of AIP and partners of RELP, but after any such approval, no amendment shall be made which by law requires the further approval of shareholders or partners, as applicable, without obtaining such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. 36 10.7. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas without regard to its rules of conflict of laws. Each of AIP and RELP hereby irrevocably and unconditionally consents to submit to the exclusive jurisdiction of the courts of the State of Texas and of the United States District Court, Northern District of Texas (the "Texas Courts") for any litigation arising out of or relating to this Agreement and the transactions contemplated hereby (and agrees not to commence any litigation relating thereto except in such courts), waives any objection to the laying of venue of any such litigation in the Texas Courts and agrees not to plead or claim in any Texas Court that such litigation brought therein has been brought in an inconvenient forum. 10.8. Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a number of copies hereof each signed by less than all, but together signed by all of the parties hereto. 10.9. Headings. Heading of the Articles and Sections of this Agreement are for the convenience of the parties only and shall be given no substantive or interpretive effect whatsoever. 10.10. Interpretation. In this Agreement, unless the context otherwise requires, words describing the singular number shall include the plural and vice versa, and words denoting any gender shall include all genders and words denoting natural persons shall include corporations and partnerships and vice versa. 10.11. Waivers. Except as provided in this Agreement, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained in this Agreement. The waiver by any party hereto of a breach of any provision hereunder shall not operate or be construed as a waiver of any prior or subsequent breach of the same or any other provision hereunder. 10.12. Incorporation. The RELP Disclosure Letter and the AIP Disclosure Letter and all Exhibits and Schedules attached hereto and thereto and referred to herein and therein are hereby incorporated herein and made a part hereof for all purposes as if fully set forth herein. 10.13. Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any current or future law, and if the rights or obligations of the parties under this Agreement would not be materially and adversely affected thereby, such provision shall be fully separable, and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part thereof, and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance therefrom. In lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as a part of this Agreement, a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as 37 may be possible, and the parties hereto request the court or any arbitrator to whom disputes relating to this Agreement are submitted to reform the otherwise illegal, invalid or unenforceable provision in accordance with this Section 10.13. 10.14. Enforcement of Agreement. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement was not performed in accordance with its specific terms or was otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any Texas Court, this being in addition to any other remedy to which they are entitled at law or in equity. 10.15. Subsidiaries. As used in this Agreement, the word "Subsidiary" when used with respect to any party means any corporation, partnership, joint venture, business trust or other entity, of which such party directly or indirectly owns or controls at least a majority of the securities or other interests having by their terms ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such corporation or other organization. 10.16. Non-Recourse. Neither the officers, Trust Managers nor shareholders of AIP shall be personally bound or have any personal liability hereunder. RELP shall look solely to the assets of AIP for satisfaction of any liability of AIP with respect to this Agreement and the Ancillary Agreements to which it is a party. RELP will not seek recourse or commence any action against any of the shareholders of AIP or any of their personal assets, and will not commence any action for money judgments against any of the Trust Managers or officers of AIP or seek recourse against any of their personal assets, for the performance or payment of any obligation of AIP hereunder or thereunder. The partners of RELP shall not be personally bound or have any personal liability hereunder. AIP shall look solely to the assets of RELP for satisfaction of any liability of RELP with respect to this Agreement and the Ancillary Agreements to which it is a party. AIP will not seek recourse or commence any action against any of the partners of RELP or any of their personal assets, and will not commence any action for money judgments against any of the directors or officers of RELP or seek recourse against any of their personal assets, for the performance or payment of any obligation of RELP hereunder or thereunder. 38 IN WITNESS WHEREOF, the parties have executed this Agreement and caused the same to be duly delivered on their behalf on the day and year first written above. AMERICAN INDUSTRIAL PROPERTIES REIT /s/ CHARLES W. WOLCOTT --------------------------------------------- Charles W. Wolcott, President and Chief Executive Officer USAA REAL ESTATE INCOME INVESTMENTS I, A CALIFORNIA LIMITED PARTNERSHIP By: USAA Investors I, Inc., Its General Partner /s/ T. PATRICK DUNCAN --------------------------------------------- T. Patrick Duncan Senior Vice President - Operations EX-10.2 3 AGREEMENT & PLAN OF MERGER 1 EXHIBIT 10.2 AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of June 30, 1997, is entered into by and between American Industrial Properties REIT, a Texas real estate investment trust ("AIP") , and USAA Real Estate Income Investments II Limited Partnership, a Texas limited partnership ("RELP"). USAA Real Estate Company, a Delaware corporation ("Realco"), is a party to this Agreement solely for the purpose of binding itself to the provisions of Section 7.10 hereunder. RECITALS A. The Board of Trust Managers of AIP (the "Board of Trust Managers") and the general partner of RELP have each determined that a business combination between AIP and RELP is in the best interests of their shareholders and partners, respectively, and presents an opportunity for their respective businesses to achieve strategic and financial benefits, and accordingly have agreed to effect a merger subject to the terms and conditions set forth herein. B. AIP and RELP desire to make certain representations, warranties and agreements in connection with the merger. NOW, THEREFORE, in consideration of the foregoing, and of the representations, warranties, covenants and agreements contained herein, AIP and RELP hereby agree as follows: ARTICLE I. THE MERGER 1.1. The Merger. Subject to the terms and conditions of this Agreement, at the Effective Time (as defined in Section 1.3), RELP shall be merged with and into AIP in accordance with this Agreement and the Plan of Merger (the "Plan of Merger") in substantially the form attached hereto as Exhibit A, with such completions, additions and substitutions conforming to the terms of this Agreement as the parties shall approve, such approval to be conclusively evidenced by their causing the Plan of Merger containing such completions, additions or substitutions to be filed in accordance with applicable laws; and the separate existence of RELP shall thereupon cease (the "Merger"). AIP shall be the surviving entity in the Merger (sometimes hereinafter referred to as the "Survivor"). The Merger shall have the effects specified in Section 23.60 of the Texas Real Estate Investment Trust Act, as amended (the "Texas REIT Act") and Section 2.11 of the Texas Revised Limited Partnership Act (the "LP Act"). 1.2. The Closing. Subject to the terms and conditions of this Agreement, the closing of the Merger (the "Closing") shall take place at the offices of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. ("Liddell, Sapp"), located at 2200 Ross Avenue, Suite 900, Dallas, Texas at 10:00 a.m., local time, within five business days after receipt of approval of the Merger by AIP's shareholders and RELP's partners, or at such other time, date or place as AIP and RELP may agree. The date on which the Closing occurs is hereinafter referred to as the "Closing Date." 2 1.3. Effective Time. If all the conditions to the Merger set forth in Article VIII shall have been fulfilled or waived (and this Agreement shall not have been terminated as provided in Article IX), AIP and RELP shall cause Articles of Merger satisfying the requirements of the Texas REIT Act and Articles of Merger satisfying the requirements of the LP Act to be properly executed, verified and delivered for filing in accordance with the LP Act and the Texas REIT Act on the Closing Date. The Merger shall become effective for accounting and all other purposes to the fullest extent permitted by law as of the close of business on December 31, 1997 (the "Effective Time") or such other date as may be agreed to by the parties. For state law purposes, the Merger shall become effective upon the issuance of a certificate of merger by the Secretary of State of the State of Texas in accordance with the LP Act or at such later time which AIP and RELP shall have agreed upon and designated in such filings in accordance with applicable law. ARTICLE II. DECLARATION OF TRUST AND BYLAWS OF THE SURVIVOR 2.1. Declaration of Trust. The Declaration of Trust of AIP in effect immediately prior to the Effective Time shall be the Declaration of Trust of the Survivor until duly amended in accordance with applicable law. 2.2. Bylaws. The Bylaws of AIP in effect immediately prior to the Effective Time shall be the Bylaws of the Survivor until duly amended in accordance with applicable law. ARTICLE III. TRUST MANAGERS AND OFFICERS OF AIP 3.1. Trust Managers. The Trust Managers of AIP immediately prior to the Effective Time shall be the Trust Managers of AIP as of the Effective Time. 3.2. Officers. The officers of AIP immediately prior to the Effective Time shall be the officers of AIP as of the Effective Time. ARTICLE IV. RELP PARTNERSHIP INTERESTS 4.1. Conversion of the RELP Partnership Interest. (a) At the Effective Time, each Common Share of Beneficial Interest of AIP outstanding immediately prior to the Effective Time shall remain outstanding and shall represent one Common Share of Beneficial Interest of AIP. (b) At the Effective Time, the general and limited partnership interests of RELP (each a "RELP Interest"), issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of holder thereof, be converted into the right to receive Common Shares of Beneficial Interest, $0.10 par value per share (the "AIP Common Shares"), of AIP. The aggregate number of AIP Common Shares to be issued to the RELP partners in connection with the Merger shall be equal to $10,200,000 (the "Purchase Price") divided by the Share Price (the "Total Shares"). If RELP repays any mortgage indebtedness existing on the date hereof during the period from the date hereof to and including the Closing Date, the Purchase Price shall be appropriately adjusted. The term "Share Price" shall mean $2.625. The number of AIP 3 Common Shares to be received by a partner shall be equal to the Total Shares multiplied by such partner's percentage interest in RELP plus each limited partner's pro rata portion of the general partnership interest of the RELP's general partner. (c) As a result of the Merger and without any action on the part of the holder thereof, at the Effective Time, all RELP Interests shall cease to be outstanding and shall be canceled and retired, and each holder of a RELP Interest shall thereafter cease to have any rights with respect to such RELP Interest, except the right to receive, without interest, the AIP Common Shares and cash for fractional shares of AIP Common Shares in accordance with Sections 4.1(b) and 4.2(e). 4.2. Exchange of RELP Interests. (a) As of the Effective Time, AIP shall deposit, or shall cause to be deposited, with an exchange agent selected by AIP, which shall be AIP's Transfer Agent or such other party reasonably satisfactory to RELP (the "Exchange Agent"), for the benefit of the holders of RELP Interests, for exchange in accordance with this Article IV, certificates representing the Total Shares and the cash in lieu of fractional shares (such cash and certificates for the Total Shares together with any dividends or distributions with respect thereto, being hereinafter referred to as the "Exchange Fund") to be issued pursuant to Section 4.1 and paid pursuant to this Section 4.2 in exchange for outstanding RELP Interests. (b) Promptly after the Effective Time, AIP shall cause the Exchange Agent to mail to each holder of record of a RELP Interest (x) a certificate representing the number of whole shares of AIP Common Shares and (y) a check representing the amount of cash in lieu of fractional shares, if any, and unpaid dividends and distributions, if any, which such holder has the right to receive in respect of the RELP Interest surrendered pursuant to the provisions of this Article IV, after giving effect to any required withholding tax. No interest will be paid or accrued on the cash in lieu of fractional shares and unpaid dividends and distributions, if any, payable to holders of RELP Interests. In the event of a transfer of ownership of RELP Interests which is not registered in the transfer records of RELP, a certificate representing the proper number of AIP Common Shares, together with a check for the cash to be paid in lieu of fractional shares, may be issued to such a transferee if such holder presents to the Exchange Agent, all documents required to evidence and effect such transfer and to evidence that any applicable transfer taxes have been paid. (c) At and after the Effective Time, there shall be no transfers on the transfer books of RELP of RELP Interests which were outstanding immediately prior to the Effective Time. (d) No fractional AIP Common Shares shall be issued pursuant hereto. In lieu of the issuance of any fractional AIP Common Shares pursuant to Section 4.1(b), cash adjustments will be paid to holders in respect of any fractional AIP Common Shares that would otherwise be issuable, and the amount of such cash adjustment shall be equal to such fractional proportion of the Share Price. (e) Any portion of the Exchange Fund (including the proceeds of any investments thereof and any AIP Common Shares) that remains unclaimed by the former partners of RELP one year after the Effective Time shall be delivered to AIP. Any former partners of RELP who have not theretofore complied with this Article IV shall thereafter look only to AIP for delivery of their AIP Common 4 Shares, and payment of cash in lieu of fractional shares and unpaid dividends and distributions on the AIP Common Shares deliverable in respect of each RELP Interest such partners hold as determined pursuant to this Agreement, in each case, without any interest thereon. (f) None of AIP, RELP, the Exchange Agent or any other person shall be liable to any former holder of RELP Interests for any amount properly delivered to a public official pursuant to applicable abandoned property, escheat or similar laws. ARTICLE V. REPRESENTATIONS AND WARRANTIES OF RELP RELP represents and warrants to AIP as set forth below. As contemplated below, a "RELP Disclosure Letter" will be delivered to AIP on or before August 11, 1997. The RELP Disclosure Letter shall provide the information or exceptions described below and shall list all of the assets of the RELP that will not be transferred in connection with the Merger. The RELP Disclosure Letter shall be amended prior to Closing to cause such representations and warranties to be materially true and correct on the Closing Date, but RELP shall remain liable for any material breach of such representations and warranties reflected in such amendment only as provided in Section 9.5(d), below. 5.1. Existence; Good Standing; Authority; Compliance with Law. (a) RELP is a limited partnership, duly formed, validly existing and in good standing under the laws of the State of Texas. To its actual knowledge, RELP is duly licensed or qualified to do business as a foreign limited partnership and is in good standing under the laws of any other state of the United States in which the character of the properties owned or leased by it therein or in which the transaction of its business makes such qualification necessary, except where the failure to be so qualified would not have a material adverse effect on the business, results of operations or financial condition of RELP (a "RELP Material Adverse Effect"). RELP has all requisite power and authority to own, operate, lease and encumber its properties and carry on its business as now conducted. (b) To the RELP's actual knowledge, it is not in violation of any order of any court, governmental authority or arbitration board or tribunal, or any law, ordinance, governmental rule or regulation to which RELP or any of its properties or assets is subject, where such violation would have a RELP Material Adverse Effect. RELP has obtained all licenses, permits and other authorizations and has taken all actions required by applicable law or governmental regulations in connection with its business as now conducted, where the failure to obtain any such item or to take any such action would have a RELP Material Adverse Effect. A copy of RELP's Agreement of Limited Partnership and Certificate of Limited Partnership (collectively, the "RELP Organizational Documents") have been delivered or made available to AIP and its counsel and such documents will be listed in the RELP Disclosure Letter and were or will be true and correct when delivered or made available. 5.2. Authorization, Validity and Effect of Agreements. RELP has the requisite power and authority to enter into the transactions contemplated hereby and to execute and deliver this Agreement and all other documents, agreements and instruments related to the transactions 5 contemplated by this Agreement (the "RELP Ancillary Agreements"). Subject only to the approval of this Agreement and the transactions contemplated hereby in accordance with the Agreement of Limited Partnership of the RELP, the consummation by RELP of this Agreement, the RELP Ancillary Agreements and the transactions contemplated hereby have been duly authorized by all requisite action on the part of RELP. In reliance upon the legal opinion described in Section 8.2(e), RELP believes this Agreement constitutes, and the RELP Ancillary Agreements (when executed and delivered pursuant hereto for value received) will constitute, the valid and legally binding obligations of RELP, enforceable against RELP in accordance with their respective terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights and general principles of equity (collectively, "Equitable Remedies"). 5.3. Future Issuances. To RELP's actual knowledge, there are not at the date of this Agreement any existing options, warrants, calls, subscriptions, convertible securities, or other rights, agreements or commitments which obligate RELP to issue, transfer or sell any RELP Interests. After the Effective Time, AIP will have no obligation to issue, transfer or sell any RELP Interest. 5.4. Other Interests. Except as set forth in the RELP Disclosure Letter, RELP does not own directly or indirectly any interest or investment (whether equity or debt) in any corporation, partnership, joint venture, business, trust or entity (other than investments in short-term investment securities). 5.5. No Violation. To RELP's actual knowledge, neither the execution and delivery by RELP of this Agreement nor the consummation by RELP of the transactions contemplated hereby in accordance with the terms hereof, will: (i) conflict with or result in a breach of any provisions of the Agreement of Limited Partnership of RELP; (ii) except as contemplated by the RELP Ancillary Agreements or as will be set forth in the RELP Disclosure Letter, violate, or conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination or in a right of termination or cancellation of, or accelerate the performance required by, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties of RELP under, or result in being declared void, voidable or without further binding effect, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust or any license, franchise, permit, lease, contract, agreement or other instrument, commitment or obligation to which RELP is a party, or by which RELP or any of its properties is bound or affected, except for any of the foregoing matters which, individually or in the aggregate, would not have a RELP Material Adverse Effect; or (iii) other than the filings provided for in Article I, any filings required under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Securities Act or applicable state securities and "Blue Sky" laws (collectively, the "Regulatory Filings"), require any consent, approval or authorization of, or declaration, filing or registration with, any domestic governmental or regulatory authority, except where the failure to obtain any such consent, approval or authorization of, or declaration, filing or registration with, any governmental or regulatory authority would not have an RELP Material Adverse Effect. 5.6. SEC Documents. (a) RELP has made available or will make available to AIP prior to July 31, 1997, each registration statement, report, proxy statement or information statement and 6 all exhibits thereto prepared by it or relating to its properties (including registration statements covering mortgage pass-through certificates) since January 1, 1994, each in the form (including exhibits and any amendments thereto) filed with the SEC (collectively, the "RELP Reports"). The RELP Reports, which were or will be filed with the SEC in a timely manner, constitute all forms, reports and documents required to be filed by RELP under the Securities Act of 1933, as amended (the "Securities Act"), the Exchange Act and the rules and regulations promulgated thereunder (collectively the "Securities Laws") for the periods stated above. (b) To the RELP's actual knowledge, as of their respective dates, the RELP Reports (i) complied as to form in all material respects with the applicable requirements of the Securities Laws and (ii) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading. To the RELP's actual knowledge, each of the balance sheets of RELP included in or incorporated by reference into the RELP Reports (including the related notes and schedules) fairly presents the financial position of RELP as of its date and each of the consolidated statements of income, retained earnings and cash flows of RELP included in or incorporated by reference into the RELP Reports (including any related notes and schedules) fairly presents the results of operations, retained earnings and cash flows, as the case may be, of RELP for the periods set forth therein (subject, in the case of unaudited statements, to normal year-end audit adjustments which would not be material in amount or effect), in each case in accordance with generally accepted accounting principles consistently applied during the periods involved, except as may be noted therein and except, in the case of the unaudited statements, as permitted by the Securities Laws. (c) Except as and to the extent set forth on the balance sheet of RELP at March 31, 1997, including all notes thereto, or as set forth in the RELP Reports, RELP has no material liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) that would be required to be reflected on, or reserved against in, a balance sheet of RELP or in the notes thereto, prepared in accordance with generally accepted accounting principles consistently applied, except liabilities arising in the ordinary course of business since such date which would not have a RELP Material Adverse Effect. 5.7. Litigation. To the RELP's actual knowledge, there are (i) no continuing orders, injunctions or decrees of any court, arbitrator or governmental authority to which RELP is a party or by which any of its properties or assets are bound or to which USAA Investors II, Inc. (the "General Partner") or the General Partner's, directors, officers, or affiliates is a party or by which any of their properties or assets are bound, and (ii) except as will be set forth in the RELP Disclosure Letter, no actions, suits or proceedings pending against RELP or against the General Partner or the General Partner's directors, officers or affiliates or, to the knowledge of the General Partner, threatened against RELP or against the General Partner or the General Partner's directors, officers or affiliates, at law or in equity, or before or by any federal or state commission, board, bureau, agency or instrumentality, that in the case of clauses (i) or (ii) above are reasonably likely, individually or in the aggregate, to have a RELP Material Adverse Effect. 7 5.8. Absence of Certain Changes. Except as disclosed in the RELP Reports filed prior to the date hereof, since March 31, 1997, (i) RELP conducted its business only in the ordinary course of such business (which for purposes of this section only, shall include all acquisitions of real estate properties and financing arrangements made in connection therewith or otherwise will be set forth in the RELP Disclosure Letter); (ii) there has not been any RELP Material Adverse Effect; (iii) there has not been any distribution, setting aside or payment of any distribution with respect to any RELP Interest, and (iv) there has not been any material change in RELP's accounting principles, practices or methods. 5.9. Taxes. (a) Except as may be set forth in the RELP Disclosure Letter, RELP (i) has timely filed all federal, state and foreign tax returns including, without limitation, information returns and reports required to be filed by it for tax periods ended prior to the date of this Agreement or requests for extensions have been timely filed and any such request has been granted and has not expired and all such returns are accurate and complete in all material respects, (ii) has paid or accrued all taxes shown to be due and payable on such returns or which have become due and payable pursuant to any assessment, deficiency notice, 30-day letter or other notice received by it and (iii) has properly accrued all taxes for such periods and periods subsequent to the periods covered by such returns. RELP has not received notice that the federal, state and local income and franchise tax returns of RELP has been or will be examined by any taxing authority. RELP has not executed or filed with the Internal Revenue Service (the "IRS") or any other taxing authority any agreement now in effect extending the period for assessment or collection of any income or other taxes. (b) Except as may be set forth in the RELP Disclosure Letter, RELP is not a party to any pending action or proceeding by any governmental authority for assessment or collection of taxes, and no claim for assessment or collection of taxes has been asserted against it. True, correct and complete copies of all federal, state and local income or franchise tax returns filed by RELP since January 1, 1991 and all communications relating thereto have been delivered to AIP or made available to representatives of AIP or will be so delivered or made available prior to July 31, 1997. RELP does not hold any asset (i) the disposition of which could be subject to rules similar to Section 1374 of the Internal Revenue Code of 1986, as amended (the "Code") as a result of an election under IRS Notice 88-19 or (ii) that is subject to a consent filed pursuant to Section 341(f) of the Code and regulations thereunder. For purposes of this Section 5.9, "taxes" includes any interest, penalty or additional amount payable with respect to any tax. 5.10. Books and Records. The books of account and other financial records of RELP are in all material respects true, complete and correct, have been maintained in accordance with good business practices, and are accurately reflected in all material respects in the financial statements included in the RELP Reports. 5.11. Properties. (a) RELP owns fee simple title to each of the real properties reflected on the most recent balance sheet of RELP included in the RELP Reports or as may be identified in the RELP Disclosure Letter (the "RELP Properties"), which are all of the real estate properties owned by it, free and clear of liens, mortgages or deeds of trust, claims against title, charges which are liens or security interests ("Encumbrances") except as will be noted in the RELP Disclosure 8 Letter. To RELP's actual knowledge, the RELP Properties are not subject to any rights of way, written agreements, laws, ordinances and regulations affecting building use or occupancy, or reservations of an interest in title (collectively, "Property Restrictions"), except for (i) Encumbrances and Property Restrictions that will be set forth in the RELP Disclosure Letter, (ii) Property Restrictions imposed or promulgated by law or any governmental body or authority with respect to real property, including zoning regulations, provided they do not materially adversely affect the current use of the property, (iii) Encumbrances and Property Restrictions disclosed on existing title reports or current surveys (in either case copies of which title reports and surveys have been or will be delivered or made available to AIP July 31, 1997), (iv) mechanics', carriers', workmen's, repairmen's liens and other Encumbrances, Property Restrictions and other limitations of any kind, if any, which have heretofore been bonded (and that will be listed in the RELP Disclosure Letter) or which individually or in the aggregate do not exceed $100,000, do not materially detract from the value of or materially interfere with the present use of any of the RELP Properties subject thereto or affected thereby, and do not otherwise materially impair business operations conducted by RELP and which have arisen or been incurred only in its construction activities or in the ordinary course of business. (b) Valid policies of title insurance have been issued insuring either (a) RELP's fee simple title to the RELP Properties or (b) first mortgage liens thereon, subject only to the matters disclosed above and as may be set forth in the RELP Disclosure Letter, and such policies are, at the date hereof, in full force and effect and no claim has been made against any such policy. To RELP's actual knowledge, except as will be set forth in the RELP Disclosure Letter: (i) there is no certificate, permit or license from any governmental authority having jurisdiction over any of the RELP Properties or any agreement, easement or other right which is necessary to permit the lawful use and operation of the buildings and improvements on any of the RELP Properties or which is necessary to permit the lawful use and operation of all driveways, roads and other means of egress and ingress to and from any of the RELP Properties that has not been obtained and is not in full force and effect, or of any pending threat of modification or cancellation of any of same; (ii) RELP has not received written notice of any material violation of any federal, state or municipal law, ordinance, order, regulation or requirement affecting any portion of any of the RELP Properties issued by any governmental authority; (iii) there are no structural defects relating to the RELP Properties and no RELP Properties whose building systems are not in working order in any material respect; and (iv) there is (A) no physical damage to any RELP Property in excess of $100,000 for which there is no insurance in effect covering the cost of the restoration, (B) no current renovation to any RELP Property the cost of which exceeds $100,000 and (C) no current restoration (excluding tenant improvements) of any RELP Property, the cost of which exceeds $100,000. (c) Except as will be set forth in the RELP Disclosure Letter, RELP has not received notice to the effect that and there are no (A) condemnation or rezoning proceedings that are pending or threatened with respect to any of the RELP Properties or (B) zoning, building or similar laws, codes, ordinances, orders or regulations that are or will be violated by the continued maintenance, operation or use of any buildings or other improvements on any of the RELP Properties or by the continued maintenance, operation or use of the parking areas. All work to be performed, payments to be made and actions to be taken by RELP prior to the date hereof pursuant to any agreement entered into with a governmental body or authority in connection with a site approval, zoning 9 reclassification or other similar action relating to the RELP Properties (e.g., Local Improvement District, Road Improvement District, Environmental Mitigation) has been performed, paid or taken, as the case may be, and RELP is not aware of any planned or proposed work, payments or actions that may be required after the date hereof pursuant to such agreements, except as will be set forth in the RELP Disclosure Letter. 5.12. Environmental Matters. To RELP's actual knowledge, RELP has not caused (i) the unlawful presence of any hazardous substances, hazardous materials, toxic substances or waste materials (collectively, "Hazardous Materials") on any of the RELP Properties, or (ii) any unlawful spills, releases, discharges or disposal of Hazardous Materials to have occurred or be presently occurring on or from the RELP Properties as a result of any construction on or operation and use of such properties, which presence or occurrence would, individually or in the aggregate, have a RELP Material Adverse Effect; and in connection with the construction on or operation and use of the RELP Properties, RELP has not failed to comply, in any material respect, with any applicable local, state and federal environmental laws, regulations, ordinances and administrative and judicial orders relating to the generation, recycling, reuse, sale, storage, handling, transport and disposal of any Hazardous Materials. 5.13. Labor Matters. RELP is not a party to, or bound by, any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor union organization. There is no unfair labor practice or labor arbitration proceeding pending or, to the knowledge of the General Partner, threatened against RELP relating to its business, except for any such proceeding which would not have a RELP Material Adverse Effect. To the knowledge of the General Partner, there are no organizational efforts with respect to the formation of a collective bargaining unit presently being made or threatened involving employees of RELP or any of its Subsidiaries. 5.14. No Brokers. Except the fee that is to be paid to Houlihan Lokey Howard & Zukin ("Houlihan") by RELP as described in Section 5.15 below, RELP has not entered into any contract, arrangement or understanding with any person or firm which may result in the obligation of RELP or AIP to pay any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby. RELP is not aware of any claim for payment of any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby. 5.15. Opinion of Financial Advisor. RELP has retained Houlihan to review the transaction contemplated by this Agreement and to issue an opinion to the effect that, as of the date of such opinion, the Purchase Price is fair to the holders of RELP Interests from a financial point of view. 5.16. Related Party Transactions. Except as set forth in the RELP Disclosure Letter, there are no arrangements, agreements or contracts entered into by RELP with (i) any consultant, (ii) any person who is an officer, director or affiliate of RELP or its General Partner, any relative of any of the foregoing or any entity of which any of the foregoing is an affiliate, or (iii) any person who acquired RELP Interests in a private placement. 10 5.17. Contracts and Commitments. The RELP Disclosure Letter will set forth (i) all unsecured notes or other obligations of RELP which individually may result in total payments in excess of $100,000, (ii) all notes, debentures, bonds and other evidence of indebtedness which are secured or collateralized by mortgages, deeds of trust or other security interests in the RELP Properties or personal property of RELP, and (iii) each commitment entered into by RELP which may result in total payments or liability in excess of $100,000. Copies of the foregoing will be delivered or made available to AIP prior to July 31, 1997, will be listed on the RELP Disclosure Letter and will be materially true and correct when delivered or made available. RELP has not received any notice of a default that has not been cured under any of the documents described in clause (i) above or is in default respecting any payment obligations thereunder beyond any applicable grace periods. All options of RELP to purchase real property will be set forth on the RELP Disclosure Letter and such options and RELP's rights thereunder are in full force and effect. All joint venture agreements to which RELP is a party will be set forth on the RELP Disclosure Letter and RELP is not in default with respect to any obligations, which individually or in the aggregate are material, thereunder. 5.18. Development Rights. Set forth in the RELP Disclosure Letter will be a list of all material agreements entered into by RELP relating to the development, rehabilitation, capital improvement or construction of office buildings, industrial facilities or other real estate properties, which development or construction has not been substantially completed as of the date of this Agreement. Such agreements, true and correct copies of all of which will be delivered or made available to AIP prior to July 31, 1997, will be listed in the RELP Disclosure Letter, have not been modified and are valid and binding in accordance with their respective terms. 5.19. Convertible Securities. To RELP's actual knowledge, RELP has no outstanding options, warrants or other securities exercisable for, or convertible into, RELP Interests, the terms of which would require any anti- dilution adjustments by reason of the consummation of the transactions contemplated hereby. ARTICLE VI . REPRESENTATIONS AND WARRANTIES OF AIP AIP represents and warrants to RELP as set forth below. As contemplated below, an "AIP Disclosure Letter" will be delivered to RELP on or before August 11, 1997. The AIP Disclosure Letter shall provide the information or exceptions described below. The AIP Disclosure Letter shall be amended prior to Closing to cause such representations and warranties to be materially true and correct on the Closing Date, but AIP shall remain liable for any material breach of such representations and warranties reflected in such amendment only as provided in Section 9.5(d), below. 6.1. Existence; Good Standing; Authority; Compliance with Law. (a) AIP is a real estate investment trust duly organized and validly existing under the laws of the State of Texas. To AIP's actual knowledge, AIP is duly licensed or qualified to do business and is in good standing under the laws of any other state of the United States in which the character of the properties owned or leased by it therein or in which the transaction of its business makes such qualification necessary, except where the failure to be so qualified would not have a material adverse effect on the business, results 11 of operations or financial condition of AIP and its subsidiaries taken as a whole (an "AIP Material Adverse Effect"). AIP has all requisite power and authority to own, operate, lease and encumber its properties and carry on its business as now conducted. Each of AIP's Subsidiaries is a corporation, limited liability company or partnership duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, has the requisite power and authority to own its properties and to carry on its business as it is now being conducted, and is duly qualified to do business and is in good standing in each jurisdiction in which the ownership of its property or the conduct of its business requires such qualification, except for jurisdictions in which such failure to be so qualified or to be in good standing would not have an AIP Material Adverse Effect. (b) To AIP's actual acknowledge, neither AIP nor any AIP Subsidiary is in violation of any order of any court, governmental authority or arbitration board or tribunal, or any law, ordinance, governmental rule or regulation to which AIP or any AIP Subsidiary or any of their respective properties or assets is subject, where such violation would have an AIP Material Adverse Effect. AIP and its Subsidiaries have obtained all licenses, permits and other authorizations and have taken all actions required by applicable law or governmental regulations in connection with their business as now conducted, where the failure to obtain any such item or to take any such action would have an AIP Material Adverse Effect. Copies of AIP's and its Subsidiaries' Declaration of Trust, Articles of Incorporation, Bylaws, organizational documents and partnership and joint venture agreements have been or will be prior to July 31, 1997, delivered or made available to RELP and such documents will be listed in the AIP Disclosure Letter and were or will be true and correct when delivered or made available. For the purposes of the immediately preceding sentence, the term "Subsidiary"shall include the entities set forth in the AIP Disclosure Letter, which are all of AIP's Subsidiaries. 6.2. Authorization, Validity and Effect of Agreements. AIP has the requisite power and authority to enter into the transactions contemplated hereby and to execute and deliver this Agreement and all other documents, agreements and instruments related to the transactions contemplated by this Agreement to which it is a party (the "AIP Ancillary Agreements"). Subject only to the approval of the issuance of AIP Common Shares pursuant to the Merger contemplated hereby by the holders of two-thirds of the outstanding AIP Common Shares, present and voting thereon, the consummation by AIP of this Agreement, the AIP Ancillary Agreements and the transactions contemplated hereby have been duly authorized by all requisite action on the part of AIP. This Agreement constitutes, and the AIP Ancillary Agreements (when executed and delivered pursuant hereto for value received) will constitute, the valid and legally binding obligations of AIP enforceable against AIP in accordance with their respective terms, subject to Equitable Remedies. 6.3. Capitalization. On June 15, 1997, the authorized capital stock of AIP consists of 10,000,000 Common Shares. As of the date hereof, all 10,000,000 Common Shares are outstanding. AIP has no outstanding bonds, debentures, notes or other obligations (other than to Realco), the holders of which have the right to vote (or which are convertible into or exercisable for securities having the right to vote) with the shareholders of AIP on any matter. Except as set forth in the AIP Disclosure Letter, all such issued and outstanding of AIP Common Shares are duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights. Except as set forth in the AIP Disclosure Letter, there are not at the date of this Agreement any existing options, warrants, calls, 12 subscriptions, convertible securities, or other rights, agreements or commitments which obligate AIP or any of its Subsidiaries to issue, transfer or sell any shares or other equity interest of AIP or any of its Subsidiaries except under any employee incentive plan approved by AIP's shareholders. There are no agreements or understandings to which AIP is a party with respect to the voting of any AIP Common Shares or which restrict the transfer of any such shares, except in order to protect its REIT status. 6.4. Subsidiaries. Except as set forth in the AIP Disclosure Letter, AIP owns directly or indirectly each of the outstanding shares of capital stock or all of the partnership or other equity interests of each of AIP's Subsidiaries free and clear of all liens, pledges, security interests, claims or other encumbrances other than liens imposed by local law which are not material. 6.5. Other Interests. Except as will be disclosed in the AIP Disclosure Letter and except for interests in the AIP Subsidiaries, neither AIP nor any AIP Subsidiary owns directly or indirectly any interest or investment (whether equity or debt) in any corporation, partnership, joint venture, business, trust or entity (other than investments in short-term investment securities). 6.6. No Violation. Neither the execution and delivery by AIP of this Agreement nor the consummation by AIP of the transactions contemplated hereby in accordance with the terms hereof, will: (i) conflict with or result in a breach of any provisions of AIP's Declaration of Trust; (ii) violate, or conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination or in a right of termination or cancellation of, or accelerate the performance required by, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties of AIP or its Subsidiaries under, or result in being declared void, voidable or without further binding effect, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust or any license, franchise, permit, lease, contract, agreement or other instrument, commitment or obligation to which AIP or any of its Subsidiaries is a party, or by which AIP or any of its Subsidiaries or any of their properties is bound or affected, except for any of the foregoing matters which, individually or in the aggregate, would not have an AIP Material Adverse Effect; or (iii) other than the Regulatory Filings require any consent, approval or authorization of, or declaration, filing or registration with, any domestic governmental or regulatory authority, except where the failure to obtain such consent, approval or authorization of, or declaration, filing or registration with, any governmental or regulatory authority would not have an AIP Material Adverse Effect. 6.7. SEC Documents. (a) AIP has made available or will make available to RELP prior to July 31, 1997, the registration statements of AIP filed with the SEC in connection with public offerings of AIP securities since January 1, 1994 and all exhibits, amendments and supplements thereto (the "AIP Registration Statements"), and each registration statement, report, proxy statement or information statement and all exhibits thereto prepared by it or relating to its properties since the effective date of the latest AIP Registration Statement, each in the form (including exhibits and any amendments thereto) filed with the SEC (collectively, the "AIP Reports"). The AIP Reports, which were or will be filed with the SEC in a timely manner, constitute all forms, reports and documents required to be filed by AIP under the Securities Laws. 13 (b) To AIP's actual knowledge, as of their respective dates, the AIP Reports (i) complied as to form in all material respects with the applicable requirements of the Securities Laws, and (ii) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading. To AIP's actual acknowledge, each of the consolidated balance sheets of AIP included in or incorporated by reference into the AIP Reports (including the related notes and schedules) fairly presents the consolidated financial position of AIP and the AIP Subsidiaries as of its date and each of the consolidated statements of income, retained earnings and cash flows of AIP included in or incorporated by reference into the AIP Reports (including any related notes and schedules) fairly presents the results of operations, retained earnings or cash flows, as the case may be, of AIP and the AIP Subsidiaries for the periods set forth therein (subject, in the case of unaudited statements, to normal year-end audit adjustments which would not be material in amount or effect), in each case in accordance with generally accepted accounting principles consistently applied during the periods involved, except as may be noted therein and except, in the case of the unaudited statements, as permitted by the Securities Laws. (c) Except as and to the extent set forth on the consolidated balance sheet of AIP and its Subsidiaries at March 31, 1997, including all notes thereto, or as set forth in the AIP Reports, neither AIP nor any of the AIP Subsidiaries has any material liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) that would be required to be reflected on, or reserved against in, a balance sheet of AIP or in the notes thereto, prepared in accordance with generally accepted accounting principles consistently applied, except liabilities arising in the ordinary course of business since such date which would not have an AIP Material Adverse Effect. 6.8. Litigation. To AIP's actual knowledge, there are (i) no continuing orders, injunctions or decrees of any court, arbitrator or governmental authority to which AIP or any AIP Subsidiary is a party or by which any of its properties or assets are bound or, to which any of its directors, officers, or affiliates is a party or by which any of their properties or assets are bound, and (ii) except as will be set forth in the AIP Disclosure Letter, no actions, suits or proceedings pending against AIP or any AIP Subsidiary or, to the knowledge of AIP, against any of its Trust Managers, officers, or affiliates or, to the knowledge of AIP, threatened against AIP or any AIP Subsidiary or against any of its Trust Managers, officers, or affiliates, at law or in equity, or before or by any federal or state commission, board, bureau, agency or instrumentality, that in the case of clauses (i) or (ii) above are reasonably likely, individually or in the aggregate, to have an AIP Material Adverse Effect. 6.9. Absence of Certain Changes. Except as disclosed in the AIP Reports filed with the SEC prior to the date hereof, (i) AIP and its Subsidiaries have conducted their business only in the ordinary course of such business (which, for purposes of this section only, shall include all acquisitions of real estate properties and financing arrangements made in connection therewith); (ii) there has not been any AIP Material Adverse Effect; (iii) there has not been any declaration, setting aside or payment of any dividend or other distribution with respect to the AIP Common Shares; and (iv) there has not been any material change in AIP's accounting principles, practices or methods. 14 6.10. Taxes. (a) Except as may be set forth in the AIP Disclosure Letter, AIP and each of its Subsidiaries (i) has timely filed all federal, state and foreign tax returns including, without limitation, information returns and reports required to be filed by any of them for tax periods ended prior to the date of this Agreement or requests for extensions have been timely filed and any such request has been granted and has not expired and all such returns are absolute and complete in all material respects, (ii) has paid or accrued all taxes shown to be due and payable on such returns or which have become due and payable pursuant to any assessment, deficiency notice, 30-day letter or other notice received by it and (iii) has properly accrued all taxes for such periods subsequent to the periods covered by such returns. Neither AIP nor any of its Subsidiaries has received notice that the federal, state and local income and franchise tax returns of AIP or any such Subsidiary has been or will be examined by any taxing authority. Neither AIP nor any of its Subsidiaries has executed or filed with the IRS or any other taxing authority any agreement now in effect extending the period for assessment or collection of any income or other taxes. (b) Except as will be disclosed in the AIP Disclosure Letter, neither AIP nor any of its Subsidiaries is a party to any pending action or proceeding by any governmental authority for assessment or collection of taxes, and no claim for assessment or collection of taxes has been asserted against it. True, correct and complete copies of all federal, state and local income or franchise tax returns filed by AIP and each of its Subsidiaries and all communications relating thereto have been delivered to RELP or made available to representatives of RELP or will be so delivered or made available prior to July 31, 1997. AIP (i) has qualified to be taxed as a REIT pursuant to Sections 856 through 859 of the Code for its taxable years ended December 31, 1985 through 1996, inclusive (ii) has operated, and intends to continue to operate, in such a manner as to qualify to be taxed as a REIT pursuant to Sections 856 through 859 of the Code for its taxable year ended on the effective date of the Merger, and (iii) has not taken or omitted to take any action which could result in, and each of the executive officers of AIP, each acting in his respective capacity as such, has no actual knowledge of, a challenge to its status as a REIT. AIP represents that each of its Subsidiaries is a Qualified REIT Subsidiary as defined in Section 856 (i) of the Code. Neither AIP nor any of its Subsidiaries holds any asset (i) the disposition of which could be subject to rules similar to Section 1374 of the Code as a result of an election under IRS Notice 88-19 or (ii) that is subject to a consent filed pursuant to Section 341(f) of the Code and regulations thereunder. For purposes of this Section 6.10, "taxes" includes any interest, penalty or additional amount payable with respect to any tax. 6.11. Books and Records. (a) The books of account and other financial records of AIP and its Subsidiaries are in all material respects true, complete and correct, have been maintained in accordance with good business practices, and are accurately reflected in all material respects in the financial statements included in the AIP Reports. (b) The minute books and other records of AIP and its Subsidiaries contain in all material respects accurate records of all meetings and accurately reflect in all material respects all other corporate action of the shareholders and Trust Managers and any committees of the Board of Trust Managers of AIP and its Subsidiaries. 15 6.12. Properties. (a) AIP and its Subsidiaries own fee simple title to each of the real properties reflected on the most recent balance sheet of AIP included in the AIP Reports or as may be identified in the AIP Disclosure Letter (the "AIP Properties"), which are all of the real estate properties owned by them, free and clear of Encumbrances. To AIP's actual knowledge, the AIP Properties are not subject to any rights of way, written agreements, laws, ordinances and regulations affecting building use or occupancy, or reservations of an interest in title (collectively, "Property Restrictions"), except for (i) Encumbrances and Property Restrictions that will be set forth in the AIP Disclosure Letter, (ii) Property Restrictions imposed or promulgated by law or any governmental body or authority with respect to real property, including zoning regulations, provided they do not materially adversely affect the current use of the property, (iii) Encumbrances and Property Restrictions disclosed on existing title reports or surveys (in either case copies of which title reports and surveys have been or will be delivered or made available to RELP prior to July 31, 1997), and (iv) mechanics', carriers', workmen's, repairmen's liens and other Encumbrances, Property Restrictions and other limitations of any kind, if any, which have heretofore been bonded (and that will be listed in the AIP Disclosure Letter) or which individually or in the aggregate, do not exceed $100,000, do not materially detract from the value of or materially interfere with the present use of any of the AIP Properties subject thereto or affected thereby, and do not otherwise materially impair business operations conducted by AIP and its Subsidiaries and which have arisen or been incurred only in its construction activities or in the ordinary course of business. (b) Valid policies of title insurance have been issued insuring AIP's or any of its Subsidiaries' fee simple title to the AIP Properties, subject only to the matters disclosed above and as may be set forth in the AIP Disclosure Letter, and such policies are, at the date hereof, in full force and effect and no material claim has been made against any such policy. To AIP's actual knowledge, except as will be set forth in the AIP Disclosure Letter, (i) there is no certificate, permit or license from any governmental authority having jurisdiction over any of the AIP Properties or any agreement, easement or other right which is necessary to permit the lawful use and operation of the buildings and improvements on any of the AIP Properties or which is necessary to permit the lawful use and operation of all driveways, roads and other means of egress and ingress to and from any of the AIP Properties that has not been obtained and is not in full force and effect, or of any pending threat of modification or cancellation of any of same; (ii) neither AIP nor its Subsidiaries has received written notice of any material violation of any federal, state or municipal law, ordinance, order, regulation or requirement affecting any portion of any of the AIP Properties issued by any governmental authority; (iii) there are no structural defects relating to the AIP Properties and no AIP Properties whose building systems are not in working order in any material respect; and (iv) there is (A) no physical damage to any AIP Property in excess of $100,000 for which there is no insurance in effect covering the cost of the restoration, (B) no current renovation to any AIP Property the cost of which exceeds $100,000 and (C) no current restoration (excluding tenant improvements) of any AIP Property the cost of which exceeds $100,000. (c) Except as will be set forth in the AIP Disclosure Letter, AIP or its Subsidiaries have received no notice to the effect that and there are no (A) condemnation or rezoning proceedings that are pending or threatened with respect to any of the AIP Properties or (B) any zoning, building or similar laws, codes, ordinances, orders or regulations that are or will be violated by the continued maintenance, operation or use of any buildings or other improvements on any of the AIP Properties 16 or by the continued maintenance, operation or use of the parking areas in any material respect. All work to be performed, payments to be made and actions to be taken by AIP or its Subsidiaries prior to the date hereof pursuant to any agreement entered into with a governmental body or authority in connection with a site approval, zoning reclassification or other similar action relating to the AIP Properties (e.g., Local Improvement District, Road Improvement District, Environmental Mitigation) has been performed, paid or taken, as the case may be, and AIP is not aware of any planned or proposed work, payments or actions that may be required after the date hereof pursuant to such agreements, except as will be set forth in the AIP Disclosure Letter. 6.13. Environmental Matters. To the actual knowledge of AIP, none of AIP, any of its Subsidiaries or, any other person has caused or permitted (i) the unlawful presence of any Hazardous Materials on any of the AIP Properties, or (ii) any unlawful spills, releases, discharges or disposal of Hazardous Materials to have occurred or be presently occurring on or from the AIP Properties as a result of any construction on or operation and use of such properties, which presence or occurrence would, individually or in the aggregate, have an AIP Material Adverse Effect; and in connection with the construction on or operation and use of the AIP Properties, AIP and its Subsidiaries have not failed to comply, in any material respect, with any applicable local, state and federal environmental laws, regulations, ordinances and administrative and judicial orders relating to the generation, recycling, reuse, sale, storage, handling, transport and disposal of any Hazardous Materials. 6.14. Labor Matters. Neither AIP nor any of its Subsidiaries is a party to, or bound by, any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor union organization. There is no unfair labor practice or labor arbitration proceeding pending or, to the knowledge of the executive officers of AIP, threatened against AIP or its Subsidiaries relating to their business, except for any such proceeding which would not have an AIP Material Adverse Effect. To the knowledge of AIP, there are no organizational efforts with respect to the formation of a collective bargaining unit presently being made or threatened involving employees of AIP or any of its Subsidiaries. 6.15. No Brokers. Except for the fee payable to Prudential Securities Incorporated ("Prudential") as described in Section 6.16 below, AIP has not entered into any contract, arrangement or understanding with any person or firm which may result in the obligation of AIP or RELP to pay any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby. AIP is not aware of any claim for payment of any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby. 6.16. Opinion of Financial Advisor. AIP has retained Prudential to review the transaction contemplated by this Agreement and to issue an opinion as to the fairness to AIP, from a financial point of view, of the consideration to be paid by AIP pursuant to the Merger. 6.17. RELP Share Ownership. Except as may be set forth in the AIP Disclosure Letter, neither AIP nor any of its Subsidiaries owns any RELP Interests or other securities convertible into RELP interests. 17 6.18. AIP Common Shares. The issuance and delivery by AIP of AIP Common Shares in connection with the Merger and this Agreement have been duly and validly authorized by all necessary action on the part of AIP except for the approval of its shareholders contemplated by this Agreement. The AIP Common Shares to be issued in connection with the Merger and this Agreement, when issued in accordance with the terms of this Agreement, will be validly issued, fully paid and nonassessable, except that shareholders may be subject to further assessment with respect to certain claims for tort, contract, taxes, statutory liability and otherwise in some jurisdictions to the extent such claims are not satisfied by AIP. 6.19. Convertible Securities. AIP has no outstanding options, warrants or other securities exercisable for, or convertible into, shares of AIP Common Shares, the terms of which would require any anti-dilution adjustments by reason of the consummation of the transactions contemplated hereby, except the preemptive rights held by certain clients of Morgan Stanley Asset Management, Inc. and held by MS Real Estate Special Situations, Inc. and the convertible debt securities held by Realco. 6.20. Related Party Transactions. Set forth in the AIP Disclosure Letter will be a list of all arrangements, agreements and contracts entered into by AIP or any of its Subsidiaries with (i) any person who is an officer, Trust Manager or affiliate of AIP or any of its Subsidiaries, any relative of any of the foregoing or any entity of which any of the foregoing is an affiliate or (ii) any person who acquired AIP Common Shares in a private placement. The copies of such documents, all of which have been or will be delivered or made available to RELP prior to July 31, 1997, are or will be true, complete and correct when delivered or made available. 6.21. Contracts and Commitments. The AIP Disclosure Letter will set forth (i) all unsecured notes or other obligations of AIP and AIP Subsidiaries which individually may result in total payments in excess of $100,000, (ii) notes, debentures, bonds and other evidence of indebtedness which are secured or collateralized by mortgages, deeds of trust or other security interests in the AIP Properties or personal property of AIP and its Subsidiaries, and (iii) each commitment entered into by AIP or any of its Subsidiaries which individually may result in total payments or liability in excess of $100,000. Copies of the foregoing have been or will be delivered or made available to RELP prior to July 31, 1997, will be listed on the AIP Disclosure Letter and are or will be materially true and correct when delivered or made available. None of AIP or any of its Subsidiaries has received any notice of a default that has not been cured under any of the documents described in clause (i) or (ii) above or is in default respecting any payment obligations thereunder beyond any applicable grace periods. All options of AIP or any of its Subsidiaries to purchase real property will be set forth on the AIP Disclosure Letter and such options and AIP's or its Subsidiaries' rights thereunder are in full force and effect. All joint venture agreements to which AIP or any of its Subsidiaries is a party will be set forth on the AIP Disclosure Letter and AIP or its Subsidiaries are not in default with respect to any obligations, which individually or in the aggregate are material, thereunder. 6.22. Development Rights. Set forth in the AIP Disclosure Letter will be a list of all material agreements entered into by AIP or any of its Subsidiaries relating to the development, rehabilitation, capital improvement or construction of office buildings, industrial facilities or other 18 real estate properties which development or construction has not been substantially completed as of the date of this Agreement. Such agreements, true, complete and correct copies of all of which have been or will be delivered or made available to RELP prior to July 31, 1997, will be listed in the AIP Disclosure Letter. 6.23. Certain Payments Resulting From Transactions. The execution of, and performance of the transactions contemplated by, this Agreement will not (either alone or upon the occurrence of any additional or subsequent events) (i) constitute an event under any AIP Benefit Plan, policy, practice, agreement or other arrangement or any trust or loan (the "Employee Arrangements") that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any employee, director or consultant of AIP or any of its Subsidiaries unless such rights have been waived by any such person, or (ii) result in the triggering or imposition of any restrictions or limitations on the right of AIP or RELP to amend or terminate any Employee Arrangement and receive the full amount of any excess assets remaining or resulting from such amendment or termination, subject to applicable taxes. No payment or benefit which will be required to be made pursuant to the terms of any agreement, commitment or AIP Benefit Plan, as a result of the transactions contemplated by this Agreement, to any officer, director or employee of AIP or any of its Subsidiaries, will be characterized as an "excess parachute payment" within the meaning of Section 280G(b)(1) of the Code. ARTICLE VII. COVENANTS 7.1. Acquisition Proposals. Prior to the Effective Time, RELP and AIP each agree (i) that neither of them nor any of their Subsidiaries shall, and each of them shall direct and use its best efforts to cause its respective officers, General Partner, limited partners, Trust Managers, employees, agents, affiliates and representatives (including, without limitation, any investment banker, attorney or accountant retained by it or any of its Subsidiaries), as applicable, not to, initiate, solicit or encourage, directly or indirectly, any inquiries or the making or implementation of any proposal or offer (including, without limitation, any proposal or offer to its shareholders) with respect to a merger, acquisition, tender offer, exchange offer, consolidation or similar transaction involving, or any purchase of all or any significant portion of the assets or any equity securities (or any debt securities convertible into equity securities) of, such party or any of its Subsidiaries, other than the transactions contemplated by this Agreement (any such proposal or offer being hereinafter referred to as an "Acquisition Proposal") or engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, any person relating to an Acquisition Proposal, or otherwise facilitate any effort or attempt to make or implement an Acquisition Proposal; (ii) that it will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing and each will take the necessary steps to inform the individuals or entities referred to above of the obligations undertaken in this Section 7.1; and (iii) that it will notify the other party immediately if any such inquiries or proposals are received by, any such information is requested from, or any such negotiations or discussions are sought to be initiated or continued with, it; provided, however, that nothing contained in this Section 7.1 shall prohibit the Board of Directors of the General Partner of RELP (the "Board of Directors") or the Board of Trust Managers from (x) 19 furnishing information to or entering into discussions or negotiations with, any person or entity that makes an unsolicited bona fide Acquisition Proposal, if, and only to the extent that, (A) the Board of Directors or Board of Trust Managers, as applicable, determines in good faith that such action is required for it to comply with its fiduciary duties to limited partners or shareholders, as applicable, imposed by law as advised by counsel, (B) prior to furnishing such information to, or entering into discussions or negotiations with, such person or entity, such party provides written notice to the other party to this Agreement to the effect that it is furnishing information to, or entering into discussions with, such person or entity, and (C) subject to any confidentiality agreement with such person or entity (which such party determined in good faith was required to be executed in order for the Board of Directors or Board of Trust Managers, as applicable, to comply with its fiduciary duties to limited partners or shareholders, as applicable, imposed by law as advised by counsel), such party keeps the other party to this Agreement informed of the status (but not the terms) of any such discussions or negotiations; and (y) to the extent applicable, complying with Rule 14e-2 promulgated under the Exchange Act with regard to an Acquisition Proposal. Nothing in this Section 7.1 shall (i) permit any party to terminate this Agreement (except as specifically provided in Article IX hereof), (ii) permit any party to enter into any agreement with respect to an Acquisition Proposal during the term of this Agreement (it being agreed that during the term of this Agreement, no party shall enter into any agreement with any person that provides for, or in any way facilitates, an Acquisition Proposal (other than a confidentiality agreement in customary form)), or (iii) affect any other obligation of any party under this Agreement. 7.2. Conduct of Businesses. (i) Prior to the Effective Time, except as may be set forth in the RELP Disclosure Letter or the AIP Disclosure Letter or as contemplated by this Agreement, unless the other party has consented in writing thereto, AIP and RELP: (a) Shall use their reasonable efforts, and shall cause each of their respective Subsidiaries to use their reasonable efforts, to preserve intact their business organizations and goodwill and keep available the services of their respective officers and employees; (b) Shall confer on a regular basis with one or more representatives of the other to report operational matters of materiality and, subject to Section 7.1, any proposals to engage in material transactions; (c) Shall promptly notify the other of any material emergency or other material change in the condition (financial or otherwise) of the business, properties, assets or liabilities, or any material governmental complaints, investigations or hearings (or communications indicating that the same may be contemplated), or the breach in any material respect of any representation, warranty, covenant or agreement contained herein; (d) Shall not pay quarterly dividends or make distributions payable with respect to the AIP Common Shares and RELP Partnership Interests, respectively; and 20 (e) Shall promptly deliver to the other true and correct copies of any report, statement or schedule filed with the SEC subsequent to the date of this Agreement. (ii) Prior to the Effective Time, except as may be set forth in the RELP Disclosure Letter, unless AIP has consented (such consent not to be unreasonably withheld or delayed) in writing thereto, RELP: (a) Shall conduct its operations according to its usual, regular and ordinary course in substantially the same manner as heretofore conducted; (b) Shall not amend the RELP Organizational Documents; (c) Shall not (i) except pursuant to the exercise of options, warrants, conversion rights and other contractual rights existing on the date hereof and disclosed pursuant to this Agreement, issue any RELP Interests, make any distribution, effect any recapitalization or other similar transaction, (ii) grant, confer or award any option, warrant, conversion right or other right not existing on the date hereof to acquire any RELP Interest, (iii) increase any compensation or enter into or amend any employment agreement with any of its present or future officers or directors of the General Partner, or (iv) adopt any new employee benefit plan or amend any existing employee benefit plan in any material respect, except for changes which are less favorable to participants in such plans; (d) Shall not declare, set aside or make any distribution or payment with respect to any RELP Interest or directly or indirectly redeem, purchase or otherwise acquire any RELP Interest, or make any commitment for any such action; (e) Shall not sell or otherwise dispose of (i) any RELP Properties, or (ii) except in the ordinary course of business, any of its other assets which are material, individually or in the aggregate; (f) Shall not make any loans, advances or capital contributions to, or investments in, any other person; (g) Shall not pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business consistent with past practice or in accordance with their terms, of liabilities reflected or reserved against in, or contemplated by, the most recent consolidated financial statements (or the notes thereto) of RELP included in the RELP Reports or incurred in the ordinary course of business consistent with past practice; 21 (h) Shall not enter into any commitment which individually may result in total payments or liability by or to it in excess of $250,000 in the case of any one commitment or in excess of $500,000 for all commitments; (i) Shall not, and shall not permit any of its Subsidiaries to, enter into any commitment with any officer, director or affiliate of RELP or its General Partner except to the extent the same occur in the ordinary course of business consistent with past practice and would not have a RELP Material Adverse Effect; and (j) Shall not enter into or terminate any lease representing annual revenues of $100,000 or more. (iii) Prior to the Effective Time, except as may be set forth in the AIP Disclosure Letter, unless RELP has consented (such consent not to be unreasonably withheld or delayed) in writing thereto, AIP: (a) Shall, and shall cause each of its Subsidiaries to, conduct its operations according to their usual, regular and ordinary course in substantially the same manner as heretofore conducted; (b) Shall not amend its Declaration of Trust or Bylaws except as contemplated by this Agreement; (c) Shall not (i) except pursuant to the exercise of options, warrants, conversion rights and other contractual rights (including AIP's existing dividend reinvestment plan) existing on the date hereof and disclosed pursuant to this Agreement, issue any shares of its capital stock, effect any share split, reverse share split, share dividend, recapitalization or other similar transaction, (ii) grant, confer or award any option, warrant, conversion right or other right not existing on the date hereof to acquire any shares of its capital shares (except pursuant to any employee incentive plan approved by shareholders), (iii) amend any employment agreement with any of its present or future officers or Trust Managers, or (iv) adopt any new employee benefit plan (including any share option, share benefit or share purchase plan) except the employee incentive plan to be voted on at its shareholder meeting for the fiscal year ended December 31, 1995; (d) Shall not declare, set aside or pay any dividend or make any other distribution or payment with respect to any Common Shares or directly or indirectly redeem, purchase or otherwise acquire any Common Shares or capital stock of any of its Subsidiaries, or make any commitment for any such action; (e) Except as will be set forth in the AIP Disclosure Letter, shall not, and shall not permit any of its Subsidiaries to, sell or otherwise dispose of (i) any AIP Properties or any of its capital stock of or other interests in Subsidiaries or (ii) except in the ordinary course of business, any of its other assets which are material, individually or in the aggregate; 22 (f) Shall not, and shall not permit any of its Subsidiaries to, make any loans, advances or capital contributions to, or investments in, any other person other than in connection with the sale of properties; (g) Shall not, and shall not permit any of its Subsidiaries to, pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business consistent with past practice or in accordance with their terms, of liabilities reflected or reserved against in, or contemplated by, the most recent consolidated financial statements (or the notes thereto) of AIP included in the AIP Reports or incurred in the ordinary course of business consistent with past practice; (h) Shall not, and shall not permit any of its Subsidiaries to, enter into any commitment which individually may result in total payments or liability by or to it in excess of $500,000 in the case of any one commitment or in excess of $500,000 for all commitments; and (i) Shall not, and shall not permit any of its Subsidiaries to, enter into any commitment with any officer, Trust Manager or affiliate of AIP or any of its Subsidiaries, except as herein or in the AIP Disclosure Letter provided and except in the ordinary course of business. For purposes of this Section 7.2, any consent shall be deemed to be unreasonably delayed if notice of consent or withholding of consent is not received within three days of request. Further, if no response is received by the end of business on such third day, the party receiving the request shall be deemed to have consented to such action. 7.3 Meetings of Shareholders and Partners. Each of AIP and RELP will take all action necessary in accordance with applicable law and its organizational documents to convene a meeting of its shareholders or partners, as applicable, as promptly as practicable to consider and vote upon or otherwise to obtain the consent of its shareholders or partners, as applicable, to (i) in the case of AIP, approve this Agreement and the transactions contemplated hereby, and (ii) in the case of RELP, approve this Agreement and the transactions contemplated hereby. The Board of Trust Managers and the General Partner shall each recommend such approval and AIP and RELP shall each take all lawful action to solicit such approval, including, without limitation, timely mailing the Proxy Statement/Prospectus (as defined in Section 7.7); provided, however, that such recommendation or solicitation is subject to any action taken by, or upon authority of, the Board of Trust Managers or the General Partner, as the case may be, in the exercise of its good faith judgment as to its fiduciary duties to its shareholders or partners, as applicable, imposed by law as advised by counsel. AIP and RELP shall coordinate and cooperate with respect to the timing of such meetings and shall use their best efforts to hold such meetings on the same day. 7.4. Filings; Other Action. Subject to the terms and conditions herein provided, RELP and AIP shall: (a) use all reasonable efforts to cooperate with one another in (i) determining which filings are required to be made prior to the Effective Time with, and which consents, approvals, 23 permits or authorizations are required to be obtained prior to the Effective Time from governmental or regulatory authorities of the United States and the several states in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and (ii) timely making all such filings and timely seeking all such consents, approvals, permits or authorizations; (b) use all reasonable efforts to obtain in writing any consents required from third parties in form reasonably satisfactory to RELP and AIP necessary to effectuate the Merger; and (c) use all reasonable efforts to take, or cause to be taken, all other action and do, or cause to be done, all other things necessary, proper or appropriate to consummate and make effective the transactions contemplated by this Agreement. If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purpose of this Agreement, the proper officers and directors of AIP and the General Partner shall take all such necessary action. 7.5. Inspection of Records. From the date hereof to the Effective Time, each of RELP and AIP shall allow all designated officers, attorneys, accountants and other representatives of the other access at all reasonable times to the records and files, correspondence, audits and properties, as well as to all information relating to commitments, contracts, titles and financial position, or otherwise pertaining to the business and affairs of RELP and AIP and their respective Subsidiaries. 7.6. Publicity. RELP and AIP shall, subject to their respective legal obligations (including requirements of stock exchanges and other similar regulatory bodies), consult with each other, and use reasonable efforts to agree upon the text of any press release before issuing any such press release or otherwise making public statements with respect to the transactions contemplated hereby and in making any filings with any federal or state governmental or regulatory agency or with any national securities exchange with respect thereto. 7.7. Registration Statement. AIP and RELP shall cooperate and promptly prepare and AIP shall file with the SEC as soon as practicable a Registration Statement on Form S-4 (the "Form S-4") under the Securities Act, with respect to the AIP Common Shares issuable in the Merger, a portion of which Registration Statement shall also serve as the joint proxy statement with respect to the meetings of the shareholders and partners, respectively, of AIP and RELP in connection with the Merger (the "Proxy Statement/Prospectus"). The respective parties will cause the Proxy Statement/Prospectus and the Form S-4 to comply as to form in all material respects with the applicable provisions of the Securities Act, the Exchange Act and the rules and regulations promulgated thereunder. AIP shall use all reasonable efforts, and RELP will cooperate with AIP to have the Form S-4 declared effective by the SEC as promptly as practicable. AIP shall use its best efforts to obtain, prior to the effective date of the Form S-4, all necessary state securities law or "Blue Sky" permits or approvals required to carry out the transactions contemplated by this Agreement and will pay all expenses incident thereto. AIP agrees that the Proxy Statement/Prospectus and each amendment or supplement thereto, at the time of mailing thereof and at the time of the respective meetings of shareholders and partners, respectively, of AIP and RELP, or, in the case of the Form S-4 and each amendment or supplement thereto, at the time it is filed or becomes effective, will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the foregoing shall not apply to the extent that any such untrue statement of a material fact or omission to state a 24 material fact was made by AIP in reliance upon and in conformity with written information concerning RELP furnished to AIP by RELP specifically for use in the Proxy Statement/Prospectus. RELP agrees that the written information provided by it specifically for inclusion in the Proxy Statement/Prospectus and each amendment or supplement thereto, at the time of mailing thereof and at the time of the respective meetings of shareholders and partners, respectively, of AIP and RELP, or, in the case of written information provided by RELP specifically for inclusion in the Form S-4 or any amendments or supplement thereto, at the time it is filed or becomes effective, will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. AIP will advise RELP, promptly after it receives notice thereof, of the time when the Form S-4 has become effective or any supplement or amendment has been filed, the issuance of any stop order, the suspension of the qualification of the AIP Common Shares issuable in connection with the Merger for offering or sale in any jurisdiction, or any request by the SEC for amendment of the Proxy Statement/Prospectus or the Form S-4 or comments thereon and responses thereto or requests by the SEC for additional information. 7.8. Listing Application. AIP shall promptly prepare and submit to the NYSE a listing application covering the AIP Common Shares issuable in the Merger, and shall use its reasonable efforts to obtain, prior to the Effective Time, approval for the listing of such AIP Common Shares, subject to official notice of issuance. 7.9. Further Action. Each party hereto shall, subject to the fulfillment at or before the Effective Time of each of the conditions of performances set forth herein or the waiver thereof, perform such further acts and execute such documents as may reasonably be required to effect the Merger. 7.10. Expenses. Subject to Section 9.5, if the Merger is approved by RELP's partners, all transaction costs of the proposed consolidation shall be paid by AIP. If three of the four limited partnerships party to the Proxy Statement/Prospectus (the "Other RELPS") do not approve their proposed merger into AIP, Realco shall reimburse AIP for AIP's expenses relating to the proposed merger up to $250,000. If RELP and the Other RELPS approve their proposed merger into AIP, but the shareholders of AIP do not approve the proposer merger, and if Realco voted its AIP Common Shares in favor of such mergers, AIP will reimburse RELP and the Other RELPS for all expenses they incurred in connection with the proposed merger. Any expenses to be reimbursed hereunder shall include, but not be limited to, costs of fairness opinions, property appraisals, engineering and environmental reports, title policies, accounting fees, legal fees, printing and solicitation expenses. RELP will bear the costs of preparing its initial fairness opinion, with later reimbursement by AIP in the event the Merger is approved by RELP's partners. If the limited partners of RELP fail to approve the proposed Merger, then Realco will reimburse AIP for the RELP's expenses (to the extent paid by AIP) as follows: the actual cost of such RELP's fairness opinion, legal fees up to $80,000, and the actual cost or the Allocable Share (if the actual cost is not separately determined), of RELP's accounting fees, engineering and environmental reports, printing and solicitation expenses. Allocable Share, for this purpose, shall be the ratio of such RELP's net book value of assets at March 31, 1997 to the total net book value of all of the assets of RELP and the Other RELPS at March 31, 1997. 25 7.11. Indemnification. For a period of six years from and after the Effective Time, AIP shall indemnify the partners, or agents of RELP who at any time prior to the Effective Time were entitled to indemnification under the Agreement of Limited Partnership of RELP existing on the date hereof to the same extent as such partners or agents are entitled to indemnification under such Agreement of Limited Partnership in respect of actions or omissions occurring at or prior to the Effective Time (including, without limitation, the transactions contemplated by this Agreement). 7.12. Reorganization. From and after the date and until the Effective Time, neither AIP nor RELP nor any of their respective Subsidiaries or other affiliates shall (i) knowingly take any action, or knowingly fail to take any action, that would jeopardize qualification of the Merger as a reorganization within the meaning of Section 368(a)(1)(A) of the Code; or (ii) enter into any contract, agreement, commitment or arrangement with respect to the foregoing. Following the Effective Time, AIP shall use its best efforts to conduct its business in a manner that would not jeopardize the characterization of the Merger as a reorganization within the meaning of Section 368(a)(1)(A) of the Code. 7.13. Survival of RELP Obligations; Assumption of RELP Liabilities by AIP. All of the obligations of RELP that are outstanding at the Closing shall survive the Closing and shall not be merged therein. Upon the consummation of the Merger, such obligations shall be assumed, automatically, by AIP; provided, however, that such assumption shall not impose upon or expose AIP to any liability for which RELP was not liable, and provided, further, that AIP shall be entitled to the same defenses, offsets and counterclaims to which RELP would have been entitled, but for the Merger. 7.14. Third Party Consents. AIP and RELP each shall take all necessary corporate and other action and will use its commercially reasonable efforts to obtain the consents and applicable approvals from third parties that may be required to enable it to carry out the transactions contemplated by this Agreement. 7.15. Efforts to Fulfill Conditions. AIP and RELP each shall use commercially reasonable efforts to insure that all conditions precedent to its obligations hereunder are fulfilled at or prior to the Closing. 7.16. Representations, Warranties and Conditions Prior to Closing. AIP and RELP each shall use its commercially reasonable efforts to cause its representations and warranties contained in this Agreement to be true and correct on and as of the Closing Date in all material respects. Prior to Closing, AIP and RELP each shall promptly notify the other in writing (i) if any representation or warranty contained in this Agreement is discovered to be or becomes untrue or (ii) if AIP or RELP fails to perform or comply with any of its covenants or agreements contained in this Agreement or it is reasonably expected that it will be unable to perform or comply with any of its covenants or agreements contained in this Agreement. 7.17. Cooperation of the Parties. AIP and RELP each will cooperate with the other in supplying such information as may be reasonably requested by the other in connection with obtaining consents or approvals to the transactions contemplated by this Agreement. 26 7.18. Lock-Ups. The General Partner shall use its best efforts prior to the Closing to have each of its directors and officers and Realco execute a 90-day lock-up agreement in a form (reasonably acceptable to RELP) supplied to RELP by AIP. The executed agreements will be delivered to AIP at the Closing. AIP shall use its best efforts prior to the Closing to have each of its Trust Managers and officers execute a 90-day lock-up agreement, in a form (reasonably acceptable to AIP) supplied to AIP by RELP. The agreements will be delivered to RELP at the Closing. ARTICLE VIII. CONDITIONS 8.1. Conditions to Each Party's Obligations to Effect the Merger. The respective obligation of each party to effect the Merger shall be subject to the fulfillment at or prior to the Closing Date of the following conditions: (a) This Agreement and the transactions contemplated hereby shall have been approved in the manner required by the Declaration of Trust and Bylaws and Agreement of Limited Partnership of AIP and RELP, respectively, and by applicable law or by applicable regulations of any stock exchange or other regulatory body by the holders of the AIP Common Shares and RELP Interests entitled to vote thereon. (b) Neither of the parties hereto shall be subject to any order or injunction of a court of competent jurisdiction which prohibits the consummation of the transactions contemplated by this Agreement. In the event any such order or injunction shall have been issued, each party agrees to use its reasonable efforts to have any such injunction lifted. (c) The Form S-4 shall have become effective and all necessary state securities law or "Blue Sky" permits or approvals required to carry out the transactions contemplated by this Agreement shall have been obtained and no stop order with respect to any of the foregoing shall be in effect. (d) AIP shall have obtained the approval for the listing of the AIP Common Shares issuable in the Merger on the NYSE, subject to official notice of issuance. (e) All consents, authorizations, orders and approvals of (or filings or registrations with) any governmental commission, board, other regulatory body or third parties required in connection with the execution, delivery and performance of this Agreement shall have been obtained or made, except for filings in connection with the Merger and any other documents required to be filed after the Effective Time and except where the failure to have obtained or made any such consent, authorization, order, approval, filing or registration would not have a material adverse effect on the business, results of operations or financial condition of AIP and RELP (and their respective Subsidiaries), taken as a whole, following the Effective Time. 27 8.2 Conditions to Obligations of RELP to Effect the Merger. The obligation of RELP to effect the Merger shall be subject to the fulfillment at or prior to the Closing Date of the following conditions, unless waived by RELP: (a) AIP shall have performed its agreements contained in this Agreement required to be performed on or prior to the Closing Date and the representations and warranties of AIP contained in this Agreement shall be true and correct in all material respects as of the Closing Date as if made on the Closing Date, and RELP shall have received a certificate of the President or an Executive or Senior Vice President of AIP, dated the Closing Date, certifying to such effect. (b) RELP shall have received the opinion of Liddell, Sapp or another recognized law firm selected by AIP and approved by RELP, dated the Closing Date, to the effect that the Merger will be treated for Federal income tax purposes as a reorganization within the meaning of Section 368(a)(1)(A) of the Code, and that RELP and AIP will each be a party to that reorganization within the meaning of Section 368(b) of the Code. In rendering its opinion, said counsel shall be entitled to rely as to any factual matter upon certificates given by executive officers of RELP and AIP and shall be entitled to assume that the covenants of AIP pursuant to Section 7.15 shall be fully complied with. (c) From the date of the Agreement through the Effective Time, there shall not have occurred any change in the financial condition, business or operations of AIP and its Subsidiaries, taken as a whole, that would have or would be reasonably likely to have an AIP Material Adverse Effect other than any such change that affects both RELP and AIP in a substantially similar manner. (d) The opinion of Houlihan addressed to RELP that the Purchase Price is fair, from a financial point of view, to the partners of RELP shall not have been withdrawn or materially modified. (e) RELP shall have received the opinion of Liddell, Sapp or another recognized law firm selected by AIP and approved by RELP, dated the Closing Date, as to such customary matters as RELP may reasonably request, such opinion to be reasonably satisfactory to RELP. 8.3 Conditions to Obligation of AIP to Effect the Merger. The obligations of AIP to effect the Merger shall be subject to the fulfillment at or prior to the Closing Date of the following conditions, unless waived by AIP: (a) RELP shall have performed its agreements contained in this Agreement required to be performed on or prior to the Closing Date and the representations and warranties of RELP contained in this Agreement shall be true and correct in all material respects as of the Closing Date as if made on the Closing Date and AIP shall have received 28 a certificate of the Chief Executive Officer, President or an Executive Vice President of the General Partner dated the Closing Date, certifying to such effect. (b) AIP shall have received the opinion of Liddell, Sapp or another recognized law firm selected by RELP and approved by AIP, dated the Closing Date, to the effect that the consummation of the Merger will not result in AIP's failure to continue to satisfy the requirements for qualification as a REIT for federal income tax purposes. In rendering its opinion, said counsel shall be entitled to rely as to any factual matter upon certificates given by executive officers of AIP and RELP and shall be entitled to assume that the covenants of Section 7.15 shall be fully complied with. (c) From the date of this Agreement through the Effective Time, there shall not have occurred any change in the financial condition, business or operations of RELP and its Subsidiaries, taken as a whole, that would have or would be reasonably likely to have an RELP Material Adverse Effect, other than any such change that affects both RELP and AIP in a substantially similar manner. (d) Each person listed on Exhibit 8.3(d) attached hereto shall have delivered to AIP a written agreement to the effect that such person will not offer to sell, sell or otherwise dispose of any shares of AIP Common Stock issued in the Merger, except, in each case, pursuant to an effective registration statement or in compliance with Rule 145, as amended from time to time, or in a transaction which, in the opinion of legal counsel reasonably satisfactory to AIP, is exempt from the registration requirements of the Securities Act and that the certificates representing the AIP shares issued to him or her in the Merger may bear a legend to such effect. (e) The opinion of Prudential addressed to the Board of Trust Managers of AIP that the consideration to be paid by AIP pursuant to the Merger is fair, from a financial point of view, to AIP shall not have been withdrawn or materially modified. (f) AIP shall have received the opinion of Liddell, Sapp or another recognized law firm selected by RELP and approved by AIP, dated the Closing Date, as to such customary matters as AIP may reasonably request, such opinion to be reasonably satisfactory to AIP. (g) The limited partners of at least two of the Other RELPS shall have approved the merger of such limited partnership with and into AIP. ARTICLE IX. TERMINATION 9.1 Termination by Mutual Consent. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, before or after the approval of this Agreement by the partners of RELP or the shareholders of AIP or by the mutual written consent of AIP and RELP, with the prior approval of their respective Board of Trust Managers and General Partner. 29 9.2 Termination by Either AIP or RELP. This Agreement may be terminated and the Merger may be abandoned by action of the General Partner of RELP or the Board of Trust Managers of AIP if (i) the Merger shall not have been consummated by March 31, 1998, (ii) a meeting of RELP's partners shall have been duly convened and held and the approval of RELP's partners required by Section 8.1(a) shall not have been obtained at such meeting or at any adjournment thereof, (iii) a meeting of AIP's shareholders shall have been duly convened and held and the approval of AIP's shareholders required by Section 8.1(a) shall not have been obtained at such meeting or at any adjournment thereof, (iv) as a result of due diligence investigation by one of the parties hereto, it is determined in good faith by such party that certain facts or circumstances not previously known by such party constitute a Material Adverse Effect on the business, results of operations or financial condition of the other party, (v) a United States federal or state court of competent jurisdiction or United States federal or state governmental, regulatory or administrative agency or commission shall have issued an order, decree or ruling or taken any other action permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree, ruling or other action shall have become final and non-appealable, provided that the party seeking to terminate this Agreement pursuant to this clause (v) shall have used all reasonable efforts to remove such order, decree, ruling or injunction, or (vi) any of the conditions set forth in Article VIII shall not have been satisfied, and provided, in the case of a termination pursuant to clause (i) or (vi) above, that the terminating party shall not have breached in any material respect its obligations under this Agreement in any manner that shall have proximately contributed to the occurrence of the failure referred to in said clause. AIP and RELP each shall (i) deliver its Disclosure Letter to one another not later than 5:00 P.M., Central Time, August 11, 1997, and (ii) shall complete its due diligence investigations not later than 5:00 P.M., Central Time, on July 31, 1997 (the period from the date of this Agreement through July 31, 1997 being hereinafter referred to as the "Due Diligence Period"). Until the expiration of the Due Diligence Period, either party may terminate this Agreement without liability or penalty due to (i) the discovery of a fact or circumstance that reasonably could be expected to constitute a Material Adverse Effect on the business, results of operations or financial condition of the other party, or (ii) the party's failure to receive a written fairness opinion as described herein within seven business days from the date of execution of this Agreement. 9.3 Termination by RELP. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, before or after the adoption and approval by the partners of RELP referred to in Section 8.1(a), by action of the General Partner, if (i) in the exercise of its good faith judgment as to its fiduciary duties to its partners imposed by law, as advised by counsel, the General Partner determines that such termination is required by reason of a RELP Acquisition Proposal being made, (ii) the Board of Trust Managers withdraws, materially modifies or changes in a manner materially adverse to RELP its recommendations to AIP's shareholders of this Agreement or the Merger, other than as a result of the occurrence of an event that in the good faith judgment of the Board of Trust Managers has or is reasonably likely to have a RELP Material Adverse Effect, (iii) the Board of Trust Managers postpones the date scheduled for the meeting of shareholders of AIP to approve this Agreement and the transactions contemplated hereby beyond March 31, 1998 or fails to set a date for such meeting by such date, except with the written consent of RELP, (iv) there has been a breach by AIP of any representation or warranty contained in this Agreement which would have or would be reasonably likely to have an AIP Material Adverse Effect, 30 which breach is not curable by March 31,1998, or (v) there has been material breach of any of the covenants or agreements set forth in this Agreement on the part of AIP, which breach is not curable or, if curable, is not cured within 30 days after written notice of such breach is given by RELP to AIP, or (vi) the condition set forth in Section 8.3(g) is not satisfied.. 9.4 Termination by AIP. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, before or after the approval by the shareholders of AIP referred to in Section 8.1(a), by action of the Board of Trust Managers, if (i) in the exercise of its good faith judgment as to its fiduciary duties to its shareholders imposed by law, as advised by counsel, the Board of Trust Managers determines that such termination is required by reason of an AIP Acquisition Proposal being made, (ii) the General Partner withdraws, materially modifies or changes in a manner materially adverse to AIP its recommendation to RELP's partners of this Agreement or the Merger, other than as a result of the occurrence of an event that in the good faith judgment of the General Partner has or is reasonably likely to have an AIP Material Adverse Effect, (iii) the General Partner postpones the date scheduled for the meeting of partners of RELP to approve this Agreement and the transactions contemplated hereby beyond March 31, 1998, or fails to set a date for such meeting by such date, except with the written consent of AIP, (iv) there has been a breach by RELP of any representation or warranty contained in this Agreement which would have or would be reasonably likely to have a RELP Material Adverse Effect, which breach is not curable by March 31, 1998, or (v) there has been a material breach of any of the covenants or agreements set forth in this Agreement on the part of RELP, which breach is not curable or, if curable, is not cured within 30 days after written notice of such breach is given by AIP to RELP. 9.5. Effect of Termination and Abandonment. (a) If an election to terminate this Agreement is made pursuant to (i) Section 9.2(i) (except as a result of a default or breach hereunder by AIP) or Section 9.2(ii), and a RELP Acquisition Proposal relating to RELP shall have been made and, within one year from the date of such termination, RELP consummates a RELP Acquisition Proposal or enters into an agreement to consummate a RELP Acquisition Proposal which is subsequently consummated, or (ii) Section 9.3(i), RELP shall pay to AIP, provided that AIP was not in material breach of its obligations hereunder at the time of such termination, as liquidated damages and not as a penalty or forfeiture, an amount equal to the lesser of (m) $352,200 (the "Liquidated Damages Amount") and (n) the sum of (1) the maximum amount that can be paid to AIP without causing AIP to fail to meet the requirements of Sections 856(c)(2) and (3) of the Code determined as if the payment of such amount did not constitute income described in Sections 856(c)(2)(A)-(H) and 856(c)(3)(A)-(I) of the Code ("Qualifying Income"), as determined by AIP's certified public accountants, plus (2) an amount equal to the Liquidated Damages Amount less the amount payable under clause (1) above in the event AIP receives a letter from AIP's counsel indicating that AIP has received a ruling from the IRS to the effect that Liquidated Damages Amount payments constitute Qualifying Income. In addition to the Liquidated Damages Amount, AIP shall be entitled to receive from RELP (or its successor in interest) all documented out-of-pocket costs and expenses, up to a maximum of $176,100 in connection with this Agreement and the transactions contemplated hereby (the "AIP Expenses") incurred by AIP. The payments to which AIP is entitled under this Section 9.5(a) shall be its sole remedy with respect to the termination of the Agreement under the circumstances contemplated in this Section 9.5(a). 31 (b) If an election to terminate this Agreement is made pursuant to Section 9.2(i) (as a result of the condition set forth in Section 8.3(c) not being satisfied), RELP shall, provided that AIP was not in material breach of its obligations hereunder at the time of such termination, pay AIP for the AIP Expenses, up to a maximum of $176,100, although it shall not be required to pay the Liquidated Damages Amount, which payment of the AIP Expenses shall be AIP's sole remedy for termination of the Agreement in such circumstances. (c) If an election to terminate this Agreement is made pursuant to (i) Section 9.2(i) (except as a result of a default or breach hereunder by RELP) or Section 9.2(iii), and an AIP Acquisition Proposal relating to AIP shall have been made and, within one year from the date of such termination, AIP consummates an AIP Acquisition Proposal or enters into an agreement to consummate an AIP Acquisition Proposal which is subsequently consummated, or (ii) Section 9.4(i), AIP shall pay to RELP, provided that RELP was not in material breach of its obligations hereunder at the time of such termination, as liquidated damages and not as a penalty or forfeiture, an amount equal to the Liquidated Damages Amount. In addition to the Liquidated Damages Amount, RELP shall be entitled to receive from AIP (or its successor in interest) all documented out-of-pocket costs and expenses, up to a maximum of $176,100, in connection with this Agreement and the transactions contemplated hereby (the "RELP Expenses" and, together with the AIP Expenses, the "Expenses") incurred by RELP. The payments to which RELP is entitled under this Section 9.5(c) shall be its sole remedy with respect to the termination of the Agreement under the circumstances contemplated in this Section 9.5(c) (d) If an election to terminate this Agreement is made pursuant to Section 9.2(i) (as a result of the condition set forth in Section 8.2(c) not being satisfied), AIP shall, provided that RELP was not in material breach of its obligations hereunder at the time of such termination, pay RELP for the RELP Expenses, up to a maximum of $176,100, although it shall not be required to pay the Liquidated Damages Amount, which payment of the RELP Expenses shall be RELP's sole remedy for termination of the Agreement in such circumstances. (e) If this Agreement is terminated pursuant to Section 9.3(iv), Section 9.3(v), Section 9.4(iv), or Section 9.4(v), the non-terminating party shall, provided that the terminating party was not in material breach of its obligations hereunder at the time of such termination, pay the terminating party all Expenses, up to a maximum of $176,100, incurred by it and the non-terminating party shall remain liable to the terminating party for its breach. (f) If either party terminates this Agreement during the Due Diligence Period described in Section 9.2 above other than for a due diligence related reason, the non-terminating party shall be entitled to receive the Liquidated Damages Amount and the Expenses as provided in this Article IX. (g) RELP agrees to amend this Section 9.5 at the request of AIP in order to (x) maximize the portion of the Liquidated Damages Amount that may be distributed to AIP hereunder without causing AIP to fail to meet the requirements of Sections 856(c)(2) and (3) of the Code or (y) improve AIP's chances of securing a favorable ruling described in this Section 9.5, provided that no such amendment may result in any additional cost or expense to such other party. 32 (h) In the event of termination of this Agreement and the abandonment of the Merger pursuant to this Article IX, all obligations of the parties hereto shall terminate, except the obligations of the parties pursuant to this Section 9.5 and Section 7.10 and except for the provisions of Section 10.3, 10.4, 10.5, 10.6, 10.7, 10.9, 10.10, 10.13, 10.14 and 10.16. In the event AIP or RELP has received the Liquidated Damages Amount, such recipient shall not assert or pursue in any manner, directly or indirectly, any claim or cause of action against the other party hereto or any of its officers, Trust Managers, or General Partners, as applicable, based in whole or part upon its or their receipt, consideration, recommendation or approval of an Acquisition Proposal or the exercise by AIP of its right to termination under Section 9.4(i) or the exercise by RELP of its right to termination under Section 9.3(i). Notwithstanding the foregoing, in the event AIP or RELP is required to file suit to seek all or a portion of such Liquidated Damages Amount, and it ultimately succeeds, it shall be entitled to all expenses, including attorney's fees and expenses, which it has incurred in enforcing its right hereunder. (i) If either party willfully fails to perform its duties and obligations under this Agreement, the non- breaching party is additionally entitled to all remedies available to it at law or in equity and to recover its expenses from the breaching party. 9.6 Extension; Waiver. At any time prior to the Effective Time, any party hereto, by action taken by its Board of Trust Managers or General Partner, as applicable, may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (ii) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto and (iii) waive compliance with any of the agreements or conditions for the benefit of such party contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. ARTICLE X. GENERAL PROVISIONS 10.1. Nonsurvival of Representations, Warranties and Agreements. All representations, warranties and agreements in this Agreement or in any instrument delivered pursuant to this Agreement shall not survive the Merger; provided, however, that the agreements contained in Article IV, the last sentence of Section 7.4 and Sections 7.10, 7.11, 7.12, 7.13, 7.14, 7.15 and 7.16 and this Article X shall survive the Merger. 10.2. Notices. Any notice required to be given hereunder shall be in writing and shall be sent by facsimile transmission (confirmed by any of the methods that follow), courier service (with proof of service), hand delivery or certified or registered mail (return receipt requested and first-class postage prepaid) and addressed as follows: If to AIP: American Industrial Properties REIT 6220 N. Beltline Road, Suite 205 Irving, Texas 75063 Attention: Charles W. Wolcott, President 33 Telecopy: (972) 550-6037 If to RELP: USAA Real Estate Company 8000 I-H 10 West, Suite 600 San Antonio, Texas 78230 Attention: Patrick Duncan, Senior Vice-President Telecopy: (210) 498-6214 or to such other address as any party shall specify by written notice so given, and such notice shall be deemed to have been delivered as of the date so delivered. 10.3. Assignment; Binding Effect; Benefit. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. Notwithstanding anything contained in this Agreement to the contrary, except as provided in the following sentence, nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective heirs, successors, executors, administrators and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. The provisions of Article IV and Sections 7.11, 7.12, 7.13, 7.14 and 7.15 (collectively, the "Third Party Provisions") shall benefit the persons identified therein, but the aggregate liability of AIP with respect thereto shall not exceed the amount specified in Article IX. 10.4. Entire Agreement. This Agreement, the Exhibits, the RELP Disclosure Letter, the AIP Disclosure Letter, the RELP Ancillary Agreements, the AIP Ancillary Agreements and any documents delivered by the parties in connection herewith constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings among the parties with respect thereto. No addition to or modification of any provision of this Agreement shall be binding upon any party hereto unless made in writing and signed by all parties hereto. 10.5. Confidentiality. (a) As used herein, "Confidential Material" means, with respect to either party hereto (the "Providing Party"), all information (written or oral) furnished (whether before or after the date hereof) by the Providing Party and its directors, officers, employees, affiliates or representatives of advisors, including counsel, lenders and financial advisors (collectively, the "Providing Party Representatives") to the other party hereto (the "Receiving Party") or such Receiving Party's directors, officers, employees, affiliates or representatives of advisors, including counsel, lenders and financial advisors or the Receiving Party's potential sources of financing for the transactions contemplated by this Agreement (collectively "the Receiving Party Representatives") and all analyses, compilations, forecasts and other studies or other documents prepared by the Providing Party or the Providing Party Representatives in connection with its or their review of the transactions contemplated by this Agreement which contain or reflect such information. The term "Confidential Material" does not include, however, information which (i) at the time 34 of disclosure or thereafter is generally available to and known by the public other than as a result of a disclosure directly or indirectly by the Receiving Party or the Receiving Party Representatives in violation of this Agreement, (ii) at the time of disclosure was available on a nonconfidential basis from a source other than the Providing Party or the Providing Party Representatives, providing that such source is not and was not bound by a confidentiality agreement with the Providing Party, (iii) was known by the Receiving Party prior to receiving the Confidential Material from the Providing Party or has been independently acquired or developed by the Receiving Party without violating any of its obligations under this Agreement, or (iv) is contained in any RELP Reports or AIP Reports or Proxy Statement/Prospectus. (b) Subject to paragraph (c) below or except as required by law, the Confidential Material will be kept confidential and will not, without the prior written consent of the Providing Party, be disclosed by the Receiving Party or its Representatives, in whole or in part and will not be used by the Receiving Party or its Representatives, directly or indirectly, for any purpose other than in connection with this Agreement, the Merger or the evaluating, negotiating or advising with respect to a transaction contemplated herein. Moreover, each Receiving Party agrees to transmit Confidential Material to its Representatives only if and to the extent that such Representatives need to know the Confidential Material for purposes of such transaction and are informed by such Receiving Party of the confidential nature of the Confidential Material and of the terms of this Section. (c) In the event that either Receiving Party, its Representatives or anyone to whom such Receiving Party or its Representatives supply the Confidential Material, are requested or required (by oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demand, any informal or formal investigation by any government or governmental agency or authority or otherwise in connection with legal processes) to disclose any Confidential Material, such Receiving Party agrees (i) to immediately notify the Providing Party of the existence, terms and circumstances surrounding such a request, (ii) to consult with the Providing Party on the advisability of taking legally available steps to resist or narrow such request and (iii) if disclosure of such information is required, to furnish only that portion of the Confidential Material which, in the opinion of such Receiving Party's counsel, such Receiving Party is legally compelled to disclose and to cooperate with any action by the Providing Party to obtain an appropriate protective order or otherwise reliable assurances that confidential treatment will be accorded the Confidential Material (it being agreed that the Providing Party shall reimburse the Receiving Party for all reasonable out-of-pocket expenses incurred by the Receiving Party in connection with such cooperation). (d) In the event of the termination of this Agreement in accordance with its terms, promptly upon request from either Providing Party, the Receiving Party shall, except to the extent prevented by law, redeliver to the Providing Party or destroy all tangible Confidential Material and will not retain any copies, extracts or other reproductions thereof in whole or in part. Any such destruction shall be certified in writing to the Providing Party by an authorized officer of the Receiving Party supervising the same. Notwithstanding the foregoing, each Receiving Party and one Representative designated by each Receiving Party shall be permitted to retain one permanent file copy of each document constituting Confidential Material. 35 (e) Each party hereto further agrees that if this Agreement is terminated in accordance with its terms, until one year from the date of termination, (1) it will not offer to hire or hire any person currently or formerly employed by the other party with whom such party has had contact prior hereto other than persons whose employment shall have been terminated by such other party prior to the date of such offer to hire or hiring and (2) neither it nor its affiliates shall directly or indirectly, (a) (w) solicit, seek or offer to effect or effect, (x) negotiate with or provide any information to the Board of Trust Managers or General Partner, as applicable, of the other party, or officer of the other party or any shareholder or partner, as applicable, of the other party with respect to, (y) make any statement or proposal, whether written or oral, either alone or in concert with others, to the Board of Trust Managers or Board of Directors of the General Partner of the other party, any director, Trust Manager or officer of the other party or any shareholder or partner of the other party or any other person with respect to, or (z) make any public announcement (except as required by law in respect of actions permitted hereby) or proposal or offer whatsoever (including, but not limited to, any "solicitation"of "proxies"as such terms are defined or used in Regulation 14A of the Exchange Act) with respect to, (i) any form of business combination or similar or other extraordinary transaction involving the other party or any affiliate thereof, including, without limitation, a merger, tender or exchange offer or liquidation of the other party's assets, (ii) any form of restructuring, recapitalization or similar transaction with respect to the other party or any affiliate thereto, (iii) any purchase of any securities or assets, or rights or options to acquire any securities or assets (through purchase, exchange, conversion or otherwise), of the other party or any affiliate thereof, (iv) any proposal to seek representation on the Board of Trust Managers or the Board of Directors of the General Partner, as applicable, or otherwise to seek to control or influence the management, Board of Trust Managers or the Board of Directors of the General Partner, as applicable, or policies of the other party or any affiliate thereof, (v) any request or proposal to waive, terminate or amend the provisions of this Section 10.5 or (vi) any proposal or other statement inconsistent with the terms of this Section 10.5 or (b) instigate, encourage, join, act in concert with or assist (including, but not limited to, providing or assisting in any way in the obtaining of financing for, or acting as a joint or co-bidder for the other party with) any third party to do any of the foregoing, unless and until such party has received the prior written invitation or approval of a majority of the Board of Trust Managers or the General Partner, as applicable, to do any of the foregoing; provided that without such invitation or approval, either party may at any time, on a confidential non-public basis, submit to the Chief Executive Officer of AIP or the General Partner, as applicable, a proposal to (a) amend any of the provisions of this Section 10.5(e) or (b) effect a business combination or other extraordinary transaction with the other party providing for the acquisition of all or substantially all of the assets or the securities of the other party, including, without limitation, a merger, tender offer or exchange offer. Each party hereto agrees that it will not agree with any third party to waive its rights under this Section 10.5. 10.6. Amendment. This Agreement may be amended by the parties hereto, by action taken by the Board of Trust Managers or the Board of Directors of the General Partner, as applicable, at any time before or after approval of this Agreement or any other matter presented in connection with the Merger by the shareholders of AIP and partners of RELP, but after any such approval, no amendment shall be made which by law requires the further approval of shareholders or partners, as applicable, without obtaining such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. 36 10.7. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas without regard to its rules of conflict of laws. Each of AIP and RELP hereby irrevocably and unconditionally consents to submit to the exclusive jurisdiction of the courts of the State of Texas and of the United States District Court, Northern District of Texas (the "Texas Courts") for any litigation arising out of or relating to this Agreement and the transactions contemplated hereby (and agrees not to commence any litigation relating thereto except in such courts), waives any objection to the laying of venue of any such litigation in the Texas Courts and agrees not to plead or claim in any Texas Court that such litigation brought therein has been brought in an inconvenient forum. 10.8. Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a number of copies hereof each signed by less than all, but together signed by all of the parties hereto. 10.9. Headings. Heading of the Articles and Sections of this Agreement are for the convenience of the parties only and shall be given no substantive or interpretive effect whatsoever. 10.10. Interpretation. In this Agreement, unless the context otherwise requires, words describing the singular number shall include the plural and vice versa, and words denoting any gender shall include all genders and words denoting natural persons shall include corporations and partnerships and vice versa. 10.11. Waivers. Except as provided in this Agreement, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained in this Agreement. The waiver by any party hereto of a breach of any provision hereunder shall not operate or be construed as a waiver of any prior or subsequent breach of the same or any other provision hereunder. 10.12. Incorporation. The RELP Disclosure Letter and the AIP Disclosure Letter and all Exhibits and Schedules attached hereto and thereto and referred to herein and therein are hereby incorporated herein and made a part hereof for all purposes as if fully set forth herein. 10.13. Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any current or future law, and if the rights or obligations of the parties under this Agreement would not be materially and adversely affected thereby, such provision shall be fully separable, and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part thereof, and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance therefrom. In lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as a part of this Agreement, a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as 37 may be possible, and the parties hereto request the court or any arbitrator to whom disputes relating to this Agreement are submitted to reform the otherwise illegal, invalid or unenforceable provision in accordance with this Section 10.13. 10.14. Enforcement of Agreement. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement was not performed in accordance with its specific terms or was otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any Texas Court, this being in addition to any other remedy to which they are entitled at law or in equity. 10.15. Subsidiaries. As used in this Agreement, the word "Subsidiary" when used with respect to any party means any corporation, partnership, joint venture, business trust or other entity, of which such party directly or indirectly owns or controls at least a majority of the securities or other interests having by their terms ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such corporation or other organization. 10.16. Non-Recourse. Neither the officers, Trust Managers nor shareholders of AIP shall be personally bound or have any personal liability hereunder. RELP shall look solely to the assets of AIP for satisfaction of any liability of AIP with respect to this Agreement and the Ancillary Agreements to which it is a party. RELP will not seek recourse or commence any action against any of the shareholders of AIP or any of their personal assets, and will not commence any action for money judgments against any of the Trust Managers or officers of AIP or seek recourse against any of their personal assets, for the performance or payment of any obligation of AIP hereunder or thereunder. The partners of RELP shall not be personally bound or have any personal liability hereunder. AIP shall look solely to the assets of RELP for satisfaction of any liability of RELP with respect to this Agreement and the Ancillary Agreements to which it is a party. AIP will not seek recourse or commence any action against any of the partners of RELP or any of their personal assets, and will not commence any action for money judgments against any of the directors or officers of RELP or seek recourse against any of their personal assets, for the performance or payment of any obligation of RELP hereunder or thereunder. 38 IN WITNESS WHEREOF, the parties have executed this Agreement and caused the same to be duly delivered on their behalf on the day and year first written above. AMERICAN INDUSTRIAL PROPERTIES REIT /s/ CHARLES W. WOLCOTT ------------------------------------------ Charles W. Wolcott, President and Chief Executive Officer USAA REAL ESTATE INCOME INVESTMENTS II LIMITED PARTNERSHIP By: USAA INVESTORS II, INC., Its General Partner /s/ T. PATRICK DUNCAN ---------------------------------- T. Patrick Duncan Senior Vice President - Operations EX-10.3 4 AGREEMENT & PLAN OF MERGER 1 EXHIBIT 10.3 AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of June 30, 1997, is entered into by and between American Industrial Properties REIT, a Texas real estate investment trust ("AIP") , and USAA Income Properties III Limited Partnership, a Delaware limited partnership ("RELP"). USAA Real Estate Company, a Delaware corporation ("Realco"), is a party to this Agreement solely for the purpose of binding itself to the provisions of Section 7.10 hereunder. RECITALS A. The Board of Trust Managers of AIP (the "Board of Trust Managers") and the general partner of RELP have each determined that a business combination between AIP and RELP is in the best interests of their shareholders and partners, respectively, and presents an opportunity for their respective businesses to achieve strategic and financial benefits, and accordingly have agreed to effect a merger subject to the terms and conditions set forth herein. B. AIP and RELP desire to make certain representations, warranties and agreements in connection with the merger. NOW, THEREFORE, in consideration of the foregoing, and of the representations, warranties, covenants and agreements contained herein, AIP and RELP hereby agree as follows: ARTICLE I. THE MERGER 1.1. The Merger. Subject to the terms and conditions of this Agreement, at the Effective Time (as defined in Section 1.3), RELP shall be merged with and into AIP in accordance with this Agreement and the Plan of Merger (the "Plan of Merger") in substantially the form attached hereto as Exhibit A, with such completions, additions and substitutions conforming to the terms of this Agreement as the parties shall approve, such approval to be conclusively evidenced by their causing the Plan of Merger containing such completions, additions or substitutions to be filed in accordance with applicable laws; and the separate existence of RELP shall thereupon cease (the "Merger"). AIP shall be the surviving entity in the Merger (sometimes hereinafter referred to as the "Survivor"). The Merger shall have the effects specified in Section 23.60 of the Texas Real Estate Investment Trust Act, as amended (the "Texas REIT Act") and Section 17-211 of the Delaware Revised Uniform Limited Partnership Act (the "LP Act"). 1.2. The Closing. Subject to the terms and conditions of this Agreement, the closing of the Merger (the "Closing") shall take place at the offices of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. ("Liddell, Sapp"), located at 2200 Ross Avenue, Suite 900, Dallas, Texas at 10:00 a.m., local time, within five business days after receipt of approval of the Merger by AIP's shareholders and RELP's partners, or at such other time, date or place as AIP and RELP may agree. The date on which the Closing occurs is hereinafter referred to as the "Closing Date." 2 1.3. Effective Time. If all the conditions to the Merger set forth in Article VIII shall have been fulfilled or waived (and this Agreement shall not have been terminated as provided in Article IX), AIP and RELP shall cause Articles of Merger satisfying the requirements of the Texas REIT Act and Articles of Merger satisfying the requirements of the LP Act to be properly executed, verified and delivered for filing in accordance with the LP Act and the Texas REIT Act on the Closing Date. The Merger shall become effective for accounting and all other purposes to the fullest extent permitted by law as of the close of business on December 31, 1997 (the "Effective Time") or such other date as may be agreed to by the parties. For state law purposes, the Merger shall become effective upon the issuance of a certificate of merger by the Secretary of State of the State of Delaware in accordance with the LP Act or at such later time which AIP and RELP shall have agreed upon and designated in such filings in accordance with applicable law. ARTICLE II. DECLARATION OF TRUST AND BYLAWS OF THE SURVIVOR 2.1. Declaration of Trust. The Declaration of Trust of AIP in effect immediately prior to the Effective Time shall be the Declaration of Trust of the Survivor until duly amended in accordance with applicable law. 2.2. Bylaws. The Bylaws of AIP in effect immediately prior to the Effective Time shall be the Bylaws of the Survivor until duly amended in accordance with applicable law. ARTICLE III. TRUST MANAGERS AND OFFICERS OF AIP 3.1. Trust Managers. The Trust Managers of AIP immediately prior to the Effective Time shall be the Trust Managers of AIP as of the Effective Time. 3.2. Officers. The officers of AIP immediately prior to the Effective Time shall be the officers of AIP as of the Effective Time. ARTICLE IV. RELP PARTNERSHIP INTERESTS 4.1. Conversion of the RELP Partnership Interest. (a) At the Effective Time, each Common Share of Beneficial Interest of AIP outstanding immediately prior to the Effective Time shall remain outstanding and shall represent one Common Share of Beneficial Interest of AIP. (b) At the Effective Time, the general and limited partnership interests of RELP (each a "RELP Interest"), issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of holder thereof, be converted into the right to receive Common Shares of Beneficial Interest, $0.10 par value per share (the "AIP Common Shares"), of AIP. The aggregate number of AIP Common Shares to be issued to the RELP partners in connection with the Merger shall be equal to $24,300,000 (the "Purchase Price") divided by the Share Price (the "Total Shares"). If RELP repays any mortgage indebtedness existing on the date hereof during the period from the date hereof to and including the Closing Date, the Purchase Price shall be appropriately adjusted. The term "Share Price" shall mean $2.625. The number of AIP 3 Common Shares to be received by a partner shall be equal to the Total Shares multiplied by such partner's percentage interest in RELP plus each limited partner's pro rata portion of the general partnership interest of the RELP's general partner. (c) As a result of the Merger and without any action on the part of the holder thereof, at the Effective Time, all RELP Interests shall cease to be outstanding and shall be canceled and retired, and each holder of a RELP Interest shall thereafter cease to have any rights with respect to such RELP Interest, except the right to receive, without interest, the AIP Common Shares and cash for fractional shares of AIP Common Shares in accordance with Sections 4.1(b) and 4.2(e). 4.2. Exchange of RELP Interests. (a) As of the Effective Time, AIP shall deposit, or shall cause to be deposited, with an exchange agent selected by AIP, which shall be AIP's Transfer Agent or such other party reasonably satisfactory to RELP (the "Exchange Agent"), for the benefit of the holders of RELP Interests, for exchange in accordance with this Article IV, certificates representing the Total Shares and the cash in lieu of fractional shares (such cash and certificates for the Total Shares together with any dividends or distributions with respect thereto, being hereinafter referred to as the "Exchange Fund") to be issued pursuant to Section 4.1 and paid pursuant to this Section 4.2 in exchange for outstanding RELP Interests. (b) Promptly after the Effective Time, AIP shall cause the Exchange Agent to mail to each holder of record of a RELP Interest (x) a certificate representing the number of whole shares of AIP Common Shares and (y) a check representing the amount of cash in lieu of fractional shares, if any, and unpaid dividends and distributions, if any, which such holder has the right to receive in respect of the RELP Interest surrendered pursuant to the provisions of this Article IV, after giving effect to any required withholding tax. No interest will be paid or accrued on the cash in lieu of fractional shares and unpaid dividends and distributions, if any, payable to holders of RELP Interests. In the event of a transfer of ownership of RELP Interests which is not registered in the transfer records of RELP, a certificate representing the proper number of AIP Common Shares, together with a check for the cash to be paid in lieu of fractional shares, may be issued to such a transferee if such holder presents to the Exchange Agent, all documents required to evidence and effect such transfer and to evidence that any applicable transfer taxes have been paid. (c) At and after the Effective Time, there shall be no transfers on the transfer books of RELP of RELP Interests which were outstanding immediately prior to the Effective Time. (d) No fractional AIP Common Shares shall be issued pursuant hereto. In lieu of the issuance of any fractional AIP Common Shares pursuant to Section 4.1(b), cash adjustments will be paid to holders in respect of any fractional AIP Common Shares that would otherwise be issuable, and the amount of such cash adjustment shall be equal to such fractional proportion of the Share Price. (e) Any portion of the Exchange Fund (including the proceeds of any investments thereof and any AIP Common Shares) that remains unclaimed by the former partners of RELP one year after the Effective Time shall be delivered to AIP. Any former partners of RELP who have not theretofore complied with this Article IV shall thereafter look only to AIP for delivery of their AIP Common 4 Shares, and payment of cash in lieu of fractional shares and unpaid dividends and distributions on the AIP Common Shares deliverable in respect of each RELP Interest such partners hold as determined pursuant to this Agreement, in each case, without any interest thereon. (f) None of AIP, RELP, the Exchange Agent or any other person shall be liable to any former holder of RELP Interests for any amount properly delivered to a public official pursuant to applicable abandoned property, escheat or similar laws. ARTICLE V. REPRESENTATIONS AND WARRANTIES OF RELP RELP represents and warrants to AIP as set forth below. As contemplated below, a "RELP Disclosure Letter" will be delivered to AIP on or before August 11, 1997. The RELP Disclosure Letter shall provide the information or exceptions described below and shall list all of the assets of the RELP that will not be transferred in connection with the Merger. The RELP Disclosure Letter shall be amended prior to Closing to cause such representations and warranties to be materially true and correct on the Closing Date, but RELP shall remain liable for any material breach of such representations and warranties reflected in such amendment only as provided in Section 9.5(d), below. 5.1. Existence; Good Standing; Authority; Compliance with Law. (a) RELP is a limited partnership, duly formed, validly existing and in good standing under the laws of the State of Delaware. To its actual knowledge, RELP is duly licensed or qualified to do business as a foreign limited partnership and is in good standing under the laws of any other state of the United States in which the character of the properties owned or leased by it therein or in which the transaction of its business makes such qualification necessary, except where the failure to be so qualified would not have a material adverse effect on the business, results of operations or financial condition of RELP (a "RELP Material Adverse Effect"). RELP has all requisite power and authority to own, operate, lease and encumber its properties and carry on its business as now conducted. (b) To the RELP's actual knowledge, it is not in violation of any order of any court, governmental authority or arbitration board or tribunal, or any law, ordinance, governmental rule or regulation to which RELP or any of its properties or assets is subject, where such violation would have a RELP Material Adverse Effect. RELP has obtained all licenses, permits and other authorizations and has taken all actions required by applicable law or governmental regulations in connection with its business as now conducted, where the failure to obtain any such item or to take any such action would have a RELP Material Adverse Effect. A copy of RELP's Agreement of Limited Partnership and Certificate of Limited Partnership (collectively, the "RELP Organizational Documents") have been delivered or made available to AIP and its counsel and such documents will be listed in the RELP Disclosure Letter and were or will be true and correct when delivered or made available. 5.2. Authorization, Validity and Effect of Agreements. RELP has the requisite power and authority to enter into the transactions contemplated hereby and to execute and deliver this Agreement and all other documents, agreements and instruments related to the transactions 5 contemplated by this Agreement (the "RELP Ancillary Agreements"). Subject only to the approval of this Agreement and the transactions contemplated hereby in accordance with the Agreement of Limited Partnership of the RELP, the consummation by RELP of this Agreement, the RELP Ancillary Agreements and the transactions contemplated hereby have been duly authorized by all requisite action on the part of RELP. In reliance upon the legal opinion described in Section 8.2(e), RELP believes this Agreement constitutes, and the RELP Ancillary Agreements (when executed and delivered pursuant hereto for value received) will constitute, the valid and legally binding obligations of RELP, enforceable against RELP in accordance with their respective terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights and general principles of equity (collectively, "Equitable Remedies"). 5.3. Future Issuances. To RELP's actual knowledge, there are not at the date of this Agreement any existing options, warrants, calls, subscriptions, convertible securities, or other rights, agreements or commitments which obligate RELP to issue, transfer or sell any RELP Interests. After the Effective Time, AIP will have no obligation to issue, transfer or sell any RELP Interest. 5.4. Other Interests. Except as set forth in the RELP Disclosure Letter, RELP does not own directly or indirectly any interest or investment (whether equity or debt) in any corporation, partnership, joint venture, business, trust or entity (other than investments in short-term investment securities). 5.5. No Violation. To RELP's actual knowledge, neither the execution and delivery by RELP of this Agreement nor the consummation by RELP of the transactions contemplated hereby in accordance with the terms hereof, will: (i) conflict with or result in a breach of any provisions of the Agreement of Limited Partnership of RELP; (ii) except as contemplated by the RELP Ancillary Agreements or as will be set forth in the RELP Disclosure Letter, violate, or conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination or in a right of termination or cancellation of, or accelerate the performance required by, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties of RELP under, or result in being declared void, voidable or without further binding effect, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust or any license, franchise, permit, lease, contract, agreement or other instrument, commitment or obligation to which RELP is a party, or by which RELP or any of its properties is bound or affected, except for any of the foregoing matters which, individually or in the aggregate, would not have a RELP Material Adverse Effect; or (iii) other than the filings provided for in Article I, any filings required under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Securities Act or applicable state securities and "Blue Sky" laws (collectively, the "Regulatory Filings"), require any consent, approval or authorization of, or declaration, filing or registration with, any domestic governmental or regulatory authority, except where the failure to obtain any such consent, approval or authorization of, or declaration, filing or registration with, any governmental or regulatory authority would not have an RELP Material Adverse Effect. 5.6. SEC Documents. (a) RELP has made available or will make available to AIP prior to July 31, 1997, each registration statement, report, proxy statement or information statement and 6 all exhibits thereto prepared by it or relating to its properties (including registration statements covering mortgage pass-through certificates) since January 1, 1994, each in the form (including exhibits and any amendments thereto) filed with the SEC (collectively, the "RELP Reports"). The RELP Reports, which were or will be filed with the SEC in a timely manner, constitute all forms, reports and documents required to be filed by RELP under the Securities Act of 1933, as amended (the "Securities Act"), the Exchange Act and the rules and regulations promulgated thereunder (collectively the "Securities Laws") for the periods stated above. (b) To the RELP's actual knowledge, as of their respective dates, the RELP Reports (i) complied as to form in all material respects with the applicable requirements of the Securities Laws and (ii) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading. To the RELP's actual knowledge, each of the balance sheets of RELP included in or incorporated by reference into the RELP Reports (including the related notes and schedules) fairly presents the financial position of RELP as of its date and each of the consolidated statements of income, retained earnings and cash flows of RELP included in or incorporated by reference into the RELP Reports (including any related notes and schedules) fairly presents the results of operations, retained earnings and cash flows, as the case may be, of RELP for the periods set forth therein (subject, in the case of unaudited statements, to normal year-end audit adjustments which would not be material in amount or effect), in each case in accordance with generally accepted accounting principles consistently applied during the periods involved, except as may be noted therein and except, in the case of the unaudited statements, as permitted by the Securities Laws. (c) Except as and to the extent set forth on the balance sheet of RELP at March 31, 1997, including all notes thereto, or as set forth in the RELP Reports, RELP has no material liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) that would be required to be reflected on, or reserved against in, a balance sheet of RELP or in the notes thereto, prepared in accordance with generally accepted accounting principles consistently applied, except liabilities arising in the ordinary course of business since such date which would not have a RELP Material Adverse Effect. 5.7. Litigation. To the RELP's actual knowledge, there are (i) no continuing orders, injunctions or decrees of any court, arbitrator or governmental authority to which RELP is a party or by which any of its properties or assets are bound or to which USAA Properties III, Inc. (the "General Partner") or the General Partner's, directors, officers, or affiliates is a party or by which any of their properties or assets are bound, and (ii) except as will be set forth in the RELP Disclosure Letter, no actions, suits or proceedings pending against RELP or against the General Partner or the General Partner's directors, officers or affiliates or, to the knowledge of the General Partner, threatened against RELP or against the General Partner or the General Partner's directors, officers or affiliates, at law or in equity, or before or by any federal or state commission, board, bureau, agency or instrumentality, that in the case of clauses (i) or (ii) above are reasonably likely, individually or in the aggregate, to have a RELP Material Adverse Effect. 7 5.8. Absence of Certain Changes. Except as disclosed in the RELP Reports filed prior to the date hereof, since March 31, 1997, (i) RELP conducted its business only in the ordinary course of such business (which for purposes of this section only, shall include all acquisitions of real estate properties and financing arrangements made in connection therewith or otherwise will be set forth in the RELP Disclosure Letter); (ii) there has not been any RELP Material Adverse Effect; (iii) there has not been any distribution, setting aside or payment of any distribution with respect to any RELP Interest, and (iv) there has not been any material change in RELP's accounting principles, practices or methods. 5.9. Taxes. (a) Except as may be set forth in the RELP Disclosure Letter, RELP (i) has timely filed all federal, state and foreign tax returns including, without limitation, information returns and reports required to be filed by it for tax periods ended prior to the date of this Agreement or requests for extensions have been timely filed and any such request has been granted and has not expired and all such returns are accurate and complete in all material respects, (ii) has paid or accrued all taxes shown to be due and payable on such returns or which have become due and payable pursuant to any assessment, deficiency notice, 30-day letter or other notice received by it and (iii) has properly accrued all taxes for such periods and periods subsequent to the periods covered by such returns. RELP has not received notice that the federal, state and local income and franchise tax returns of RELP has been or will be examined by any taxing authority. RELP has not executed or filed with the Internal Revenue Service (the "IRS") or any other taxing authority any agreement now in effect extending the period for assessment or collection of any income or other taxes. (b) Except as may be set forth in the RELP Disclosure Letter, RELP is not a party to any pending action or proceeding by any governmental authority for assessment or collection of taxes, and no claim for assessment or collection of taxes has been asserted against it. True, correct and complete copies of all federal, state and local income or franchise tax returns filed by RELP since January 1, 1991 and all communications relating thereto have been delivered to AIP or made available to representatives of AIP or will be so delivered or made available prior to July 31, 1997. RELP does not hold any asset (i) the disposition of which could be subject to rules similar to Section 1374 of the Internal Revenue Code of 1986, as amended (the "Code") as a result of an election under IRS Notice 88-19 or (ii) that is subject to a consent filed pursuant to Section 341(f) of the Code and regulations thereunder. For purposes of this Section 5.9, "taxes" includes any interest, penalty or additional amount payable with respect to any tax. 5.10. Books and Records. The books of account and other financial records of RELP are in all material respects true, complete and correct, have been maintained in accordance with good business practices, and are accurately reflected in all material respects in the financial statements included in the RELP Reports. 5.11. Properties. (a) RELP owns fee simple title to each of the real properties reflected on the most recent balance sheet of RELP included in the RELP Reports or as may be identified in the RELP Disclosure Letter (the "RELP Properties"), which are all of the real estate properties owned by it, free and clear of liens, mortgages or deeds of trust, claims against title, charges which are liens or security interests ("Encumbrances") except as will be noted in the RELP Disclosure 8 Letter. To RELP's actual knowledge, the RELP Properties are not subject to any rights of way, written agreements, laws, ordinances and regulations affecting building use or occupancy, or reservations of an interest in title (collectively, "Property Restrictions"), except for (i) Encumbrances and Property Restrictions that will be set forth in the RELP Disclosure Letter, (ii) Property Restrictions imposed or promulgated by law or any governmental body or authority with respect to real property, including zoning regulations, provided they do not materially adversely affect the current use of the property, (iii) Encumbrances and Property Restrictions disclosed on existing title reports or current surveys (in either case copies of which title reports and surveys have been or will be delivered or made available to AIP July 31, 1997), (iv) mechanics', carriers', workmen's, repairmen's liens and other Encumbrances, Property Restrictions and other limitations of any kind, if any, which have heretofore been bonded (and that will be listed in the RELP Disclosure Letter) or which individually or in the aggregate do not exceed $100,000, do not materially detract from the value of or materially interfere with the present use of any of the RELP Properties subject thereto or affected thereby, and do not otherwise materially impair business operations conducted by RELP and which have arisen or been incurred only in its construction activities or in the ordinary course of business. (b) Valid policies of title insurance have been issued insuring either (a) RELP's fee simple title to the RELP Properties or (b) first mortgage liens thereon, subject only to the matters disclosed above and as may be set forth in the RELP Disclosure Letter, and such policies are, at the date hereof, in full force and effect and no claim has been made against any such policy. To RELP's actual knowledge, except as will be set forth in the RELP Disclosure Letter: (i) there is no certificate, permit or license from any governmental authority having jurisdiction over any of the RELP Properties or any agreement, easement or other right which is necessary to permit the lawful use and operation of the buildings and improvements on any of the RELP Properties or which is necessary to permit the lawful use and operation of all driveways, roads and other means of egress and ingress to and from any of the RELP Properties that has not been obtained and is not in full force and effect, or of any pending threat of modification or cancellation of any of same; (ii) RELP has not received written notice of any material violation of any federal, state or municipal law, ordinance, order, regulation or requirement affecting any portion of any of the RELP Properties issued by any governmental authority; (iii) there are no structural defects relating to the RELP Properties and no RELP Properties whose building systems are not in working order in any material respect; and (iv) there is (A) no physical damage to any RELP Property in excess of $100,000 for which there is no insurance in effect covering the cost of the restoration, (B) no current renovation to any RELP Property the cost of which exceeds $100,000 and (C) no current restoration (excluding tenant improvements) of any RELP Property, the cost of which exceeds $100,000. (c) Except as will be set forth in the RELP Disclosure Letter, RELP has not received notice to the effect that and there are no (A) condemnation or rezoning proceedings that are pending or threatened with respect to any of the RELP Properties or (B) zoning, building or similar laws, codes, ordinances, orders or regulations that are or will be violated by the continued maintenance, operation or use of any buildings or other improvements on any of the RELP Properties or by the continued maintenance, operation or use of the parking areas. All work to be performed, payments to be made and actions to be taken by RELP prior to the date hereof pursuant to any agreement entered into with a governmental body or authority in connection with a site approval, zoning 9 reclassification or other similar action relating to the RELP Properties (e.g., Local Improvement District, Road Improvement District, Environmental Mitigation) has been performed, paid or taken, as the case may be, and RELP is not aware of any planned or proposed work, payments or actions that may be required after the date hereof pursuant to such agreements, except as will be set forth in the RELP Disclosure Letter. 5.12. Environmental Matters. To RELP's actual knowledge, RELP has not caused (i) the unlawful presence of any hazardous substances, hazardous materials, toxic substances or waste materials (collectively, "Hazardous Materials") on any of the RELP Properties, or (ii) any unlawful spills, releases, discharges or disposal of Hazardous Materials to have occurred or be presently occurring on or from the RELP Properties as a result of any construction on or operation and use of such properties, which presence or occurrence would, individually or in the aggregate, have a RELP Material Adverse Effect; and in connection with the construction on or operation and use of the RELP Properties, RELP has not failed to comply, in any material respect, with any applicable local, state and federal environmental laws, regulations, ordinances and administrative and judicial orders relating to the generation, recycling, reuse, sale, storage, handling, transport and disposal of any Hazardous Materials. 5.13. Labor Matters. RELP is not a party to, or bound by, any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor union organization. There is no unfair labor practice or labor arbitration proceeding pending or, to the knowledge of the General Partner, threatened against RELP relating to its business, except for any such proceeding which would not have a RELP Material Adverse Effect. To the knowledge of the General Partner, there are no organizational efforts with respect to the formation of a collective bargaining unit presently being made or threatened involving employees of RELP or any of its Subsidiaries. 5.14. No Brokers. Except the fee that is to be paid to Houlihan Lokey Howard & Zukin ("Houlihan") by RELP as described in Section 5.15 below, RELP has not entered into any contract, arrangement or understanding with any person or firm which may result in the obligation of RELP or AIP to pay any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby. RELP is not aware of any claim for payment of any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby. 5.15. Opinion of Financial Advisor. RELP has retained Houlihan to review the transaction contemplated by this Agreement and to issue an opinion to the effect that, as of the date of such opinion, the Purchase Price is fair to the holders of RELP Interests from a financial point of view. 5.16. Related Party Transactions. Except as set forth in the RELP Disclosure Letter, there are no arrangements, agreements or contracts entered into by RELP with (i) any consultant, (ii) any person who is an officer, director or affiliate of RELP or its General Partner, any relative of any of the foregoing or any entity of which any of the foregoing is an affiliate, or (iii) any person who acquired RELP Interests in a private placement. 10 5.17. Contracts and Commitments. The RELP Disclosure Letter will set forth (i) all unsecured notes or other obligations of RELP which individually may result in total payments in excess of $100,000, (ii) all notes, debentures, bonds and other evidence of indebtedness which are secured or collateralized by mortgages, deeds of trust or other security interests in the RELP Properties or personal property of RELP, and (iii) each commitment entered into by RELP which may result in total payments or liability in excess of $100,000. Copies of the foregoing will be delivered or made available to AIP prior to July 31, 1997, will be listed on the RELP Disclosure Letter and will be materially true and correct when delivered or made available. RELP has not received any notice of a default that has not been cured under any of the documents described in clause (i) above or is in default respecting any payment obligations thereunder beyond any applicable grace periods. All options of RELP to purchase real property will be set forth on the RELP Disclosure Letter and such options and RELP's rights thereunder are in full force and effect. All joint venture agreements to which RELP is a party will be set forth on the RELP Disclosure Letter and RELP is not in default with respect to any obligations, which individually or in the aggregate are material, thereunder. 5.18. Development Rights. Set forth in the RELP Disclosure Letter will be a list of all material agreements entered into by RELP relating to the development, rehabilitation, capital improvement or construction of office buildings, industrial facilities or other real estate properties, which development or construction has not been substantially completed as of the date of this Agreement. Such agreements, true and correct copies of all of which will be delivered or made available to AIP prior to July 31, 1997, will be listed in the RELP Disclosure Letter, have not been modified and are valid and binding in accordance with their respective terms. 5.19. Convertible Securities. To RELP's actual knowledge, RELP has no outstanding options, warrants or other securities exercisable for, or convertible into, RELP Interests, the terms of which would require any anti- dilution adjustments by reason of the consummation of the transactions contemplated hereby. ARTICLE VI . REPRESENTATIONS AND WARRANTIES OF AIP AIP represents and warrants to RELP as set forth below. As contemplated below, an "AIP Disclosure Letter" will be delivered to RELP on or before August 11, 1997. The AIP Disclosure Letter shall provide the information or exceptions described below. The AIP Disclosure Letter shall be amended prior to Closing to cause such representations and warranties to be materially true and correct on the Closing Date, but AIP shall remain liable for any material breach of such representations and warranties reflected in such amendment only as provided in Section 9.5(d), below. 6.1. Existence; Good Standing; Authority; Compliance with Law. (a) AIP is a real estate investment trust duly organized and validly existing under the laws of the State of Texas. To AIP's actual knowledge, AIP is duly licensed or qualified to do business and is in good standing under the laws of any other state of the United States in which the character of the properties owned or leased by it therein or in which the transaction of its business makes such qualification necessary, except where the failure to be so qualified would not have a material adverse effect on the business, results 11 of operations or financial condition of AIP and its subsidiaries taken as a whole (an "AIP Material Adverse Effect"). AIP has all requisite power and authority to own, operate, lease and encumber its properties and carry on its business as now conducted. Each of AIP's Subsidiaries is a corporation, limited liability company or partnership duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, has the requisite power and authority to own its properties and to carry on its business as it is now being conducted, and is duly qualified to do business and is in good standing in each jurisdiction in which the ownership of its property or the conduct of its business requires such qualification, except for jurisdictions in which such failure to be so qualified or to be in good standing would not have an AIP Material Adverse Effect. (b) To AIP's actual acknowledge, neither AIP nor any AIP Subsidiary is in violation of any order of any court, governmental authority or arbitration board or tribunal, or any law, ordinance, governmental rule or regulation to which AIP or any AIP Subsidiary or any of their respective properties or assets is subject, where such violation would have an AIP Material Adverse Effect. AIP and its Subsidiaries have obtained all licenses, permits and other authorizations and have taken all actions required by applicable law or governmental regulations in connection with their business as now conducted, where the failure to obtain any such item or to take any such action would have an AIP Material Adverse Effect. Copies of AIP's and its Subsidiaries' Declaration of Trust, Articles of Incorporation, Bylaws, organizational documents and partnership and joint venture agreements have been or will be prior to July 31, 1997, delivered or made available to RELP and such documents will be listed in the AIP Disclosure Letter and were or will be true and correct when delivered or made available. For the purposes of the immediately preceding sentence, the term "Subsidiary"shall include the entities set forth in AIP's Disclosure Letter, which are all of AIP's Subsidiaries. 6.2. Authorization, Validity and Effect of Agreements. AIP has the requisite power and authority to enter into the transactions contemplated hereby and to execute and deliver this Agreement and all other documents, agreements and instruments related to the transactions contemplated by this Agreement to which it is a party (the "AIP Ancillary Agreements"). Subject only to the approval of the issuance of AIP Common Shares pursuant to the Merger contemplated hereby by the holders of two-thirds of the outstanding AIP Common Shares, present and voting thereon, the consummation by AIP of this Agreement, the AIP Ancillary Agreements and the transactions contemplated hereby have been duly authorized by all requisite action on the part of AIP. This Agreement constitutes, and the AIP Ancillary Agreements (when executed and delivered pursuant hereto for value received) will constitute, the valid and legally binding obligations of AIP enforceable against AIP in accordance with their respective terms, subject to Equitable Remedies. 6.3. Capitalization. On June 15, 1997, the authorized capital stock of AIP consists of 10,000,000 Common Shares. As of the date hereof, all 10,000,000 Common Shares are outstanding. AIP has no outstanding bonds, debentures, notes or other obligations (other than to Realco), the holders of which have the right to vote (or which are convertible into or exercisable for securities having the right to vote) with the shareholders of AIP on any matter. Except as set forth in the AIP Disclosure Letter, all such issued and outstanding of AIP Common Shares are duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights. Except as set forth in the AIP Disclosure Letter, there are not at the date of this Agreement any existing options, warrants, calls, 12 subscriptions, convertible securities, or other rights, agreements or commitments which obligate AIP or any of its Subsidiaries to issue, transfer or sell any shares or other equity interest of AIP or any of its Subsidiaries except under any employee incentive plan approved by AIP's shareholders. There are no agreements or understandings to which AIP is a party with respect to the voting of any AIP Common Shares or which restrict the transfer of any such shares, except in order to protect its REIT status. 6.4. Subsidiaries. Except as set forth in the AIP Disclosure Letter, AIP owns directly or indirectly each of the outstanding shares of capital stock or all of the partnership or other equity interests of each of AIP's Subsidiaries free and clear of all liens, pledges, security interests, claims or other encumbrances other than liens imposed by local law which are not material. 6.5. Other Interests. Except as will be disclosed in the AIP Disclosure Letter and except for interests in the AIP Subsidiaries, neither AIP nor any AIP Subsidiary owns directly or indirectly any interest or investment (whether equity or debt) in any corporation, partnership, joint venture, business, trust or entity (other than investments in short-term investment securities). 6.6. No Violation. Neither the execution and delivery by AIP of this Agreement nor the consummation by AIP of the transactions contemplated hereby in accordance with the terms hereof, will: (i) conflict with or result in a breach of any provisions of AIP's Declaration of Trust; (ii) violate, or conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination or in a right of termination or cancellation of, or accelerate the performance required by, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties of AIP or its Subsidiaries under, or result in being declared void, voidable or without further binding effect, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust or any license, franchise, permit, lease, contract, agreement or other instrument, commitment or obligation to which AIP or any of its Subsidiaries is a party, or by which AIP or any of its Subsidiaries or any of their properties is bound or affected, except for any of the foregoing matters which, individually or in the aggregate, would not have an AIP Material Adverse Effect; or (iii) other than the Regulatory Filings require any consent, approval or authorization of, or declaration, filing or registration with, any domestic governmental or regulatory authority, except where the failure to obtain such consent, approval or authorization of, or declaration, filing or registration with, any governmental or regulatory authority would not have an AIP Material Adverse Effect. 6.7. SEC Documents. (a) AIP has made available or will make available to RELP prior to July 31, 1997, the registration statements of AIP filed with the SEC in connection with public offerings of AIP securities since January 1, 1994 and all exhibits, amendments and supplements thereto (the "AIP Registration Statements"), and each registration statement, report, proxy statement or information statement and all exhibits thereto prepared by it or relating to its properties since the effective date of the latest AIP Registration Statement, each in the form (including exhibits and any amendments thereto) filed with the SEC (collectively, the "AIP Reports"). The AIP Reports, which were or will be filed with the SEC in a timely manner, constitute all forms, reports and documents required to be filed by AIP under the Securities Laws. 13 (b) To AIP's actual knowledge, as of their respective dates, the AIP Reports (i) complied as to form in all material respects with the applicable requirements of the Securities Laws, and (ii) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading. To AIP's actual acknowledge, each of the consolidated balance sheets of AIP included in or incorporated by reference into the AIP Reports (including the related notes and schedules) fairly presents the consolidated financial position of AIP and the AIP Subsidiaries as of its date and each of the consolidated statements of income, retained earnings and cash flows of AIP included in or incorporated by reference into the AIP Reports (including any related notes and schedules) fairly presents the results of operations, retained earnings or cash flows, as the case may be, of AIP and the AIP Subsidiaries for the periods set forth therein (subject, in the case of unaudited statements, to normal year-end audit adjustments which would not be material in amount or effect), in each case in accordance with generally accepted accounting principles consistently applied during the periods involved, except as may be noted therein and except, in the case of the unaudited statements, as permitted by the Securities Laws. (c) Except as and to the extent set forth on the consolidated balance sheet of AIP and its Subsidiaries at March 31, 1997, including all notes thereto, or as set forth in the AIP Reports, neither AIP nor any of the AIP Subsidiaries has any material liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) that would be required to be reflected on, or reserved against in, a balance sheet of AIP or in the notes thereto, prepared in accordance with generally accepted accounting principles consistently applied, except liabilities arising in the ordinary course of business since such date which would not have an AIP Material Adverse Effect. 6.8. Litigation. To AIP's actual knowledge, there are (i) no continuing orders, injunctions or decrees of any court, arbitrator or governmental authority to which AIP or any AIP Subsidiary is a party or by which any of its properties or assets are bound or, to which any of its directors, officers, or affiliates is a party or by which any of their properties or assets are bound, and (ii) except as will be set forth in the AIP Disclosure Letter, no actions, suits or proceedings pending against AIP or any AIP Subsidiary or, to the knowledge of AIP, against any of its Trust Managers, officers, or affiliates or, to the knowledge of AIP, threatened against AIP or any AIP Subsidiary or against any of its Trust Managers, officers, or affiliates, at law or in equity, or before or by any federal or state commission, board, bureau, agency or instrumentality, that in the case of clauses (i) or (ii) above are reasonably likely, individually or in the aggregate, to have an AIP Material Adverse Effect. 6.9. Absence of Certain Changes. Except as disclosed in the AIP Reports filed with the SEC prior to the date hereof, (i) AIP and its Subsidiaries have conducted their business only in the ordinary course of such business (which, for purposes of this section only, shall include all acquisitions of real estate properties and financing arrangements made in connection therewith); (ii) there has not been any AIP Material Adverse Effect; (iii) there has not been any declaration, setting aside or payment of any dividend or other distribution with respect to the AIP Common Shares; and (iv) there has not been any material change in AIP's accounting principles, practices or methods. 14 6.10. Taxes. (a) Except as may be set forth in the AIP Disclosure Letter, AIP and each of its Subsidiaries (i) has timely filed all federal, state and foreign tax returns including, without limitation, information returns and reports required to be filed by any of them for tax periods ended prior to the date of this Agreement or requests for extensions have been timely filed and any such request has been granted and has not expired and all such returns are absolute and complete in all material respects, (ii) has paid or accrued all taxes shown to be due and payable on such returns or which have become due and payable pursuant to any assessment, deficiency notice, 30-day letter or other notice received by it and (iii) has properly accrued all taxes for such periods subsequent to the periods covered by such returns. Neither AIP nor any of its Subsidiaries has received notice that the federal, state and local income and franchise tax returns of AIP or any such Subsidiary has been or will be examined by any taxing authority. Neither AIP nor any of its Subsidiaries has executed or filed with the IRS or any other taxing authority any agreement now in effect extending the period for assessment or collection of any income or other taxes. (b) Except as will be disclosed in the AIP Disclosure Letter, neither AIP nor any of its Subsidiaries is a party to any pending action or proceeding by any governmental authority for assessment or collection of taxes, and no claim for assessment or collection of taxes has been asserted against it. True, correct and complete copies of all federal, state and local income or franchise tax returns filed by AIP and each of its Subsidiaries and all communications relating thereto have been delivered to RELP or made available to representatives of RELP or will be so delivered or made available prior to July 31, 1997. AIP (i) has qualified to be taxed as a REIT pursuant to Sections 856 through 859 of the Code for its taxable years ended December 31, 1985 through 1996, inclusive (ii) has operated, and intends to continue to operate, in such a manner as to qualify to be taxed as a REIT pursuant to Sections 856 through 859 of the Code for its taxable year ended on the effective date of the Merger, and (iii) has not taken or omitted to take any action which could result in, and each of the executive officers of AIP, each acting in his respective capacity as such, has no actual knowledge of, a challenge to its status as a REIT. AIP represents that each of its Subsidiaries is a Qualified REIT Subsidiary as defined in Section 856 (i) of the Code. Neither AIP nor any of its Subsidiaries holds any asset (i) the disposition of which could be subject to rules similar to Section 1374 of the Code as a result of an election under IRS Notice 88-19 or (ii) that is subject to a consent filed pursuant to Section 341(f) of the Code and regulations thereunder. For purposes of this Section 6.10, "taxes" includes any interest, penalty or additional amount payable with respect to any tax. 6.11. Books and Records. (a) The books of account and other financial records of AIP and its Subsidiaries are in all material respects true, complete and correct, have been maintained in accordance with good business practices, and are accurately reflected in all material respects in the financial statements included in the AIP Reports. (b) The minute books and other records of AIP and its Subsidiaries contain in all material respects accurate records of all meetings and accurately reflect in all material respects all other corporate action of the shareholders and Trust Managers and any committees of the Board of Trust Managers of AIP and its Subsidiaries. 15 6.12. Properties. (a) AIP and its Subsidiaries own fee simple title to each of the real properties reflected on the most recent balance sheet of AIP included in the AIP Reports or as may be identified in the AIP Disclosure Letter (the "AIP Properties"), which are all of the real estate properties owned by them, free and clear of Encumbrances. To AIP's actual knowledge, the AIP Properties are not subject to any rights of way, written agreements, laws, ordinances and regulations affecting building use or occupancy, or reservations of an interest in title (collectively, "Property Restrictions"), except for (i) Encumbrances and Property Restrictions that will be set forth in the AIP Disclosure Letter, (ii) Property Restrictions imposed or promulgated by law or any governmental body or authority with respect to real property, including zoning regulations, provided they do not materially adversely affect the current use of the property, (iii) Encumbrances and Property Restrictions disclosed on existing title reports or surveys (in either case copies of which title reports and surveys have been or will be delivered or made available to RELP prior to July 31, 1997), and (iv) mechanics', carriers', workmen's, repairmen's liens and other Encumbrances, Property Restrictions and other limitations of any kind, if any, which have heretofore been bonded (and that will be listed in the AIP Disclosure Letter) or which individually or in the aggregate, do not exceed $100,000, do not materially detract from the value of or materially interfere with the present use of any of the AIP Properties subject thereto or affected thereby, and do not otherwise materially impair business operations conducted by AIP and its Subsidiaries and which have arisen or been incurred only in its construction activities or in the ordinary course of business. (b) Valid policies of title insurance have been issued insuring AIP's or any of its Subsidiaries' fee simple title to the AIP Properties, subject only to the matters disclosed above and as may be set forth in the AIP Disclosure Letter, and such policies are, at the date hereof, in full force and effect and no material claim has been made against any such policy. To AIP's actual knowledge, except as will be set forth in the AIP Disclosure Letter, (i) there is no certificate, permit or license from any governmental authority having jurisdiction over any of the AIP Properties or any agreement, easement or other right which is necessary to permit the lawful use and operation of the buildings and improvements on any of the AIP Properties or which is necessary to permit the lawful use and operation of all driveways, roads and other means of egress and ingress to and from any of the AIP Properties that has not been obtained and is not in full force and effect, or of any pending threat of modification or cancellation of any of same; (ii) neither AIP nor its Subsidiaries has received written notice of any material violation of any federal, state or municipal law, ordinance, order, regulation or requirement affecting any portion of any of the AIP Properties issued by any governmental authority; (iii) there are no structural defects relating to the AIP Properties and no AIP Properties whose building systems are not in working order in any material respect; and (iv) there is (A) no physical damage to any AIP Property in excess of $100,000 for which there is no insurance in effect covering the cost of the restoration, (B) no current renovation to any AIP Property the cost of which exceeds $100,000 and (C) no current restoration (excluding tenant improvements) of any AIP Property the cost of which exceeds $100,000. (c) Except as will be set forth in the AIP Disclosure Letter, AIP or its Subsidiaries have received no notice to the effect that and there are no (A) condemnation or rezoning proceedings that are pending or threatened with respect to any of the AIP Properties or (B) any zoning, building or similar laws, codes, ordinances, orders or regulations that are or will be violated by the continued maintenance, operation or use of any buildings or other improvements on any of the AIP Properties 16 or by the continued maintenance, operation or use of the parking areas in any material respect. All work to be performed, payments to be made and actions to be taken by AIP or its Subsidiaries prior to the date hereof pursuant to any agreement entered into with a governmental body or authority in connection with a site approval, zoning reclassification or other similar action relating to the AIP Properties (e.g., Local Improvement District, Road Improvement District, Environmental Mitigation) has been performed, paid or taken, as the case may be, and AIP is not aware of any planned or proposed work, payments or actions that may be required after the date hereof pursuant to such agreements, except as will be set forth in the AIP Disclosure Letter. 6.13. Environmental Matters. To the actual knowledge of AIP, none of AIP, any of its Subsidiaries or, any other person has caused or permitted (i) the unlawful presence of any Hazardous Materials on any of the AIP Properties, or (ii) any unlawful spills, releases, discharges or disposal of Hazardous Materials to have occurred or be presently occurring on or from the AIP Properties as a result of any construction on or operation and use of such properties, which presence or occurrence would, individually or in the aggregate, have an AIP Material Adverse Effect; and in connection with the construction on or operation and use of the AIP Properties, AIP and its Subsidiaries have not failed to comply, in any material respect, with any applicable local, state and federal environmental laws, regulations, ordinances and administrative and judicial orders relating to the generation, recycling, reuse, sale, storage, handling, transport and disposal of any Hazardous Materials. 6.14. Labor Matters. Neither AIP nor any of its Subsidiaries is a party to, or bound by, any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor union organization. There is no unfair labor practice or labor arbitration proceeding pending or, to the knowledge of the executive officers of AIP, threatened against AIP or its Subsidiaries relating to their business, except for any such proceeding which would not have an AIP Material Adverse Effect. To the knowledge of AIP, there are no organizational efforts with respect to the formation of a collective bargaining unit presently being made or threatened involving employees of AIP or any of its Subsidiaries. 6.15. No Brokers. Except for the fee payable to Prudential Securities Incorporated ("Prudential") as described in Section 6.16 below, AIP has not entered into any contract, arrangement or understanding with any person or firm which may result in the obligation of AIP or RELP to pay any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby. AIP is not aware of any claim for payment of any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby. 6.16. Opinion of Financial Advisor. AIP has retained Prudential to review the transaction contemplated by this Agreement and to issue an opinion as to the fairness to AIP, from a financial point of view, of the consideration to be paid by AIP pursuant to the Merger. 6.17. RELP Share Ownership. Except as may be set forth in the AIP Disclosure Letter, neither AIP nor any of its Subsidiaries owns any RELP Interests or other securities convertible into RELP interests. 17 6.18. AIP Common Shares. The issuance and delivery by AIP of AIP Common Shares in connection with the Merger and this Agreement have been duly and validly authorized by all necessary action on the part of AIP except for the approval of its shareholders contemplated by this Agreement. The AIP Common Shares to be issued in connection with the Merger and this Agreement, when issued in accordance with the terms of this Agreement, will be validly issued, fully paid and nonassessable, except that shareholders may be subject to further assessment with respect to certain claims for tort, contract, taxes, statutory liability and otherwise in some jurisdictions to the extent such claims are not satisfied by AIP. 6.19. Convertible Securities. AIP has no outstanding options, warrants or other securities exercisable for, or convertible into, shares of AIP Common Shares, the terms of which would require any anti-dilution adjustments by reason of the consummation of the transactions contemplated hereby, except the preemptive rights held by certain clients of Morgan Stanley Asset Management, Inc. and held by MS Real Estate Special Situations, Inc. and the convertible debt securities held by Realco. 6.20. Related Party Transactions. Set forth in the AIP Disclosure Letter will be a list of all arrangements, agreements and contracts entered into by AIP or any of its Subsidiaries with (i) any person who is an officer, Trust Manager or affiliate of AIP or any of its Subsidiaries, any relative of any of the foregoing or any entity of which any of the foregoing is an affiliate or (ii) any person who acquired AIP Common Shares in a private placement. The copies of such documents, all of which have been or will be delivered or made available to RELP prior to July 31, 1997, are or will be true, complete and correct when delivered or made available. 6.21. Contracts and Commitments. The AIP Disclosure Letter will set forth (i) all unsecured notes or other obligations of AIP and AIP Subsidiaries which individually may result in total payments in excess of $100,000, (ii) notes, debentures, bonds and other evidence of indebtedness which are secured or collateralized by mortgages, deeds of trust or other security interests in the AIP Properties or personal property of AIP and its Subsidiaries, and (iii) each commitment entered into by AIP or any of its Subsidiaries which individually may result in total payments or liability in excess of $100,000. Copies of the foregoing have been or will be delivered or made available to RELP prior to July 31, 1997, will be listed on the AIP Disclosure Letter and are or will be materially true and correct when delivered or made available. None of AIP or any of its Subsidiaries has received any notice of a default that has not been cured under any of the documents described in clause (i) or (ii) above or is in default respecting any payment obligations thereunder beyond any applicable grace periods. All options of AIP or any of its Subsidiaries to purchase real property will be set forth on the AIP Disclosure Letter and such options and AIP's or its Subsidiaries' rights thereunder are in full force and effect. All joint venture agreements to which AIP or any of its Subsidiaries is a party will be set forth on the AIP Disclosure Letter and AIP or its Subsidiaries are not in default with respect to any obligations, which individually or in the aggregate are material, thereunder. 6.22. Development Rights. Set forth in the AIP Disclosure Letter will be a list of all material agreements entered into by AIP or any of its Subsidiaries relating to the development, rehabilitation, capital improvement or construction of office buildings, industrial facilities or other 18 real estate properties which development or construction has not been substantially completed as of the date of this Agreement. Such agreements, true, complete and correct copies of all of which have been or will be delivered or made available to RELP prior to July 31, 1997, will be listed in the AIP Disclosure Letter. 6.23. Certain Payments Resulting From Transactions. The execution of, and performance of the transactions contemplated by, this Agreement will not (either alone or upon the occurrence of any additional or subsequent events) (i) constitute an event under any AIP Benefit Plan, policy, practice, agreement or other arrangement or any trust or loan (the "Employee Arrangements") that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any employee, director or consultant of AIP or any of its Subsidiaries unless such rights have been waived by any such person, or (ii) result in the triggering or imposition of any restrictions or limitations on the right of AIP or RELP to amend or terminate any Employee Arrangement and receive the full amount of any excess assets remaining or resulting from such amendment or termination, subject to applicable taxes. No payment or benefit which will be required to be made pursuant to the terms of any agreement, commitment or AIP Benefit Plan, as a result of the transactions contemplated by this Agreement, to any officer, director or employee of AIP or any of its Subsidiaries, will be characterized as an "excess parachute payment" within the meaning of Section 280G(b)(1) of the Code. ARTICLE VII. COVENANTS 7.1. Acquisition Proposals. Prior to the Effective Time, RELP and AIP each agree (i) that neither of them nor any of their Subsidiaries shall, and each of them shall direct and use its best efforts to cause its respective officers, General Partner, limited partners, Trust Managers, employees, agents, affiliates and representatives (including, without limitation, any investment banker, attorney or accountant retained by it or any of its Subsidiaries), as applicable, not to, initiate, solicit or encourage, directly or indirectly, any inquiries or the making or implementation of any proposal or offer (including, without limitation, any proposal or offer to its shareholders) with respect to a merger, acquisition, tender offer, exchange offer, consolidation or similar transaction involving, or any purchase of all or any significant portion of the assets or any equity securities (or any debt securities convertible into equity securities) of, such party or any of its Subsidiaries, other than the transactions contemplated by this Agreement (any such proposal or offer being hereinafter referred to as an "Acquisition Proposal") or engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, any person relating to an Acquisition Proposal, or otherwise facilitate any effort or attempt to make or implement an Acquisition Proposal; (ii) that it will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing and each will take the necessary steps to inform the individuals or entities referred to above of the obligations undertaken in this Section 7.1; and (iii) that it will notify the other party immediately if any such inquiries or proposals are received by, any such information is requested from, or any such negotiations or discussions are sought to be initiated or continued with, it; provided, however, that nothing contained in this Section 7.1 shall prohibit the Board of Directors of the General Partner of RELP (the "Board of Directors") or the Board of Trust Managers from (x) 19 furnishing information to or entering into discussions or negotiations with, any person or entity that makes an unsolicited bona fide Acquisition Proposal, if, and only to the extent that, (A) the Board of Directors or Board of Trust Managers, as applicable, determines in good faith that such action is required for it to comply with its fiduciary duties to limited partners or shareholders, as applicable, imposed by law as advised by counsel, (B) prior to furnishing such information to, or entering into discussions or negotiations with, such person or entity, such party provides written notice to the other party to this Agreement to the effect that it is furnishing information to, or entering into discussions with, such person or entity, and (C) subject to any confidentiality agreement with such person or entity (which such party determined in good faith was required to be executed in order for the Board of Directors or Board of Trust Managers, as applicable, to comply with its fiduciary duties to limited partners or shareholders, as applicable, imposed by law as advised by counsel), such party keeps the other party to this Agreement informed of the status (but not the terms) of any such discussions or negotiations; and (y) to the extent applicable, complying with Rule 14e-2 promulgated under the Exchange Act with regard to an Acquisition Proposal. Nothing in this Section 7.1 shall (i) permit any party to terminate this Agreement (except as specifically provided in Article IX hereof), (ii) permit any party to enter into any agreement with respect to an Acquisition Proposal during the term of this Agreement (it being agreed that during the term of this Agreement, no party shall enter into any agreement with any person that provides for, or in any way facilitates, an Acquisition Proposal (other than a confidentiality agreement in customary form)), or (iii) affect any other obligation of any party under this Agreement. 7.2. Conduct of Businesses. (i) Prior to the Effective Time, except as may be set forth in the RELP Disclosure Letter or the AIP Disclosure Letter or as contemplated by this Agreement, unless the other party has consented in writing thereto, AIP and RELP: (a) Shall use their reasonable efforts, and shall cause each of their respective Subsidiaries to use their reasonable efforts, to preserve intact their business organizations and goodwill and keep available the services of their respective officers and employees; (b) Shall confer on a regular basis with one or more representatives of the other to report operational matters of materiality and, subject to Section 7.1, any proposals to engage in material transactions; (c) Shall promptly notify the other of any material emergency or other material change in the condition (financial or otherwise) of the business, properties, assets or liabilities, or any material governmental complaints, investigations or hearings (or communications indicating that the same may be contemplated), or the breach in any material respect of any representation, warranty, covenant or agreement contained herein; (d) Shall not pay quarterly dividends or make distributions payable with respect to the AIP Common Shares and RELP Partnership Interests, respectively; and 20 (e) Shall promptly deliver to the other true and correct copies of any report, statement or schedule filed with the SEC subsequent to the date of this Agreement. (ii) Prior to the Effective Time, except as may be set forth in the RELP Disclosure Letter, unless AIP has consented (such consent not to be unreasonably withheld or delayed) in writing thereto, RELP: (a) Shall conduct its operations according to its usual, regular and ordinary course in substantially the same manner as heretofore conducted; (b) Shall not amend the RELP Organizational Documents; (c) Shall not (i) except pursuant to the exercise of options, warrants, conversion rights and other contractual rights existing on the date hereof and disclosed pursuant to this Agreement, issue any RELP Interests, make any distribution, effect any recapitalization or other similar transaction, (ii) grant, confer or award any option, warrant, conversion right or other right not existing on the date hereof to acquire any RELP Interest, (iii) increase any compensation or enter into or amend any employment agreement with any of its present or future officers or directors of the General Partner, or (iv) adopt any new employee benefit plan or amend any existing employee benefit plan in any material respect, except for changes which are less favorable to participants in such plans; (d) Shall not declare, set aside or make any distribution or payment with respect to any RELP Interest or directly or indirectly redeem, purchase or otherwise acquire any RELP Interest, or make any commitment for any such action; (e) Shall not sell or otherwise dispose of (i) any RELP Properties, or (ii) except in the ordinary course of business, any of its other assets which are material, individually or in the aggregate; (f) Shall not make any loans, advances or capital contributions to, or investments in, any other person; (g) Shall not pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business consistent with past practice or in accordance with their terms, of liabilities reflected or reserved against in, or contemplated by, the most recent consolidated financial statements (or the notes thereto) of RELP included in the RELP Reports or incurred in the ordinary course of business consistent with past practice; (h) Shall not enter into any commitment which individually may result in total payments or liability by or to it in excess of $250,000 in the case of any one commitment or in excess of $500,000 for all commitments; 21 (i) Shall not, and shall not permit any of its Subsidiaries to, enter into any commitment with any officer, director or affiliate of RELP or its General Partner except to the extent the same occur in the ordinary course of business consistent with past practice and would not have a RELP Material Adverse Effect; and (j) Shall not enter into or terminate any lease representing annual revenues of $100,000 or more. (iii) Prior to the Effective Time, except as may be set forth in the AIP Disclosure Letter, unless RELP has consented (such consent not to be unreasonably withheld or delayed) in writing thereto, AIP: (a) Shall, and shall cause each of its Subsidiaries to, conduct its operations according to their usual, regular and ordinary course in substantially the same manner as heretofore conducted; (b) Shall not amend its Declaration of Trust or Bylaws except as contemplated by this Agreement; (c) Shall not (i) except pursuant to the exercise of options, warrants, conversion rights and other contractual rights (including AIP's existing dividend reinvestment plan) existing on the date hereof and disclosed pursuant to this Agreement, issue any shares of its capital stock, effect any share split, reverse share split, share dividend, recapitalization or other similar transaction, (ii) grant, confer or award any option, warrant, conversion right or other right not existing on the date hereof to acquire any shares of its capital shares (except pursuant to any employee incentive plan approved by shareholders), (iii) amend any employment agreement with any of its present or future officers or Trust Managers, or (iv) adopt any new employee benefit plan (including any share option, share benefit or share purchase plan) except the employee incentive plan to be voted on at its shareholder meeting for the fiscal year ended December 31, 1995; (d) Shall not declare, set aside or pay any dividend or make any other distribution or payment with respect to any Common Shares or directly or indirectly redeem, purchase or otherwise acquire any Common Shares or capital stock of any of its Subsidiaries, or make any commitment for any such action; (e) Except as will be set forth in the AIP Disclosure Letter, shall not, and shall not permit any of its Subsidiaries to, sell or otherwise dispose of (i) any AIP Properties or any of its capital stock of or other interests in Subsidiaries or (ii) except in the ordinary course of business, any of its other assets which are material, individually or in the aggregate; 22 (f) Shall not, and shall not permit any of its Subsidiaries to, make any loans, advances or capital contributions to, or investments in, any other person other than in connection with the sale of properties; (g) Shall not, and shall not permit any of its Subsidiaries to, pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business consistent with past practice or in accordance with their terms, of liabilities reflected or reserved against in, or contemplated by, the most recent consolidated financial statements (or the notes thereto) of AIP included in the AIP Reports or incurred in the ordinary course of business consistent with past practice; (h) Shall not, and shall not permit any of its Subsidiaries to, enter into any commitment which individually may result in total payments or liability by or to it in excess of $500,000 in the case of any one commitment or in excess of $500,000 for all commitments; and (i) Shall not, and shall not permit any of its Subsidiaries to, enter into any commitment with any officer, Trust Manager or affiliate of AIP or any of its Subsidiaries, except as herein or in the AIP Disclosure Letter provided and except in the ordinary course of business. For purposes of this Section 7.2, any consent shall be deemed to be unreasonably delayed if notice of consent or withholding of consent is not received within three days of request. Further, if no response is received by the end of business on such third day, the party receiving the request shall be deemed to have consented to such action. 7.3 Meetings of Shareholders and Partners. Each of AIP and RELP will take all action necessary in accordance with applicable law and its organizational documents to convene a meeting of its shareholders or partners, as applicable, as promptly as practicable to consider and vote upon or otherwise to obtain the consent of its shareholders or partners, as applicable, to (i) in the case of AIP, approve this Agreement and the transactions contemplated hereby, and (ii) in the case of RELP, approve this Agreement and the transactions contemplated hereby. The Board of Trust Managers and the General Partner shall each recommend such approval and AIP and RELP shall each take all lawful action to solicit such approval, including, without limitation, timely mailing the Proxy Statement/Prospectus (as defined in Section 7.7); provided, however, that such recommendation or solicitation is subject to any action taken by, or upon authority of, the Board of Trust Managers or the General Partner, as the case may be, in the exercise of its good faith judgment as to its fiduciary duties to its shareholders or partners, as applicable, imposed by law as advised by counsel. AIP and RELP shall coordinate and cooperate with respect to the timing of such meetings and shall use their best efforts to hold such meetings on the same day. 7.4. Filings; Other Action. Subject to the terms and conditions herein provided, RELP and AIP shall: (a) use all reasonable efforts to cooperate with one another in (i) determining which filings are required to be made prior to the Effective Time with, and which consents, approvals, 23 permits or authorizations are required to be obtained prior to the Effective Time from governmental or regulatory authorities of the United States and the several states in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and (ii) timely making all such filings and timely seeking all such consents, approvals, permits or authorizations; (b) use all reasonable efforts to obtain in writing any consents required from third parties in form reasonably satisfactory to RELP and AIP necessary to effectuate the Merger; and (c) use all reasonable efforts to take, or cause to be taken, all other action and do, or cause to be done, all other things necessary, proper or appropriate to consummate and make effective the transactions contemplated by this Agreement. If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purpose of this Agreement, the proper officers and directors of AIP and the General Partner shall take all such necessary action. 7.5. Inspection of Records. From the date hereof to the Effective Time, each of RELP and AIP shall allow all designated officers, attorneys, accountants and other representatives of the other access at all reasonable times to the records and files, correspondence, audits and properties, as well as to all information relating to commitments, contracts, titles and financial position, or otherwise pertaining to the business and affairs of RELP and AIP and their respective Subsidiaries. 7.6. Publicity. RELP and AIP shall, subject to their respective legal obligations (including requirements of stock exchanges and other similar regulatory bodies), consult with each other, and use reasonable efforts to agree upon the text of any press release before issuing any such press release or otherwise making public statements with respect to the transactions contemplated hereby and in making any filings with any federal or state governmental or regulatory agency or with any national securities exchange with respect thereto. 7.7. Registration Statement. AIP and RELP shall cooperate and promptly prepare and AIP shall file with the SEC as soon as practicable a Registration Statement on Form S-4 (the "Form S-4") under the Securities Act, with respect to the AIP Common Shares issuable in the Merger, a portion of which Registration Statement shall also serve as the joint proxy statement with respect to the meetings of the shareholders and partners, respectively, of AIP and RELP in connection with the Merger (the "Proxy Statement/Prospectus"). The respective parties will cause the Proxy Statement/Prospectus and the Form S-4 to comply as to form in all material respects with the applicable provisions of the Securities Act, the Exchange Act and the rules and regulations promulgated thereunder. AIP shall use all reasonable efforts, and RELP will cooperate with AIP to have the Form S-4 declared effective by the SEC as promptly as practicable. AIP shall use its best efforts to obtain, prior to the effective date of the Form S-4, all necessary state securities law or "Blue Sky" permits or approvals required to carry out the transactions contemplated by this Agreement and will pay all expenses incident thereto. AIP agrees that the Proxy Statement/Prospectus and each amendment or supplement thereto, at the time of mailing thereof and at the time of the respective meetings of shareholders and partners, respectively, of AIP and RELP, or, in the case of the Form S-4 and each amendment or supplement thereto, at the time it is filed or becomes effective, will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the foregoing shall not apply to the extent that any such untrue statement of a material fact or omission to state a 24 material fact was made by AIP in reliance upon and in conformity with written information concerning RELP furnished to AIP by RELP specifically for use in the Proxy Statement/Prospectus. RELP agrees that the written information provided by it specifically for inclusion in the Proxy Statement/Prospectus and each amendment or supplement thereto, at the time of mailing thereof and at the time of the respective meetings of shareholders and partners, respectively, of AIP and RELP, or, in the case of written information provided by RELP specifically for inclusion in the Form S-4 or any amendments or supplement thereto, at the time it is filed or becomes effective, will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. AIP will advise RELP, promptly after it receives notice thereof, of the time when the Form S-4 has become effective or any supplement or amendment has been filed, the issuance of any stop order, the suspension of the qualification of the AIP Common Shares issuable in connection with the Merger for offering or sale in any jurisdiction, or any request by the SEC for amendment of the Proxy Statement/Prospectus or the Form S-4 or comments thereon and responses thereto or requests by the SEC for additional information. 7.8. Listing Application. AIP shall promptly prepare and submit to the NYSE a listing application covering the AIP Common Shares issuable in the Merger, and shall use its reasonable efforts to obtain, prior to the Effective Time, approval for the listing of such AIP Common Shares, subject to official notice of issuance. 7.9. Further Action. Each party hereto shall, subject to the fulfillment at or before the Effective Time of each of the conditions of performances set forth herein or the waiver thereof, perform such further acts and execute such documents as may reasonably be required to effect the Merger. 7.10. Expenses. Subject to Section 9.5, if the Merger is approved by RELP's partners, all transaction costs of the proposed consolidation shall be paid by AIP. If three of the four limited partnerships party to the Proxy Statement/Prospectus (the "Other RELPS") do not approve their proposed merger into AIP, Realco shall reimburse AIP for AIP's expenses relating to the proposed merger up to $250,000. If RELP and the Other RELPS approve their proposed merger into AIP, but the shareholders of AIP do not approve the proposer merger, and if Realco voted its AIP Common Shares in favor of such mergers, AIP will reimburse RELP and the Other RELPS for all expenses they incurred in connection with the proposed merger. Any expenses to be reimbursed hereunder shall include, but not be limited to, costs of fairness opinions, property appraisals, engineering and environmental reports, title policies, accounting fees, legal fees, printing and solicitation expenses. RELP will bear the costs of preparing its initial fairness opinion, with later reimbursement by AIP in the event the Merger is approved by RELP's partners. If the limited partners of RELP fail to approve the proposed Merger, then Realco will reimburse AIP for the RELP's expenses (to the extent paid by AIP) as follows: the actual cost of such RELP's fairness opinion, legal fees up to $80,000, and the actual cost or the Allocable Share (if the actual cost is not separately determined), of RELP's accounting fees, engineering and environmental reports, printing and solicitation expenses. Allocable Share, for this purpose, shall be the ratio of such RELP's net book value of assets at March 31, 1997 to the total net book value of all of the assets of RELP and the Other RELPS at March 31, 1997. 25 7.11. Indemnification. For a period of six years from and after the Effective Time, AIP shall indemnify the partners, or agents of RELP who at any time prior to the Effective Time were entitled to indemnification under the Agreement of Limited Partnership of RELP existing on the date hereof to the same extent as such partners or agents are entitled to indemnification under such Agreement of Limited Partnership in respect of actions or omissions occurring at or prior to the Effective Time (including, without limitation, the transactions contemplated by this Agreement). 7.12. Reorganization. From and after the date and until the Effective Time, neither AIP nor RELP nor any of their respective Subsidiaries or other affiliates shall (i) knowingly take any action, or knowingly fail to take any action, that would jeopardize qualification of the Merger as a reorganization within the meaning of Section 368(a)(1)(A) of the Code; or (ii) enter into any contract, agreement, commitment or arrangement with respect to the foregoing. Following the Effective Time, AIP shall use its best efforts to conduct its business in a manner that would not jeopardize the characterization of the Merger as a reorganization within the meaning of Section 368(a)(1)(A) of the Code. 7.13. Survival of RELP Obligations; Assumption of RELP Liabilities by AIP. All of the obligations of RELP that are outstanding at the Closing shall survive the Closing and shall not be merged therein. Upon the consummation of the Merger, such obligations shall be assumed, automatically, by AIP; provided, however, that such assumption shall not impose upon or expose AIP to any liability for which RELP was not liable, and provided, further, that AIP shall be entitled to the same defenses, offsets and counterclaims to which RELP would have been entitled, but for the Merger. 7.14. Third Party Consents. AIP and RELP each shall take all necessary corporate and other action and will use its commercially reasonable efforts to obtain the consents and applicable approvals from third parties that may be required to enable it to carry out the transactions contemplated by this Agreement. 7.15. Efforts to Fulfill Conditions. AIP and RELP each shall use commercially reasonable efforts to insure that all conditions precedent to its obligations hereunder are fulfilled at or prior to the Closing. 7.16. Representations, Warranties and Conditions Prior to Closing. AIP and RELP each shall use its commercially reasonable efforts to cause its representations and warranties contained in this Agreement to be true and correct on and as of the Closing Date in all material respects. Prior to Closing, AIP and RELP each shall promptly notify the other in writing (i) if any representation or warranty contained in this Agreement is discovered to be or becomes untrue or (ii) if AIP or RELP fails to perform or comply with any of its covenants or agreements contained in this Agreement or it is reasonably expected that it will be unable to perform or comply with any of its covenants or agreements contained in this Agreement. 7.17. Cooperation of the Parties. AIP and RELP each will cooperate with the other in supplying such information as may be reasonably requested by the other in connection with obtaining consents or approvals to the transactions contemplated by this Agreement. 26 7.18. Lock-Ups. The General Partner shall use its best efforts prior to the Closing to have each of its directors and officers and Realco execute a 90-day lock-up agreement in a form (reasonably acceptable to RELP) supplied to RELP by AIP. The executed agreements will be delivered to AIP at the Closing. AIP shall use its best efforts prior to the Closing to have each of its Trust Managers and officers execute a 90-day lock-up agreement, in a form (reasonably acceptable to AIP) supplied to AIP by RELP. The agreements will be delivered to RELP at the Closing. ARTICLE VIII. CONDITIONS 8.1. Conditions to Each Party's Obligations to Effect the Merger. The respective obligation of each party to effect the Merger shall be subject to the fulfillment at or prior to the Closing Date of the following conditions: (a) This Agreement and the transactions contemplated hereby shall have been approved in the manner required by the Declaration of Trust and Bylaws and Agreement of Limited Partnership of AIP and RELP, respectively, and by applicable law or by applicable regulations of any stock exchange or other regulatory body by the holders of the AIP Common Shares and RELP Interests entitled to vote thereon. (b) Neither of the parties hereto shall be subject to any order or injunction of a court of competent jurisdiction which prohibits the consummation of the transactions contemplated by this Agreement. In the event any such order or injunction shall have been issued, each party agrees to use its reasonable efforts to have any such injunction lifted. (c) The Form S-4 shall have become effective and all necessary state securities law or "Blue Sky" permits or approvals required to carry out the transactions contemplated by this Agreement shall have been obtained and no stop order with respect to any of the foregoing shall be in effect. (d) AIP shall have obtained the approval for the listing of the AIP Common Shares issuable in the Merger on the NYSE, subject to official notice of issuance. (e) All consents, authorizations, orders and approvals of (or filings or registrations with) any governmental commission, board, other regulatory body or third parties required in connection with the execution, delivery and performance of this Agreement shall have been obtained or made, except for filings in connection with the Merger and any other documents required to be filed after the Effective Time and except where the failure to have obtained or made any such consent, authorization, order, approval, filing or registration would not have a material adverse effect on the business, results of operations or financial condition of AIP and RELP (and their respective Subsidiaries), taken as a whole, following the Effective Time. 27 8.2 Conditions to Obligations of RELP to Effect the Merger. The obligation of RELP to effect the Merger shall be subject to the fulfillment at or prior to the Closing Date of the following conditions, unless waived by RELP: (a) AIP shall have performed its agreements contained in this Agreement required to be performed on or prior to the Closing Date and the representations and warranties of AIP contained in this Agreement shall be true and correct in all material respects as of the Closing Date as if made on the Closing Date, and RELP shall have received a certificate of the President or an Executive or Senior Vice President of AIP, dated the Closing Date, certifying to such effect. (b) RELP shall have received the opinion of Liddell, Sapp or another recognized law firm selected by AIP and approved by RELP, dated the Closing Date, to the effect that the Merger will be treated for Federal income tax purposes as a reorganization within the meaning of Section 368(a)(1)(A) of the Code, and that RELP and AIP will each be a party to that reorganization within the meaning of Section 368(b) of the Code. In rendering its opinion, said counsel shall be entitled to rely as to any factual matter upon certificates given by executive officers of RELP and AIP and shall be entitled to assume that the covenants of AIP pursuant to Section 7.15 shall be fully complied with. (c) From the date of the Agreement through the Effective Time, there shall not have occurred any change in the financial condition, business or operations of AIP and its Subsidiaries, taken as a whole, that would have or would be reasonably likely to have an AIP Material Adverse Effect other than any such change that affects both RELP and AIP in a substantially similar manner. (d) The opinion of Houlihan addressed to RELP that the Purchase Price is fair, from a financial point of view, to the partners of RELP shall not have been withdrawn or materially modified. (e) RELP shall have received the opinion of Liddell, Sapp or another recognized law firm selected by AIP and approved by RELP, dated the Closing Date, as to such customary matters as RELP may reasonably request, such opinion to be reasonably satisfactory to RELP. 8.3 Conditions to Obligation of AIP to Effect the Merger. The obligations of AIP to effect the Merger shall be subject to the fulfillment at or prior to the Closing Date of the following conditions, unless waived by AIP: (a) RELP shall have performed its agreements contained in this Agreement required to be performed on or prior to the Closing Date and the representations and warranties of RELP contained in this Agreement shall be true and correct in all material respects as of the Closing Date as if made on the Closing Date and AIP shall have received 28 a certificate of the Chief Executive Officer, President or an Executive Vice President of the General Partner dated the Closing Date, certifying to such effect. (b) AIP shall have received the opinion of Liddell, Sapp or another recognized law firm selected by RELP and approved by AIP, dated the Closing Date, to the effect that the consummation of the Merger will not result in AIP's failure to continue to satisfy the requirements for qualification as a REIT for federal income tax purposes. In rendering its opinion, said counsel shall be entitled to rely as to any factual matter upon certificates given by executive officers of AIP and RELP and shall be entitled to assume that the covenants of Section 7.15 shall be fully complied with. (c) From the date of this Agreement through the Effective Time, there shall not have occurred any change in the financial condition, business or operations of RELP and its Subsidiaries, taken as a whole, that would have or would be reasonably likely to have an RELP Material Adverse Effect, other than any such change that affects both RELP and AIP in a substantially similar manner. (d) Each person listed on Exhibit 8.3(d) attached hereto shall have delivered to AIP a written agreement to the effect that such person will not offer to sell, sell or otherwise dispose of any shares of AIP Common Stock issued in the Merger, except, in each case, pursuant to an effective registration statement or in compliance with Rule 145, as amended from time to time, or in a transaction which, in the opinion of legal counsel reasonably satisfactory to AIP, is exempt from the registration requirements of the Securities Act and that the certificates representing the AIP shares issued to him or her in the Merger may bear a legend to such effect. (e) The opinion of Prudential addressed to the Board of Trust Managers of AIP that the consideration to be paid by AIP pursuant to the Merger is fair, from a financial point of view, to AIP shall not have been withdrawn or materially modified. (f) AIP shall have received the opinion of Liddell, Sapp or another recognized law firm selected by RELP and approved by AIP, dated the Closing Date, as to such customary matters as AIP may reasonably request, such opinion to be reasonably satisfactory to AIP. (g) The limited partners of at least two of the Other RELPS shall have approved the merger of such limited partnership with and into AIP. ARTICLE IX. TERMINATION 9.1 Termination by Mutual Consent. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, before or after the approval of this Agreement by the partners of RELP or the shareholders of AIP or by the mutual written consent of AIP and RELP, with the prior approval of their respective Board of Trust Managers and General Partner. 29 9.2 Termination by Either AIP or RELP. This Agreement may be terminated and the Merger may be abandoned by action of the General Partner of RELP or the Board of Trust Managers of AIP if (i) the Merger shall not have been consummated by March 31, 1998, (ii) a meeting of RELP's partners shall have been duly convened and held and the approval of RELP's partners required by Section 8.1(a) shall not have been obtained at such meeting or at any adjournment thereof, (iii) a meeting of AIP's shareholders shall have been duly convened and held and the approval of AIP's shareholders required by Section 8.1(a) shall not have been obtained at such meeting or at any adjournment thereof, (iv) as a result of due diligence investigation by one of the parties hereto, it is determined in good faith by such party that certain facts or circumstances not previously known by such party constitute a Material Adverse Effect on the business, results of operations or financial condition of the other party, (v) a United States federal or state court of competent jurisdiction or United States federal or state governmental, regulatory or administrative agency or commission shall have issued an order, decree or ruling or taken any other action permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree, ruling or other action shall have become final and non- appealable, provided that the party seeking to terminate this Agreement pursuant to this clause (v) shall have used all reasonable efforts to remove such order, decree, ruling or injunction, or (vi) any of the conditions set forth in Article VIII shall not have been satisfied, and provided, in the case of a termination pursuant to clause (i) or (vi) above, that the terminating party shall not have breached in any material respect its obligations under this Agreement in any manner that shall have proximately contributed to the occurrence of the failure referred to in said clause. AIP and RELP each shall (i) deliver its Disclosure Letter to one another not later than 5:00 P.M., Central Time, August 11, 1997, and (ii) shall complete its due diligence investigations not later than 5:00 P.M., Central Time, on July 31, 1997 (the period from the date of this Agreement through July 31, 1997 being hereinafter referred to as the "Due Diligence Period"). Until the expiration of the Due Diligence Period, either party may terminate this Agreement without liability or penalty due to (i) the discovery of a fact or circumstance that reasonably could be expected to constitute a Material Adverse Effect on the business, results of operations or financial condition of the other party, or (ii) the party's failure to receive a written fairness opinion as described herein within seven business days from the date of execution of this Agreement. 9.3 Termination by RELP. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, before or after the adoption and approval by the partners of RELP referred to in Section 8.1(a), by action of the General Partner, if (i) in the exercise of its good faith judgment as to its fiduciary duties to its partners imposed by law, as advised by counsel, the General Partner determines that such termination is required by reason of a RELP Acquisition Proposal being made, (ii) the Board of Trust Managers withdraws, materially modifies or changes in a manner materially adverse to RELP its recommendations to AIP's shareholders of this Agreement or the Merger, other than as a result of the occurrence of an event that in the good faith judgment of the Board of Trust Managers has or is reasonably likely to have a RELP Material Adverse Effect, (iii) the Board of Trust Managers postpones the date scheduled for the meeting of shareholders of AIP to approve this Agreement and the transactions contemplated hereby beyond March 31, 1998 or fails to set a date for such meeting by such date, except with the written consent of RELP, (iv) there has been a breach by AIP of any representation or warranty contained in this Agreement which would have or would be reasonably likely to have an AIP Material Adverse Effect, 30 which breach is not curable by March 31,1998, or (v) there has been material breach of any of the covenants or agreements set forth in this Agreement on the part of AIP, which breach is not curable or, if curable, is not cured within 30 days after written notice of such breach is given by RELP to AIP, or (vi) the condition set forth in Section 8.3(g) is not satisfied. 9.4 Termination by AIP. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, before or after the approval by the shareholders of AIP referred to in Section 8.1(a), by action of the Board of Trust Managers, if (i) in the exercise of its good faith judgment as to its fiduciary duties to its shareholders imposed by law, as advised by counsel, the Board of Trust Managers determines that such termination is required by reason of an AIP Acquisition Proposal being made, (ii) the General Partner withdraws, materially modifies or changes in a manner materially adverse to AIP its recommendation to RELP's partners of this Agreement or the Merger, other than as a result of the occurrence of an event that in the good faith judgment of the General Partner has or is reasonably likely to have an AIP Material Adverse Effect, (iii) the General Partner postpones the date scheduled for the meeting of partners of RELP to approve this Agreement and the transactions contemplated hereby beyond March 31, 1998, or fails to set a date for such meeting by such date, except with the written consent of AIP, (iv) there has been a breach by RELP of any representation or warranty contained in this Agreement which would have or would be reasonably likely to have a RELP Material Adverse Effect, which breach is not curable by March 31, 1998, or (v) there has been a material breach of any of the covenants or agreements set forth in this Agreement on the part of RELP, which breach is not curable or, if curable, is not cured within 30 days after written notice of such breach is given by AIP to RELP. 9.5. Effect of Termination and Abandonment. (a) If an election to terminate this Agreement is made pursuant to (i) Section 9.2(i) (except as a result of a default or breach hereunder by AIP) or Section 9.2(ii), and a RELP Acquisition Proposal relating to RELP shall have been made and, within one year from the date of such termination, RELP consummates a RELP Acquisition Proposal or enters into an agreement to consummate a RELP Acquisition Proposal which is subsequently consummated, or (ii) Section 9.3(i), RELP shall pay to AIP, provided that AIP was not in material breach of its obligations hereunder at the time of such termination, as liquidated damages and not as a penalty or forfeiture, an amount equal to the lesser of (m) $839,200 (the "Liquidated Damages Amount") and (n) the sum of (1) the maximum amount that can be paid to AIP without causing AIP to fail to meet the requirements of Sections 856(c)(2) and (3) of the Code determined as if the payment of such amount did not constitute income described in Sections 856(c)(2)(A)-(H) and 856(c)(3)(A)-(I) of the Code ("Qualifying Income"), as determined by AIP's certified public accountants, plus (2) an amount equal to the Liquidated Damages Amount less the amount payable under clause (1) above in the event AIP receives a letter from AIP's counsel indicating that AIP has received a ruling from the IRS to the effect that Liquidated Damages Amount payments constitute Qualifying Income. In addition to the Liquidated Damages Amount, AIP shall be entitled to receive from RELP (or its successor in interest) all documented out-of-pocket costs and expenses, up to a maximum of $419,600 in connection with this Agreement and the transactions contemplated hereby (the "AIP Expenses") incurred by AIP. The payments to which AIP is entitled under this Section 9.5(a) shall be its sole remedy with respect to the termination of the Agreement under the circumstances contemplated in this Section 9.5(a). 31 (b) If an election to terminate this Agreement is made pursuant to Section 9.2(i) (as a result of the condition set forth in Section 8.3(c) not being satisfied), RELP shall, provided that AIP was not in material breach of its obligations hereunder at the time of such termination, pay AIP for the AIP Expenses, up to a maximum of $419,600, although it shall not be required to pay the Liquidated Damages Amount, which payment of the AIP Expenses shall be AIP's sole remedy for termination of the Agreement in such circumstances. (c) If an election to terminate this Agreement is made pursuant to (i) Section 9.2(i) (except as a result of a default or breach hereunder by RELP) or Section 9.2(iii), and an AIP Acquisition Proposal relating to AIP shall have been made and, within one year from the date of such termination, AIP consummates an AIP Acquisition Proposal or enters into an agreement to consummate an AIP Acquisition Proposal which is subsequently consummated, or (ii) Section 9.4(i), AIP shall pay to RELP, provided that RELP was not in material breach of its obligations hereunder at the time of such termination, as liquidated damages and not as a penalty or forfeiture, an amount equal to the Liquidated Damages Amount. In addition to the Liquidated Damages Amount, RELP shall be entitled to receive from AIP (or its successor in interest) all documented out-of-pocket costs and expenses, up to a maximum of $419,600, in connection with this Agreement and the transactions contemplated hereby (the "RELP Expenses" and, together with the AIP Expenses, the "Expenses") incurred by RELP. The payments to which RELP is entitled under this Section 9.5(c) shall be its sole remedy with respect to the termination of the Agreement under the circumstances contemplated in this Section 9.5(c) (d) If an election to terminate this Agreement is made pursuant to Section 9.2(i) (as a result of the condition set forth in Section 8.2(c) not being satisfied), AIP shall, provided that RELP was not in material breach of its obligations hereunder at the time of such termination, pay RELP for the RELP Expenses, up to a maximum of $419,600, although it shall not be required to pay the Liquidated Damages Amount, which payment of the RELP Expenses shall be RELP's sole remedy for termination of the Agreement in such circumstances. (e) If this Agreement is terminated pursuant to Section 9.3(iv), Section 9.3(v), Section 9.4(iv), or Section 9.4(v), the non-terminating party shall, provided that the terminating party was not in material breach of its obligations hereunder at the time of such termination, pay the terminating party all Expenses, up to a maximum of $419,600, incurred by it and the non- terminating party shall remain liable to the terminating party for its breach. (f) If either party terminates this Agreement during the Due Diligence Period described in Section 9.2 above other than for a due diligence related reason, the non-terminating party shall be entitled to receive the Liquidated Damages Amount and the Expenses as provided in this Article IX. (g) RELP agrees to amend this Section 9.5 at the request of AIP in order to (x) maximize the portion of the Liquidated Damages Amount that may be distributed to AIP hereunder without causing AIP to fail to meet the requirements of Sections 856(c)(2) and (3) of the Code or (y) improve AIP's chances of securing a favorable ruling described in this Section 9.5, provided that no such amendment may result in any additional cost or expense to such other party. 32 (h) In the event of termination of this Agreement and the abandonment of the Merger pursuant to this Article IX, all obligations of the parties hereto shall terminate, except the obligations of the parties pursuant to this Section 9.5 and Section 7.10 and except for the provisions of Section 10.3, 10.4, 10.5, 10.6, 10.7, 10.9, 10.10, 10.13, 10.14 and 10.16. In the event AIP or RELP has received the Liquidated Damages Amount, such recipient shall not assert or pursue in any manner, directly or indirectly, any claim or cause of action against the other party hereto or any of its officers, Trust Managers, or General Partners, as applicable, based in whole or part upon its or their receipt, consideration, recommendation or approval of an Acquisition Proposal or the exercise by AIP of its right to termination under Section 9.4(i) or the exercise by RELP of its right to termination under Section 9.3(i). Notwithstanding the foregoing, in the event AIP or RELP is required to file suit to seek all or a portion of such Liquidated Damages Amount, and it ultimately succeeds, it shall be entitled to all expenses, including attorney's fees and expenses, which it has incurred in enforcing its right hereunder. (i) If either party willfully fails to perform its duties and obligations under this Agreement, the non-breaching party is additionally entitled to all remedies available to it at law or in equity and to recover its expenses from the breaching party. 9.6 Extension; Waiver. At any time prior to the Effective Time, any party hereto, by action taken by its Board of Trust Managers or General Partner, as applicable, may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (ii) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto and (iii) waive compliance with any of the agreements or conditions for the benefit of such party contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. ARTICLE X. GENERAL PROVISIONS 10.1. Nonsurvival of Representations, Warranties and Agreements. All representations, warranties and agreements in this Agreement or in any instrument delivered pursuant to this Agreement shall not survive the Merger; provided, however, that the agreements contained in Article IV, the last sentence of Section 7.4 and Sections 7.10, 7.11, 7.12, 7.13, 7.14, 7.15 and 7.16 and this Article X shall survive the Merger. 10.2. Notices. Any notice required to be given hereunder shall be in writing and shall be sent by facsimile transmission (confirmed by any of the methods that follow), courier service (with proof of service), hand delivery or certified or registered mail (return receipt requested and first-class postage prepaid) and addressed as follows: If to AIP: American Industrial Properties REIT 6220 N. Beltline Road, Suite 205 Irving, Texas 75063 Attention: Charles W. Wolcott, President 33 Telecopy: (972) 550-6037 If to RELP: USAA Real Estate Company 8000 I-H 10 West, Suite 600 San Antonio, Texas 78230 Attention: Patrick Duncan, Senior Vice-President Telecopy: (210) 498-6214 or to such other address as any party shall specify by written notice so given, and such notice shall be deemed to have been delivered as of the date so delivered. 10.3. Assignment; Binding Effect; Benefit. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. Notwithstanding anything contained in this Agreement to the contrary, except as provided in the following sentence, nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective heirs, successors, executors, administrators and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. The provisions of Article IV and Sections 7.11, 7.12, 7.13, 7.14 and 7.15 (collectively, the "Third Party Provisions") shall benefit the persons identified therein, but the aggregate liability of AIP with respect thereto shall not exceed the amount specified in Article IX. 10.4. Entire Agreement. This Agreement, the Exhibits, the RELP Disclosure Letter, the AIP Disclosure Letter, the RELP Ancillary Agreements, the AIP Ancillary Agreements and any documents delivered by the parties in connection herewith constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings among the parties with respect thereto. No addition to or modification of any provision of this Agreement shall be binding upon any party hereto unless made in writing and signed by all parties hereto. 10.5. Confidentiality. (a) As used herein, "Confidential Material" means, with respect to either party hereto (the "Providing Party"), all information (written or oral) furnished (whether before or after the date hereof) by the Providing Party and its directors, officers, employees, affiliates or representatives of advisors, including counsel, lenders and financial advisors (collectively, the "Providing Party Representatives") to the other party hereto (the "Receiving Party") or such Receiving Party's directors, officers, employees, affiliates or representatives of advisors, including counsel, lenders and financial advisors or the Receiving Party's potential sources of financing for the transactions contemplated by this Agreement (collectively "the Receiving Party Representatives") and all analyses, compilations, forecasts and other studies or other documents prepared by the Providing Party or the Providing Party Representatives in connection with its or their review of the transactions contemplated by this Agreement which contain or reflect such information. The term "Confidential Material" does not include, however, information which (i) at the time of disclosure 34 or thereafter is generally available to and known by the public other than as a result of a disclosure directly or indirectly by the Receiving Party or the Receiving Party Representatives in violation of this Agreement, (ii) at the time of disclosure was available on a nonconfidential basis from a source other than the Providing Party or the Providing Party Representatives, providing that such source is not and was not bound by a confidentiality agreement with the Providing Party, (iii) was known by the Receiving Party prior to receiving the Confidential Material from the Providing Party or has been independently acquired or developed by the Receiving Party without violating any of its obligations under this Agreement, or (iv) is contained in any RELP Reports or AIP Reports or Proxy Statement/Prospectus. (b) Subject to paragraph (c) below or except as required by law, the Confidential Material will be kept confidential and will not, without the prior written consent of the Providing Party, be disclosed by the Receiving Party or its Representatives, in whole or in part and will not be used by the Receiving Party or its Representatives, directly or indirectly, for any purpose other than in connection with this Agreement, the Merger or the evaluating, negotiating or advising with respect to a transaction contemplated herein. Moreover, each Receiving Party agrees to transmit Confidential Material to its Representatives only if and to the extent that such Representatives need to know the Confidential Material for purposes of such transaction and are informed by such Receiving Party of the confidential nature of the Confidential Material and of the terms of this Section. (c) In the event that either Receiving Party, its Representatives or anyone to whom such Receiving Party or its Representatives supply the Confidential Material, are requested or required (by oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demand, any informal or formal investigation by any government or governmental agency or authority or otherwise in connection with legal processes) to disclose any Confidential Material, such Receiving Party agrees (i) to immediately notify the Providing Party of the existence, terms and circumstances surrounding such a request, (ii) to consult with the Providing Party on the advisability of taking legally available steps to resist or narrow such request and (iii) if disclosure of such information is required, to furnish only that portion of the Confidential Material which, in the opinion of such Receiving Party's counsel, such Receiving Party is legally compelled to disclose and to cooperate with any action by the Providing Party to obtain an appropriate protective order or otherwise reliable assurances that confidential treatment will be accorded the Confidential Material (it being agreed that the Providing Party shall reimburse the Receiving Party for all reasonable out-of- pocket expenses incurred by the Receiving Party in connection with such cooperation). (d) In the event of the termination of this Agreement in accordance with its terms, promptly upon request from either Providing Party, the Receiving Party shall, except to the extent prevented by law, redeliver to the Providing Party or destroy all tangible Confidential Material and will not retain any copies, extracts or other reproductions thereof in whole or in part. Any such destruction shall be certified in writing to the Providing Party by an authorized officer of the Receiving Party supervising the same. Notwithstanding the foregoing, each Receiving Party and one Representative designated by each Receiving Party shall be permitted to retain one permanent file copy of each document constituting Confidential Material. 35 (e) Each party hereto further agrees that if this Agreement is terminated in accordance with its terms, until one year from the date of termination, (1) it will not offer to hire or hire any person currently or formerly employed by the other party with whom such party has had contact prior hereto other than persons whose employment shall have been terminated by such other party prior to the date of such offer to hire or hiring and (2) neither it nor its affiliates shall directly or indirectly, (a) (w) solicit, seek or offer to effect or effect, (x) negotiate with or provide any information to the Board of Trust Managers or General Partner, as applicable, of the other party, or officer of the other party or any shareholder or partner, as applicable, of the other party with respect to, (y) make any statement or proposal, whether written or oral, either alone or in concert with others, to the Board of Trust Managers or Board of Directors of the General Partner of the other party, any director, Trust Manager or officer of the other party or any shareholder or partner of the other party or any other person with respect to, or (z) make any public announcement (except as required by law in respect of actions permitted hereby) or proposal or offer whatsoever (including, but not limited to, any "solicitation"of "proxies"as such terms are defined or used in Regulation 14A of the Exchange Act) with respect to, (i) any form of business combination or similar or other extraordinary transaction involving the other party or any affiliate thereof, including, without limitation, a merger, tender or exchange offer or liquidation of the other party's assets, (ii) any form of restructuring, recapitalization or similar transaction with respect to the other party or any affiliate thereto, (iii) any purchase of any securities or assets, or rights or options to acquire any securities or assets (through purchase, exchange, conversion or otherwise), of the other party or any affiliate thereof, (iv) any proposal to seek representation on the Board of Trust Managers or the Board of Directors of the General Partner, as applicable, or otherwise to seek to control or influence the management, Board of Trust Managers or the Board of Directors of the General Partner, as applicable, or policies of the other party or any affiliate thereof, (v) any request or proposal to waive, terminate or amend the provisions of this Section 10.5 or (vi) any proposal or other statement inconsistent with the terms of this Section 10.5 or (b) instigate, encourage, join, act in concert with or assist (including, but not limited to, providing or assisting in any way in the obtaining of financing for, or acting as a joint or co-bidder for the other party with) any third party to do any of the foregoing, unless and until such party has received the prior written invitation or approval of a majority of the Board of Trust Managers or the General Partner, as applicable, to do any of the foregoing; provided that without such invitation or approval, either party may at any time, on a confidential non-public basis, submit to the Chief Executive Officer of AIP or the General Partner, as applicable, a proposal to (a) amend any of the provisions of this Section 10.5(e) or (b) effect a business combination or other extraordinary transaction with the other party providing for the acquisition of all or substantially all of the assets or the securities of the other party, including, without limitation, a merger, tender offer or exchange offer. Each party hereto agrees that it will not agree with any third party to waive its rights under this Section 10.5. 10.6. Amendment. This Agreement may be amended by the parties hereto, by action taken by the Board of Trust Managers or the Board of Directors of the General Partner, as applicable, at any time before or after approval of this Agreement or any other matter presented in connection with the Merger by the shareholders of AIP and partners of RELP, but after any such approval, no amendment shall be made which by law requires the further approval of shareholders or partners, as applicable, without obtaining such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. 36 10.7. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas without regard to its rules of conflict of laws. Each of AIP and RELP hereby irrevocably and unconditionally consents to submit to the exclusive jurisdiction of the courts of the State of Texas and of the United States District Court, Northern District of Texas (the "Texas Courts") for any litigation arising out of or relating to this Agreement and the transactions contemplated hereby (and agrees not to commence any litigation relating thereto except in such courts), waives any objection to the laying of venue of any such litigation in the Texas Courts and agrees not to plead or claim in any Texas Court that such litigation brought therein has been brought in an inconvenient forum. 10.8. Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a number of copies hereof each signed by less than all, but together signed by all of the parties hereto. 10.9. Headings. Heading of the Articles and Sections of this Agreement are for the convenience of the parties only and shall be given no substantive or interpretive effect whatsoever. 10.10. Interpretation. In this Agreement, unless the context otherwise requires, words describing the singular number shall include the plural and vice versa, and words denoting any gender shall include all genders and words denoting natural persons shall include corporations and partnerships and vice versa. 10.11. Waivers. Except as provided in this Agreement, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained in this Agreement. The waiver by any party hereto of a breach of any provision hereunder shall not operate or be construed as a waiver of any prior or subsequent breach of the same or any other provision hereunder. 10.12. Incorporation. The RELP Disclosure Letter and the AIP Disclosure Letter and all Exhibits and Schedules attached hereto and thereto and referred to herein and therein are hereby incorporated herein and made a part hereof for all purposes as if fully set forth herein. 10.13. Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any current or future law, and if the rights or obligations of the parties under this Agreement would not be materially and adversely affected thereby, such provision shall be fully separable, and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part thereof, and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance therefrom. In lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as a part of this Agreement, a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as 37 may be possible, and the parties hereto request the court or any arbitrator to whom disputes relating to this Agreement are submitted to reform the otherwise illegal, invalid or unenforceable provision in accordance with this Section 10.13. 10.14. Enforcement of Agreement. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement was not performed in accordance with its specific terms or was otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any Texas Court, this being in addition to any other remedy to which they are entitled at law or in equity. 10.15. Subsidiaries. As used in this Agreement, the word "Subsidiary" when used with respect to any party means any corporation, partnership, joint venture, business trust or other entity, of which such party directly or indirectly owns or controls at least a majority of the securities or other interests having by their terms ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such corporation or other organization. 10.16. Non-Recourse. Neither the officers, Trust Managers nor shareholders of AIP shall be personally bound or have any personal liability hereunder. RELP shall look solely to the assets of AIP for satisfaction of any liability of AIP with respect to this Agreement and the Ancillary Agreements to which it is a party. RELP will not seek recourse or commence any action against any of the shareholders of AIP or any of their personal assets, and will not commence any action for money judgments against any of the Trust Managers or officers of AIP or seek recourse against any of their personal assets, for the performance or payment of any obligation of AIP hereunder or thereunder. The partners of RELP shall not be personally bound or have any personal liability hereunder. AIP shall look solely to the assets of RELP for satisfaction of any liability of RELP with respect to this Agreement and the Ancillary Agreements to which it is a party. AIP will not seek recourse or commence any action against any of the partners of RELP or any of their personal assets, and will not commence any action for money judgments against any of the directors or officers of RELP or seek recourse against any of their personal assets, for the performance or payment of any obligation of RELP hereunder or thereunder. 38 IN WITNESS WHEREOF, the parties have executed this Agreement and caused the same to be duly delivered on their behalf on the day and year first written above. AMERICAN INDUSTRIAL PROPERTIES REIT /s/ CHARLES W. WOLCOTT ----------------------------------------- Charles W. Wolcott, President and Chief Executive Officer USAA INCOME PROPERTIES III LIMITED PARTNERSHIP By: USAA Properties III, Inc., Its General Partner /s/ T. PATRICK DUNCAN ---------------------------------- T. Patrick Duncan Senior Vice President - Operations EX-10.4 5 AGREEMENT & PLAN OF MERGER 1 EXHIBIT 10.4 AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of June 30, 1997, is entered into by and between American Industrial Properties REIT, a Texas real estate investment trust ("AIP") , and USAA Income Properties IV Limited Partnership, a Delaware limited partnership ("RELP"). USAA Real Estate Company, a Delaware corporation ("Realco"), is a party to this Agreement solely for the purpose of binding itself to the provisions of Section 7.10 hereunder. RECITALS A. The Board of Trust Managers of AIP (the "Board of Trust Managers") and the general partner of RELP have each determined that a business combination between AIP and RELP is in the best interests of their shareholders and partners, respectively, and presents an opportunity for their respective businesses to achieve strategic and financial benefits, and accordingly have agreed to effect a merger subject to the terms and conditions set forth herein. B. AIP and RELP desire to make certain representations, warranties and agreements in connection with the merger. NOW, THEREFORE, in consideration of the foregoing, and of the representations, warranties, covenants and agreements contained herein, AIP and RELP hereby agree as follows: ARTICLE I. THE MERGER 1.1. The Merger. Subject to the terms and conditions of this Agreement, at the Effective Time (as defined in Section 1.3), RELP shall be merged with and into AIP in accordance with this Agreement and the Plan of Merger (the "Plan of Merger") in substantially the form attached hereto as Exhibit A, with such completions, additions and substitutions conforming to the terms of this Agreement as the parties shall approve, such approval to be conclusively evidenced by their causing the Plan of Merger containing such completions, additions or substitutions to be filed in accordance with applicable laws; and the separate existence of RELP shall thereupon cease (the "Merger"). AIP shall be the surviving entity in the Merger (sometimes hereinafter referred to as the "Survivor"). The Merger shall have the effects specified in Section 23.60 of the Texas Real Estate Investment Trust Act, as amended (the "Texas REIT Act") and Section 17-211 of the Delaware Revised Uniform Limited Partnership Act (the "LP Act"). 1.2. The Closing. Subject to the terms and conditions of this Agreement, the closing of the Merger (the "Closing") shall take place at the offices of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. ("Liddell, Sapp"), located at 2200 Ross Avenue, Suite 900, Dallas, Texas at 10:00 a.m., local time, within five business days after receipt of approval of the Merger by AIP's shareholders and RELP's partners, or at such other time, date or place as AIP and RELP may agree. The date on which the Closing occurs is hereinafter referred to as the "Closing Date." 2 1.3. Effective Time. If all the conditions to the Merger set forth in Article VIII shall have been fulfilled or waived (and this Agreement shall not have been terminated as provided in Article IX), AIP and RELP shall cause Articles of Merger satisfying the requirements of the Texas REIT Act and Articles of Merger satisfying the requirements of the LP Act to be properly executed, verified and delivered for filing in accordance with the LP Act and the Texas REIT Act on the Closing Date. The Merger shall become effective for accounting and all other purposes to the fullest extent permitted by law as of the close of business on December 31, 1997 (the "Effective Time") or such other date as may be agreed to by the parties. For state law purposes, the Merger shall become effective upon the issuance of a certificate of merger by the Secretary of State of the State of Delaware in accordance with the LP Act or at such later time which AIP and RELP shall have agreed upon and designated in such filings in accordance with applicable law. ARTICLE II. DECLARATION OF TRUST AND BYLAWS OF THE SURVIVOR 2.1. Declaration of Trust. The Declaration of Trust of AIP in effect immediately prior to the Effective Time shall be the Declaration of Trust of the Survivor until duly amended in accordance with applicable law. 2.2. Bylaws. The Bylaws of AIP in effect immediately prior to the Effective Time shall be the Bylaws of the Survivor until duly amended in accordance with applicable law. ARTICLE III. TRUST MANAGERS AND OFFICERS OF AIP 3.1. Trust Managers. The Trust Managers of AIP immediately prior to the Effective Time shall be the Trust Managers of AIP as of the Effective Time. 3.2. Officers. The officers of AIP immediately prior to the Effective Time shall be the officers of AIP as of the Effective Time. ARTICLE IV. RELP PARTNERSHIP INTERESTS 4.1. Conversion of the RELP Partnership Interest. (a) At the Effective Time, each Common Share of Beneficial Interest of AIP outstanding immediately prior to the Effective Time shall remain outstanding and shall represent one Common Share of Beneficial Interest of AIP. (b) At the Effective Time, the general and limited partnership interests of RELP (each a "RELP Interest"), issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of holder thereof, be converted into the right to receive Common Shares of Beneficial Interest, $0.10 par value per share (the "AIP Common Shares"), of AIP. The aggregate number of AIP Common Shares to be issued to the RELP partners in connection with the Merger shall be equal to $12,018,387 (the "Purchase Price") divided by the Share Price (the "Total Shares"). If RELP repays any mortgage indebtedness existing on the date hereof during the period from the date hereof to and including the Closing Date, the Purchase Price shall be appropriately adjusted. The term "Share Price" shall mean $2.625. The number of AIP 3 Common Shares to be received by a partner shall be equal to the Total Shares multiplied by such partner's percentage interest in RELP plus each limited partner's pro rata portion of the general partnership interest of the RELP's general partner. (c) As a result of the Merger and without any action on the part of the holder thereof, at the Effective Time, all RELP Interests shall cease to be outstanding and shall be canceled and retired, and each holder of a RELP Interest shall thereafter cease to have any rights with respect to such RELP Interest, except the right to receive, without interest, the AIP Common Shares and cash for fractional shares of AIP Common Shares in accordance with Sections 4.1(b) and 4.2(e). 4.2. Exchange of RELP Interests. (a) As of the Effective Time, AIP shall deposit, or shall cause to be deposited, with an exchange agent selected by AIP, which shall be AIP's Transfer Agent or such other party reasonably satisfactory to RELP (the "Exchange Agent"), for the benefit of the holders of RELP Interests, for exchange in accordance with this Article IV, certificates representing the Total Shares and the cash in lieu of fractional shares (such cash and certificates for the Total Shares together with any dividends or distributions with respect thereto, being hereinafter referred to as the "Exchange Fund") to be issued pursuant to Section 4.1 and paid pursuant to this Section 4.2 in exchange for outstanding RELP Interests. (b) Promptly after the Effective Time, AIP shall cause the Exchange Agent to mail to each holder of record of a RELP Interest (x) a certificate representing the number of whole shares of AIP Common Shares and (y) a check representing the amount of cash in lieu of fractional shares, if any, and unpaid dividends and distributions, if any, which such holder has the right to receive in respect of the RELP Interest surrendered pursuant to the provisions of this Article IV, after giving effect to any required withholding tax. No interest will be paid or accrued on the cash in lieu of fractional shares and unpaid dividends and distributions, if any, payable to holders of RELP Interests. In the event of a transfer of ownership of RELP Interests which is not registered in the transfer records of RELP, a certificate representing the proper number of AIP Common Shares, together with a check for the cash to be paid in lieu of fractional shares, may be issued to such a transferee if such holder presents to the Exchange Agent, all documents required to evidence and effect such transfer and to evidence that any applicable transfer taxes have been paid. (c) At and after the Effective Time, there shall be no transfers on the transfer books of RELP of RELP Interests which were outstanding immediately prior to the Effective Time. (d) No fractional AIP Common Shares shall be issued pursuant hereto. In lieu of the issuance of any fractional AIP Common Shares pursuant to Section 4.1(b), cash adjustments will be paid to holders in respect of any fractional AIP Common Shares that would otherwise be issuable, and the amount of such cash adjustment shall be equal to such fractional proportion of the Share Price. (e) Any portion of the Exchange Fund (including the proceeds of any investments thereof and any AIP Common Shares) that remains unclaimed by the former partners of RELP one year after the Effective Time shall be delivered to AIP. Any former partners of RELP who have not theretofore complied with this Article IV shall thereafter look only to AIP for delivery of their AIP Common 4 Shares, and payment of cash in lieu of fractional shares and unpaid dividends and distributions on the AIP Common Shares deliverable in respect of each RELP Interest such partners hold as determined pursuant to this Agreement, in each case, without any interest thereon. (f) None of AIP, RELP, the Exchange Agent or any other person shall be liable to any former holder of RELP Interests for any amount properly delivered to a public official pursuant to applicable abandoned property, escheat or similar laws. ARTICLE V. REPRESENTATIONS AND WARRANTIES OF RELP RELP represents and warrants to AIP as set forth below. As contemplated below, a "RELP Disclosure Letter" will be delivered to AIP on or before August 11, 1997. The RELP Disclosure Letter shall provide the information or exceptions described below and shall list all of the assets of the RELP that will not be transferred in connection with the Merger. The RELP Disclosure Letter shall be amended prior to Closing to cause such representations and warranties to be materially true and correct on the Closing Date, but RELP shall remain liable for any material breach of such representations and warranties reflected in such amendment only as provided in Section 9.5(d), below. 5.1. Existence; Good Standing; Authority; Compliance with Law. (a) RELP is a limited partnership, duly formed, validly existing and in good standing under the laws of the State of Delaware. To its actual knowledge, RELP is duly licensed or qualified to do business as a foreign limited partnership and is in good standing under the laws of any other state of the United States in which the character of the properties owned or leased by it therein or in which the transaction of its business makes such qualification necessary, except where the failure to be so qualified would not have a material adverse effect on the business, results of operations or financial condition of RELP (a "RELP Material Adverse Effect"). RELP has all requisite power and authority to own, operate, lease and encumber its properties and carry on its business as now conducted. (b) To the RELP's actual knowledge, it is not in violation of any order of any court, governmental authority or arbitration board or tribunal, or any law, ordinance, governmental rule or regulation to which RELP or any of its properties or assets is subject, where such violation would have a RELP Material Adverse Effect. RELP has obtained all licenses, permits and other authorizations and has taken all actions required by applicable law or governmental regulations in connection with its business as now conducted, where the failure to obtain any such item or to take any such action would have a RELP Material Adverse Effect. A copy of RELP's Agreement of Limited Partnership and Certificate of Limited Partnership (collectively, the "RELP Organizational Documents") have been delivered or made available to AIP and its counsel and such documents will be listed in the RELP Disclosure Letter and were or will be true and correct when delivered or made available. 5.2. Authorization, Validity and Effect of Agreements. RELP has the requisite power and authority to enter into the transactions contemplated hereby and to execute and deliver this Agreement and all other documents, agreements and instruments related to the transactions 5 contemplated by this Agreement (the "RELP Ancillary Agreements"). Subject only to the approval of this Agreement and the transactions contemplated hereby in accordance with the Agreement of Limited Partnership of the RELP, the consummation by RELP of this Agreement, the RELP Ancillary Agreements and the transactions contemplated hereby have been duly authorized by all requisite action on the part of RELP. In reliance upon the legal opinion described in Section 8.2(e), RELP believes this Agreement constitutes, and the RELP Ancillary Agreements (when executed and delivered pursuant hereto for value received) will constitute, the valid and legally binding obligations of RELP, enforceable against RELP in accordance with their respective terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights and general principles of equity (collectively, "Equitable Remedies"). 5.3. Future Issuances. To RELP's actual knowledge, there are not at the date of this Agreement any existing options, warrants, calls, subscriptions, convertible securities, or other rights, agreements or commitments which obligate RELP to issue, transfer or sell any RELP Interests. After the Effective Time, AIP will have no obligation to issue, transfer or sell any RELP Interest. 5.4. Other Interests. Except as set forth in the RELP Disclosure Letter, RELP does not own directly or indirectly any interest or investment (whether equity or debt) in any corporation, partnership, joint venture, business, trust or entity (other than investments in short-term investment securities). 5.5. No Violation. To RELP's actual knowledge, neither the execution and delivery by RELP of this Agreement nor the consummation by RELP of the transactions contemplated hereby in accordance with the terms hereof, will: (i) conflict with or result in a breach of any provisions of the Agreement of Limited Partnership of RELP; (ii) except as contemplated by the RELP Ancillary Agreements or as will be set forth in the RELP Disclosure Letter, violate, or conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination or in a right of termination or cancellation of, or accelerate the performance required by, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties of RELP under, or result in being declared void, voidable or without further binding effect, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust or any license, franchise, permit, lease, contract, agreement or other instrument, commitment or obligation to which RELP is a party, or by which RELP or any of its properties is bound or affected, except for any of the foregoing matters which, individually or in the aggregate, would not have a RELP Material Adverse Effect; or (iii) other than the filings provided for in Article I, any filings required under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Securities Act or applicable state securities and "Blue Sky" laws (collectively, the "Regulatory Filings"), require any consent, approval or authorization of, or declaration, filing or registration with, any domestic governmental or regulatory authority, except where the failure to obtain any such consent, approval or authorization of, or declaration, filing or registration with, any governmental or regulatory authority would not have an RELP Material Adverse Effect. 5.6. SEC Documents. (a) RELP has made available or will make available to AIP prior to July 31, 1997, each registration statement, report, proxy statement or information statement and 6 all exhibits thereto prepared by it or relating to its properties (including registration statements covering mortgage pass-through certificates) since January 1, 1994, each in the form (including exhibits and any amendments thereto) filed with the SEC (collectively, the "RELP Reports"). The RELP Reports, which were or will be filed with the SEC in a timely manner, constitute all forms, reports and documents required to be filed by RELP under the Securities Act of 1933, as amended (the "Securities Act"), the Exchange Act and the rules and regulations promulgated thereunder (collectively the "Securities Laws") for the periods stated above. (b) To the RELP's actual knowledge, as of their respective dates, the RELP Reports (i) complied as to form in all material respects with the applicable requirements of the Securities Laws and (ii) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading. To the RELP's actual knowledge, each of the balance sheets of RELP included in or incorporated by reference into the RELP Reports (including the related notes and schedules) fairly presents the financial position of RELP as of its date and each of the consolidated statements of income, retained earnings and cash flows of RELP included in or incorporated by reference into the RELP Reports (including any related notes and schedules) fairly presents the results of operations, retained earnings and cash flows, as the case may be, of RELP for the periods set forth therein (subject, in the case of unaudited statements, to normal year-end audit adjustments which would not be material in amount or effect), in each case in accordance with generally accepted accounting principles consistently applied during the periods involved, except as may be noted therein and except, in the case of the unaudited statements, as permitted by the Securities Laws. (c) Except as and to the extent set forth on the balance sheet of RELP at March 31, 1997, including all notes thereto, or as set forth in the RELP Reports, RELP has no material liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) that would be required to be reflected on, or reserved against in, a balance sheet of RELP or in the notes thereto, prepared in accordance with generally accepted accounting principles consistently applied, except liabilities arising in the ordinary course of business since such date which would not have a RELP Material Adverse Effect. 5.7. Litigation. To the RELP's actual knowledge, there are (i) no continuing orders, injunctions or decrees of any court, arbitrator or governmental authority to which RELP is a party or by which any of its properties or assets are bound or to which USAA Properties IV, Inc. (the "General Partner") or the General Partner's, directors, officers, or affiliates is a party or by which any of their properties or assets are bound, and (ii) except as will be set forth in the RELP Disclosure Letter, no actions, suits or proceedings pending against RELP or against the General Partner or the General Partner's directors, officers or affiliates or, to the knowledge of the General Partner, threatened against RELP or against the General Partner or the General Partner's directors, officers or affiliates, at law or in equity, or before or by any federal or state commission, board, bureau, agency or instrumentality, that in the case of clauses (i) or (ii) above are reasonably likely, individually or in the aggregate, to have a RELP Material Adverse Effect. 7 5.8. Absence of Certain Changes. Except as disclosed in the RELP Reports filed prior to the date hereof, since March 31, 1997, (i) RELP conducted its business only in the ordinary course of such business (which for purposes of this section only, shall include all acquisitions of real estate properties and financing arrangements made in connection therewith or otherwise will be set forth in the RELP Disclosure Letter); (ii) there has not been any RELP Material Adverse Effect; (iii) there has not been any distribution, setting aside or payment of any distribution with respect to any RELP Interest, and (iv) there has not been any material change in RELP's accounting principles, practices or methods. 5.9. Taxes. (a) Except as may be set forth in the RELP Disclosure Letter, RELP (i) has timely filed all federal, state and foreign tax returns including, without limitation, information returns and reports required to be filed by it for tax periods ended prior to the date of this Agreement or requests for extensions have been timely filed and any such request has been granted and has not expired and all such returns are accurate and complete in all material respects, (ii) has paid or accrued all taxes shown to be due and payable on such returns or which have become due and payable pursuant to any assessment, deficiency notice, 30-day letter or other notice received by it and (iii) has properly accrued all taxes for such periods and periods subsequent to the periods covered by such returns. RELP has not received notice that the federal, state and local income and franchise tax returns of RELP has been or will be examined by any taxing authority. RELP has not executed or filed with the Internal Revenue Service (the "IRS") or any other taxing authority any agreement now in effect extending the period for assessment or collection of any income or other taxes. (b) Except as may be set forth in the RELP Disclosure Letter, RELP is not a party to any pending action or proceeding by any governmental authority for assessment or collection of taxes, and no claim for assessment or collection of taxes has been asserted against it. True, correct and complete copies of all federal, state and local income or franchise tax returns filed by RELP since January 1, 1991 and all communications relating thereto have been delivered to AIP or made available to representatives of AIP or will be so delivered or made available prior to July 31, 1997. RELP does not hold any asset (i) the disposition of which could be subject to rules similar to Section 1374 of the Internal Revenue Code of 1986, as amended (the "Code") as a result of an election under IRS Notice 88-19 or (ii) that is subject to a consent filed pursuant to Section 341(f) of the Code and regulations thereunder. For purposes of this Section 5.9, "taxes" includes any interest, penalty or additional amount payable with respect to any tax. 5.10. Books and Records. The books of account and other financial records of RELP are in all material respects true, complete and correct, have been maintained in accordance with good business practices, and are accurately reflected in all material respects in the financial statements included in the RELP Reports. 5.11. Properties. (a) RELP owns fee simple title to each of the real properties reflected on the most recent balance sheet of RELP included in the RELP Reports or as may be identified in the RELP Disclosure Letter (the "RELP Properties"), which are all of the real estate properties owned by it, free and clear of liens, mortgages or deeds of trust, claims against title, charges which are liens or security interests ("Encumbrances") except as will be noted in the RELP Disclosure 8 Letter. To RELP's actual knowledge, the RELP Properties are not subject to any rights of way, written agreements, laws, ordinances and regulations affecting building use or occupancy, or reservations of an interest in title (collectively, "Property Restrictions"), except for (i) Encumbrances and Property Restrictions that will be set forth in the RELP Disclosure Letter, (ii) Property Restrictions imposed or promulgated by law or any governmental body or authority with respect to real property, including zoning regulations, provided they do not materially adversely affect the current use of the property, (iii) Encumbrances and Property Restrictions disclosed on existing title reports or current surveys (in either case copies of which title reports and surveys have been or will be delivered or made available to AIP July 31, 1997), (iv) mechanics', carriers', workmen's, repairmen's liens and other Encumbrances, Property Restrictions and other limitations of any kind, if any, which have heretofore been bonded (and that will be listed in the RELP Disclosure Letter) or which individually or in the aggregate do not exceed $100,000, do not materially detract from the value of or materially interfere with the present use of any of the RELP Properties subject thereto or affected thereby, and do not otherwise materially impair business operations conducted by RELP and which have arisen or been incurred only in its construction activities or in the ordinary course of business. (b) Valid policies of title insurance have been issued insuring either (a) RELP's fee simple title to the RELP Properties or (b) first mortgage liens thereon, subject only to the matters disclosed above and as may be set forth in the RELP Disclosure Letter, and such policies are, at the date hereof, in full force and effect and no claim has been made against any such policy. To RELP's actual knowledge, except as will be set forth in the RELP Disclosure Letter: (i) there is no certificate, permit or license from any governmental authority having jurisdiction over any of the RELP Properties or any agreement, easement or other right which is necessary to permit the lawful use and operation of the buildings and improvements on any of the RELP Properties or which is necessary to permit the lawful use and operation of all driveways, roads and other means of egress and ingress to and from any of the RELP Properties that has not been obtained and is not in full force and effect, or of any pending threat of modification or cancellation of any of same; (ii) RELP has not received written notice of any material violation of any federal, state or municipal law, ordinance, order, regulation or requirement affecting any portion of any of the RELP Properties issued by any governmental authority; (iii) there are no structural defects relating to the RELP Properties and no RELP Properties whose building systems are not in working order in any material respect; and (iv) there is (A) no physical damage to any RELP Property in excess of $100,000 for which there is no insurance in effect covering the cost of the restoration, (B) no current renovation to any RELP Property the cost of which exceeds $100,000 and (C) no current restoration (excluding tenant improvements) of any RELP Property, the cost of which exceeds $100,000. (c) Except as will be set forth in the RELP Disclosure Letter, RELP has not received notice to the effect that and there are no (A) condemnation or rezoning proceedings that are pending or threatened with respect to any of the RELP Properties or (B) zoning, building or similar laws, codes, ordinances, orders or regulations that are or will be violated by the continued maintenance, operation or use of any buildings or other improvements on any of the RELP Properties or by the continued maintenance, operation or use of the parking areas. All work to be performed, payments to be made and actions to be taken by RELP prior to the date hereof pursuant to any agreement entered into with a governmental body or authority in connection with a site approval, zoning 9 reclassification or other similar action relating to the RELP Properties (e.g., Local Improvement District, Road Improvement District, Environmental Mitigation) has been performed, paid or taken, as the case may be, and RELP is not aware of any planned or proposed work, payments or actions that may be required after the date hereof pursuant to such agreements, except as will be set forth in the RELP Disclosure Letter. 5.12. Environmental Matters. To RELP's actual knowledge, RELP has not caused (i) the unlawful presence of any hazardous substances, hazardous materials, toxic substances or waste materials (collectively, "Hazardous Materials") on any of the RELP Properties, or (ii) any unlawful spills, releases, discharges or disposal of Hazardous Materials to have occurred or be presently occurring on or from the RELP Properties as a result of any construction on or operation and use of such properties, which presence or occurrence would, individually or in the aggregate, have a RELP Material Adverse Effect; and in connection with the construction on or operation and use of the RELP Properties, RELP has not failed to comply, in any material respect, with any applicable local, state and federal environmental laws, regulations, ordinances and administrative and judicial orders relating to the generation, recycling, reuse, sale, storage, handling, transport and disposal of any Hazardous Materials. 5.13. Labor Matters. RELP is not a party to, or bound by, any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor union organization. There is no unfair labor practice or labor arbitration proceeding pending or, to the knowledge of the General Partner, threatened against RELP relating to its business, except for any such proceeding which would not have a RELP Material Adverse Effect. To the knowledge of the General Partner, there are no organizational efforts with respect to the formation of a collective bargaining unit presently being made or threatened involving employees of RELP or any of its Subsidiaries. 5.14. No Brokers. Except the fee that is to be paid to Houlihan Lokey Howard & Zukin ("Houlihan") by RELP as described in Section 5.15 below, RELP has not entered into any contract, arrangement or understanding with any person or firm which may result in the obligation of RELP or AIP to pay any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby. RELP is not aware of any claim for payment of any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby. 5.15. Opinion of Financial Advisor. RELP has retained Houlihan to review the transaction contemplated by this Agreement and to issue an opinion to the effect that, as of the date of such opinion, the Purchase Price is fair to the holders of RELP Interests from a financial point of view. 5.16. Related Party Transactions. Except as set forth in the RELP Disclosure Letter, there are no arrangements, agreements or contracts entered into by RELP with (i) any consultant, (ii) any person who is an officer, director or affiliate of RELP or its General Partner, any relative of any of the foregoing or any entity of which any of the foregoing is an affiliate, or (iii) any person who acquired RELP Interests in a private placement. 10 5.17. Contracts and Commitments. The RELP Disclosure Letter will set forth (i) all unsecured notes or other obligations of RELP which individually may result in total payments in excess of $100,000, (ii) all notes, debentures, bonds and other evidence of indebtedness which are secured or collateralized by mortgages, deeds of trust or other security interests in the RELP Properties or personal property of RELP, and (iii) each commitment entered into by RELP which may result in total payments or liability in excess of $100,000. Copies of the foregoing will be delivered or made available to AIP prior to July 31, 1997, will be listed on the RELP Disclosure Letter and will be materially true and correct when delivered or made available. RELP has not received any notice of a default that has not been cured under any of the documents described in clause (i) above or is in default respecting any payment obligations thereunder beyond any applicable grace periods. All options of RELP to purchase real property will be set forth on the RELP Disclosure Letter and such options and RELP's rights thereunder are in full force and effect. All joint venture agreements to which RELP is a party will be set forth on the RELP Disclosure Letter and RELP is not in default with respect to any obligations, which individually or in the aggregate are material, thereunder. 5.18. Development Rights. Set forth in the RELP Disclosure Letter will be a list of all material agreements entered into by RELP relating to the development, rehabilitation, capital improvement or construction of office buildings, industrial facilities or other real estate properties, which development or construction has not been substantially completed as of the date of this Agreement. Such agreements, true and correct copies of all of which will be delivered or made available to AIP prior to July 31, 1997, will be listed in the RELP Disclosure Letter, have not been modified and are valid and binding in accordance with their respective terms. 5.19. Convertible Securities. To RELP's actual knowledge, RELP has no outstanding options, warrants or other securities exercisable for, or convertible into, RELP Interests, the terms of which would require any anti- dilution adjustments by reason of the consummation of the transactions contemplated hereby. ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF AIP AIP represents and warrants to RELP as set forth below. As contemplated below, an "AIP Disclosure Letter" will be delivered to RELP on or before August 11, 1997. The AIP Disclosure Letter shall provide the information or exceptions described below. The AIP Disclosure Letter shall be amended prior to Closing to cause such representations and warranties to be materially true and correct on the Closing Date, but AIP shall remain liable for any material breach of such representations and warranties reflected in such amendment only as provided in Section 9.5(d), below. 6.1. Existence; Good Standing; Authority; Compliance with Law. (a) AIP is a real estate investment trust duly organized and validly existing under the laws of the State of Texas. To AIP's actual knowledge, AIP is duly licensed or qualified to do business and is in good standing under the laws of any other state of the United States in which the character of the properties owned or leased by it therein or in which the transaction of its business makes such qualification necessary, except where the failure to be so qualified would not have a material adverse effect on the business, results 11 of operations or financial condition of AIP and its subsidiaries taken as a whole (an "AIP Material Adverse Effect"). AIP has all requisite power and authority to own, operate, lease and encumber its properties and carry on its business as now conducted. Each of AIP's Subsidiaries is a corporation, limited liability company or partnership duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, has the requisite power and authority to own its properties and to carry on its business as it is now being conducted, and is duly qualified to do business and is in good standing in each jurisdiction in which the ownership of its property or the conduct of its business requires such qualification, except for jurisdictions in which such failure to be so qualified or to be in good standing would not have an AIP Material Adverse Effect. (b) To AIP's actual acknowledge, neither AIP nor any AIP Subsidiary is in violation of any order of any court, governmental authority or arbitration board or tribunal, or any law, ordinance, governmental rule or regulation to which AIP or any AIP Subsidiary or any of their respective properties or assets is subject, where such violation would have an AIP Material Adverse Effect. AIP and its Subsidiaries have obtained all licenses, permits and other authorizations and have taken all actions required by applicable law or governmental regulations in connection with their business as now conducted, where the failure to obtain any such item or to take any such action would have an AIP Material Adverse Effect. Copies of AIP's and its Subsidiaries' Declaration of Trust, Articles of Incorporation, Bylaws, organizational documents and partnership and joint venture agreements have been or will be prior to July 31, 1997, delivered or made available to RELP and such documents will be listed in the AIP Disclosure Letter and were or will be true and correct when delivered or made available. For the purposes of the immediately preceding sentence, the term "Subsidiary"shall include the entities set forth in the AIP Disclosure Letter, which are all of AIP's Subsidiaries. 6.2. Authorization, Validity and Effect of Agreements. AIP has the requisite power and authority to enter into the transactions contemplated hereby and to execute and deliver this Agreement and all other documents, agreements and instruments related to the transactions contemplated by this Agreement to which it is a party (the "AIP Ancillary Agreements"). Subject only to the approval of the issuance of AIP Common Shares pursuant to the Merger contemplated hereby by the holders of two-thirds of the outstanding AIP Common Shares, present and voting thereon, the consummation by AIP of this Agreement, the AIP Ancillary Agreements and the transactions contemplated hereby have been duly authorized by all requisite action on the part of AIP. This Agreement constitutes, and the AIP Ancillary Agreements (when executed and delivered pursuant hereto for value received) will constitute, the valid and legally binding obligations of AIP enforceable against AIP in accordance with their respective terms, subject to Equitable Remedies. 6.3. Capitalization. On June 15, 1997, the authorized capital stock of AIP consists of 10,000,000 Common Shares. As of the date hereof, all 10,000,000 Common Shares are outstanding. AIP has no outstanding bonds, debentures, notes or other obligations (other than to Realco), the holders of which have the right to vote (or which are convertible into or exercisable for securities having the right to vote) with the shareholders of AIP on any matter. Except as set forth in the AIP Disclosure Letter, all such issued and outstanding of AIP Common Shares are duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights. Except as set forth in the AIP Disclosure Letter, there are not at the date of this Agreement any existing options, warrants, calls, 12 subscriptions, convertible securities, or other rights, agreements or commitments which obligate AIP or any of its Subsidiaries to issue, transfer or sell any shares or other equity interest of AIP or any of its Subsidiaries except under any employee incentive plan approved by AIP's shareholders. There are no agreements or understandings to which AIP is a party with respect to the voting of any AIP Common Shares or which restrict the transfer of any such shares, except in order to protect its REIT status. 6.4. Subsidiaries. Except as set forth in the AIP Disclosure Letter, AIP owns directly or indirectly each of the outstanding shares of capital stock or all of the partnership or other equity interests of each of AIP's Subsidiaries free and clear of all liens, pledges, security interests, claims or other encumbrances other than liens imposed by local law which are not material. 6.5. Other Interests. Except as will be disclosed in the AIP Disclosure Letter and except for interests in the AIP Subsidiaries, neither AIP nor any AIP Subsidiary owns directly or indirectly any interest or investment (whether equity or debt) in any corporation, partnership, joint venture, business, trust or entity (other than investments in short-term investment securities). 6.6. No Violation. Neither the execution and delivery by AIP of this Agreement nor the consummation by AIP of the transactions contemplated hereby in accordance with the terms hereof, will: (i) conflict with or result in a breach of any provisions of AIP's Declaration of Trust; (ii) violate, or conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination or in a right of termination or cancellation of, or accelerate the performance required by, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties of AIP or its Subsidiaries under, or result in being declared void, voidable or without further binding effect, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust or any license, franchise, permit, lease, contract, agreement or other instrument, commitment or obligation to which AIP or any of its Subsidiaries is a party, or by which AIP or any of its Subsidiaries or any of their properties is bound or affected, except for any of the foregoing matters which, individually or in the aggregate, would not have an AIP Material Adverse Effect; or (iii) other than the Regulatory Filings require any consent, approval or authorization of, or declaration, filing or registration with, any domestic governmental or regulatory authority, except where the failure to obtain such consent, approval or authorization of, or declaration, filing or registration with, any governmental or regulatory authority would not have an AIP Material Adverse Effect. 6.7. SEC Documents. (a) AIP has made available or will make available to RELP prior to July 31, 1997, the registration statements of AIP filed with the SEC in connection with public offerings of AIP securities since January 1, 1994 and all exhibits, amendments and supplements thereto (the "AIP Registration Statements"), and each registration statement, report, proxy statement or information statement and all exhibits thereto prepared by it or relating to its properties since the effective date of the latest AIP Registration Statement, each in the form (including exhibits and any amendments thereto) filed with the SEC (collectively, the "AIP Reports"). The AIP Reports, which were or will be filed with the SEC in a timely manner, constitute all forms, reports and documents required to be filed by AIP under the Securities Laws. 13 (b) To AIP's actual knowledge, as of their respective dates, the AIP Reports (i) complied as to form in all material respects with the applicable requirements of the Securities Laws, and (ii) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading. To AIP's actual acknowledge, each of the consolidated balance sheets of AIP included in or incorporated by reference into the AIP Reports (including the related notes and schedules) fairly presents the consolidated financial position of AIP and the AIP Subsidiaries as of its date and each of the consolidated statements of income, retained earnings and cash flows of AIP included in or incorporated by reference into the AIP Reports (including any related notes and schedules) fairly presents the results of operations, retained earnings or cash flows, as the case may be, of AIP and the AIP Subsidiaries for the periods set forth therein (subject, in the case of unaudited statements, to normal year-end audit adjustments which would not be material in amount or effect), in each case in accordance with generally accepted accounting principles consistently applied during the periods involved, except as may be noted therein and except, in the case of the unaudited statements, as permitted by the Securities Laws. (c) Except as and to the extent set forth on the consolidated balance sheet of AIP and its Subsidiaries at March 31, 1997, including all notes thereto, or as set forth in the AIP Reports, neither AIP nor any of the AIP Subsidiaries has any material liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) that would be required to be reflected on, or reserved against in, a balance sheet of AIP or in the notes thereto, prepared in accordance with generally accepted accounting principles consistently applied, except liabilities arising in the ordinary course of business since such date which would not have an AIP Material Adverse Effect. 6.8. Litigation. To AIP's actual knowledge, there are (i) no continuing orders, injunctions or decrees of any court, arbitrator or governmental authority to which AIP or any AIP Subsidiary is a party or by which any of its properties or assets are bound or, to which any of its directors, officers, or affiliates is a party or by which any of their properties or assets are bound, and (ii) except as will be set forth in the AIP Disclosure Letter, no actions, suits or proceedings pending against AIP or any AIP Subsidiary or, to the knowledge of AIP, against any of its Trust Managers, officers, or affiliates or, to the knowledge of AIP, threatened against AIP or any AIP Subsidiary or against any of its Trust Managers, officers, or affiliates, at law or in equity, or before or by any federal or state commission, board, bureau, agency or instrumentality, that in the case of clauses (i) or (ii) above are reasonably likely, individually or in the aggregate, to have an AIP Material Adverse Effect. 6.9. Absence of Certain Changes. Except as disclosed in the AIP Reports filed with the SEC prior to the date hereof, (i) AIP and its Subsidiaries have conducted their business only in the ordinary course of such business (which, for purposes of this section only, shall include all acquisitions of real estate properties and financing arrangements made in connection therewith); (ii) there has not been any AIP Material Adverse Effect; (iii) there has not been any declaration, setting aside or payment of any dividend or other distribution with respect to the AIP Common Shares; and (iv) there has not been any material change in AIP's accounting principles, practices or methods. 14 6.10. Taxes. (a) Except as may be set forth in the AIP Disclosure Letter, AIP and each of its Subsidiaries (i) has timely filed all federal, state and foreign tax returns including, without limitation, information returns and reports required to be filed by any of them for tax periods ended prior to the date of this Agreement or requests for extensions have been timely filed and any such request has been granted and has not expired and all such returns are absolute and complete in all material respects, (ii) has paid or accrued all taxes shown to be due and payable on such returns or which have become due and payable pursuant to any assessment, deficiency notice, 30-day letter or other notice received by it and (iii) has properly accrued all taxes for such periods subsequent to the periods covered by such returns. Neither AIP nor any of its Subsidiaries has received notice that the federal, state and local income and franchise tax returns of AIP or any such Subsidiary has been or will be examined by any taxing authority. Neither AIP nor any of its Subsidiaries has executed or filed with the IRS or any other taxing authority any agreement now in effect extending the period for assessment or collection of any income or other taxes. (b) Except as will be disclosed in the AIP Disclosure Letter, neither AIP nor any of its Subsidiaries is a party to any pending action or proceeding by any governmental authority for assessment or collection of taxes, and no claim for assessment or collection of taxes has been asserted against it. True, correct and complete copies of all federal, state and local income or franchise tax returns filed by AIP and each of its Subsidiaries and all communications relating thereto have been delivered to RELP or made available to representatives of RELP or will be so delivered or made available prior to July 31, 1997. AIP (i) has qualified to be taxed as a REIT pursuant to Sections 856 through 859 of the Code for its taxable years ended December 31, 1985 through 1996, inclusive (ii) has operated, and intends to continue to operate, in such a manner as to qualify to be taxed as a REIT pursuant to Sections 856 through 859 of the Code for its taxable year ended on the effective date of the Merger, and (iii) has not taken or omitted to take any action which could result in, and each of the executive officers of AIP, each acting in his respective capacity as such, has no actual knowledge of, a challenge to its status as a REIT. AIP represents that each of its Subsidiaries is a Qualified REIT Subsidiary as defined in Section 856 (i) of the Code. Neither AIP nor any of its Subsidiaries holds any asset (i) the disposition of which could be subject to rules similar to Section 1374 of the Code as a result of an election under IRS Notice 88-19 or (ii) that is subject to a consent filed pursuant to Section 341(f) of the Code and regulations thereunder. For purposes of this Section 6.10, "taxes" includes any interest, penalty or additional amount payable with respect to any tax. 6.11. Books and Records. (a) The books of account and other financial records of AIP and its Subsidiaries are in all material respects true, complete and correct, have been maintained in accordance with good business practices, and are accurately reflected in all material respects in the financial statements included in the AIP Reports. (b) The minute books and other records of AIP and its Subsidiaries contain in all material respects accurate records of all meetings and accurately reflect in all material respects all other corporate action of the shareholders and Trust Managers and any committees of the Board of Trust Managers of AIP and its Subsidiaries. 15 6.12. Properties. (a) AIP and its Subsidiaries own fee simple title to each of the real properties reflected on the most recent balance sheet of AIP included in the AIP Reports or as may be identified in the AIP Disclosure Letter (the "AIP Properties"), which are all of the real estate properties owned by them, free and clear of Encumbrances. To AIP's actual knowledge, the AIP Properties are not subject to any rights of way, written agreements, laws, ordinances and regulations affecting building use or occupancy, or reservations of an interest in title (collectively, "Property Restrictions"), except for (i) Encumbrances and Property Restrictions that will be set forth in the AIP Disclosure Letter, (ii) Property Restrictions imposed or promulgated by law or any governmental body or authority with respect to real property, including zoning regulations, provided they do not materially adversely affect the current use of the property, (iii) Encumbrances and Property Restrictions disclosed on existing title reports or surveys (in either case copies of which title reports and surveys have been or will be delivered or made available to RELP prior to July 31, 1997), and (iv) mechanics', carriers', workmen's, repairmen's liens and other Encumbrances, Property Restrictions and other limitations of any kind, if any, which have heretofore been bonded (and that will be listed in the AIP Disclosure Letter) or which individually or in the aggregate, do not exceed $100,000, do not materially detract from the value of or materially interfere with the present use of any of the AIP Properties subject thereto or affected thereby, and do not otherwise materially impair business operations conducted by AIP and its Subsidiaries and which have arisen or been incurred only in its construction activities or in the ordinary course of business. (b) Valid policies of title insurance have been issued insuring AIP's or any of its Subsidiaries' fee simple title to the AIP Properties, subject only to the matters disclosed above and as may be set forth in the AIP Disclosure Letter, and such policies are, at the date hereof, in full force and effect and no material claim has been made against any such policy. To AIP's actual knowledge, except as will be set forth in the AIP Disclosure Letter, (i) there is no certificate, permit or license from any governmental authority having jurisdiction over any of the AIP Properties or any agreement, easement or other right which is necessary to permit the lawful use and operation of the buildings and improvements on any of the AIP Properties or which is necessary to permit the lawful use and operation of all driveways, roads and other means of egress and ingress to and from any of the AIP Properties that has not been obtained and is not in full force and effect, or of any pending threat of modification or cancellation of any of same; (ii) neither AIP nor its Subsidiaries has received written notice of any material violation of any federal, state or municipal law, ordinance, order, regulation or requirement affecting any portion of any of the AIP Properties issued by any governmental authority; (iii) there are no structural defects relating to the AIP Properties and no AIP Properties whose building systems are not in working order in any material respect; and (iv) there is (A) no physical damage to any AIP Property in excess of $100,000 for which there is no insurance in effect covering the cost of the restoration, (B) no current renovation to any AIP Property the cost of which exceeds $100,000 and (C) no current restoration (excluding tenant improvements) of any AIP Property the cost of which exceeds $100,000. (c) Except as will be set forth in the AIP Disclosure Letter, AIP or its Subsidiaries have received no notice to the effect that and there are no (A) condemnation or rezoning proceedings that are pending or threatened with respect to any of the AIP Properties or (B) any zoning, building or similar laws, codes, ordinances, orders or regulations that are or will be violated by the continued maintenance, operation or use of any buildings or other improvements on any of the AIP Properties 16 or by the continued maintenance, operation or use of the parking areas in any material respect. All work to be performed, payments to be made and actions to be taken by AIP or its Subsidiaries prior to the date hereof pursuant to any agreement entered into with a governmental body or authority in connection with a site approval, zoning reclassification or other similar action relating to the AIP Properties (e.g., Local Improvement District, Road Improvement District, Environmental Mitigation) has been performed, paid or taken, as the case may be, and AIP is not aware of any planned or proposed work, payments or actions that may be required after the date hereof pursuant to such agreements, except as will be set forth in the AIP Disclosure Letter. 6.13. Environmental Matters. To the actual knowledge of AIP, none of AIP, any of its Subsidiaries or, any other person has caused or permitted (i) the unlawful presence of any Hazardous Materials on any of the AIP Properties, or (ii) any unlawful spills, releases, discharges or disposal of Hazardous Materials to have occurred or be presently occurring on or from the AIP Properties as a result of any construction on or operation and use of such properties, which presence or occurrence would, individually or in the aggregate, have an AIP Material Adverse Effect; and in connection with the construction on or operation and use of the AIP Properties, AIP and its Subsidiaries have not failed to comply, in any material respect, with any applicable local, state and federal environmental laws, regulations, ordinances and administrative and judicial orders relating to the generation, recycling, reuse, sale, storage, handling, transport and disposal of any Hazardous Materials. 6.14. Labor Matters. Neither AIP nor any of its Subsidiaries is a party to, or bound by, any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor union organization. There is no unfair labor practice or labor arbitration proceeding pending or, to the knowledge of the executive officers of AIP, threatened against AIP or its Subsidiaries relating to their business, except for any such proceeding which would not have an AIP Material Adverse Effect. To the knowledge of AIP, there are no organizational efforts with respect to the formation of a collective bargaining unit presently being made or threatened involving employees of AIP or any of its Subsidiaries. 6.15. No Brokers. Except for the fee payable to Prudential Securities Incorporated ("Prudential") as described in Section 6.16 below, AIP has not entered into any contract, arrangement or understanding with any person or firm which may result in the obligation of AIP or RELP to pay any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby. AIP is not aware of any claim for payment of any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby. 6.16. Opinion of Financial Advisor. AIP has retained Prudential to review the transaction contemplated by this Agreement and to issue an opinion as to the fairness to AIP, from a financial point of view, of the consideration to be paid by AIP pursuant to the Merger. 6.17. RELP Share Ownership. Except as may be set forth in the AIP Disclosure Letter, neither AIP nor any of its Subsidiaries owns any RELP Interests or other securities convertible into RELP interests. 17 6.18. AIP Common Shares. The issuance and delivery by AIP of AIP Common Shares in connection with the Merger and this Agreement have been duly and validly authorized by all necessary action on the part of AIP except for the approval of its shareholders contemplated by this Agreement. The AIP Common Shares to be issued in connection with the Merger and this Agreement, when issued in accordance with the terms of this Agreement, will be validly issued, fully paid and nonassessable, except that shareholders may be subject to further assessment with respect to certain claims for tort, contract, taxes, statutory liability and otherwise in some jurisdictions to the extent such claims are not satisfied by AIP. 6.19. Convertible Securities. AIP has no outstanding options, warrants or other securities exercisable for, or convertible into, shares of AIP Common Shares, the terms of which would require any anti-dilution adjustments by reason of the consummation of the transactions contemplated hereby, except the preemptive rights held by certain clients of Morgan Stanley Asset Management, Inc. and held by MS Real Estate Special Situations, Inc. and the convertible debt securities held by Realco. 6.20. Related Party Transactions. Set forth in the AIP Disclosure Letter will be a list of all arrangements, agreements and contracts entered into by AIP or any of its Subsidiaries with (i) any person who is an officer, Trust Manager or affiliate of AIP or any of its Subsidiaries, any relative of any of the foregoing or any entity of which any of the foregoing is an affiliate or (ii) any person who acquired AIP Common Shares in a private placement. The copies of such documents, all of which have been or will be delivered or made available to RELP prior to July 31, 1997, are or will be true, complete and correct when delivered or made available. 6.21. Contracts and Commitments. The AIP Disclosure Letter will set forth (i) all unsecured notes or other obligations of AIP and AIP Subsidiaries which individually may result in total payments in excess of $100,000, (ii) notes, debentures, bonds and other evidence of indebtedness which are secured or collateralized by mortgages, deeds of trust or other security interests in the AIP Properties or personal property of AIP and its Subsidiaries, and (iii) each commitment entered into by AIP or any of its Subsidiaries which individually may result in total payments or liability in excess of $100,000. Copies of the foregoing have been or will be delivered or made available to RELP prior to July 31, 1997, will be listed on the AIP Disclosure Letter and are or will be materially true and correct when delivered or made available. None of AIP or any of its Subsidiaries has received any notice of a default that has not been cured under any of the documents described in clause (i) or (ii) above or is in default respecting any payment obligations thereunder beyond any applicable grace periods. All options of AIP or any of its Subsidiaries to purchase real property will be set forth on the AIP Disclosure Letter and such options and AIP's or its Subsidiaries' rights thereunder are in full force and effect. All joint venture agreements to which AIP or any of its Subsidiaries is a party will be set forth on the AIP Disclosure Letter and AIP or its Subsidiaries are not in default with respect to any obligations, which individually or in the aggregate are material, thereunder. 6.22. Development Rights. Set forth in the AIP Disclosure Letter will be a list of all material agreements entered into by AIP or any of its Subsidiaries relating to the development, rehabilitation, capital improvement or construction of office buildings, industrial facilities or other 18 real estate properties which development or construction has not been substantially completed as of the date of this Agreement. Such agreements, true, complete and correct copies of all of which have been or will be delivered or made available to RELP prior to July 31, 1997, will be listed in the AIP Disclosure Letter. 6.23. Certain Payments Resulting From Transactions. The execution of, and performance of the transactions contemplated by, this Agreement will not (either alone or upon the occurrence of any additional or subsequent events) (i) constitute an event under any AIP Benefit Plan, policy, practice, agreement or other arrangement or any trust or loan (the "Employee Arrangements") that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any employee, director or consultant of AIP or any of its Subsidiaries unless such rights have been waived by any such person, or (ii) result in the triggering or imposition of any restrictions or limitations on the right of AIP or RELP to amend or terminate any Employee Arrangement and receive the full amount of any excess assets remaining or resulting from such amendment or termination, subject to applicable taxes. No payment or benefit which will be required to be made pursuant to the terms of any agreement, commitment or AIP Benefit Plan, as a result of the transactions contemplated by this Agreement, to any officer, director or employee of AIP or any of its Subsidiaries, will be characterized as an "excess parachute payment" within the meaning of Section 280G(b)(1) of the Code. ARTICLE VII. COVENANTS 7.1. Acquisition Proposals. Prior to the Effective Time, RELP and AIP each agree (i) that neither of them nor any of their Subsidiaries shall, and each of them shall direct and use its best efforts to cause its respective officers, General Partner, limited partners, Trust Managers, employees, agents, affiliates and representatives (including, without limitation, any investment banker, attorney or accountant retained by it or any of its Subsidiaries), as applicable, not to, initiate, solicit or encourage, directly or indirectly, any inquiries or the making or implementation of any proposal or offer (including, without limitation, any proposal or offer to its shareholders) with respect to a merger, acquisition, tender offer, exchange offer, consolidation or similar transaction involving, or any purchase of all or any significant portion of the assets or any equity securities (or any debt securities convertible into equity securities) of, such party or any of its Subsidiaries, other than the transactions contemplated by this Agreement (any such proposal or offer being hereinafter referred to as an "Acquisition Proposal") or engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, any person relating to an Acquisition Proposal, or otherwise facilitate any effort or attempt to make or implement an Acquisition Proposal; (ii) that it will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing and each will take the necessary steps to inform the individuals or entities referred to above of the obligations undertaken in this Section 7.1; and (iii) that it will notify the other party immediately if any such inquiries or proposals are received by, any such information is requested from, or any such negotiations or discussions are sought to be initiated or continued with, it; provided, however, that nothing contained in this Section 7.1 shall prohibit the Board of Directors of the General Partner of RELP (the "Board of Directors") or the Board of Trust Managers from (x) 19 furnishing information to or entering into discussions or negotiations with, any person or entity that makes an unsolicited bona fide Acquisition Proposal, if, and only to the extent that, (A) the Board of Directors or Board of Trust Managers, as applicable, determines in good faith that such action is required for it to comply with its fiduciary duties to limited partners or shareholders, as applicable, imposed by law as advised by counsel, (B) prior to furnishing such information to, or entering into discussions or negotiations with, such person or entity, such party provides written notice to the other party to this Agreement to the effect that it is furnishing information to, or entering into discussions with, such person or entity, and (C) subject to any confidentiality agreement with such person or entity (which such party determined in good faith was required to be executed in order for the Board of Directors or Board of Trust Managers, as applicable, to comply with its fiduciary duties to limited partners or shareholders, as applicable, imposed by law as advised by counsel), such party keeps the other party to this Agreement informed of the status (but not the terms) of any such discussions or negotiations; and (y) to the extent applicable, complying with Rule 14e-2 promulgated under the Exchange Act with regard to an Acquisition Proposal. Nothing in this Section 7.1 shall (i) permit any party to terminate this Agreement (except as specifically provided in Article IX hereof), (ii) permit any party to enter into any agreement with respect to an Acquisition Proposal during the term of this Agreement (it being agreed that during the term of this Agreement, no party shall enter into any agreement with any person that provides for, or in any way facilitates, an Acquisition Proposal (other than a confidentiality agreement in customary form)), or (iii) affect any other obligation of any party under this Agreement. 7.2. Conduct of Businesses. (i) Prior to the Effective Time, except as may be set forth in the RELP Disclosure Letter or the AIP Disclosure Letter or as contemplated by this Agreement, unless the other party has consented in writing thereto, AIP and RELP: (a) Shall use their reasonable efforts, and shall cause each of their respective Subsidiaries to use their reasonable efforts, to preserve intact their business organizations and goodwill and keep available the services of their respective officers and employees; (b) Shall confer on a regular basis with one or more representatives of the other to report operational matters of materiality and, subject to Section 7.1, any proposals to engage in material transactions; (c) Shall promptly notify the other of any material emergency or other material change in the condition (financial or otherwise) of the business, properties, assets or liabilities, or any material governmental complaints, investigations or hearings (or communications indicating that the same may be contemplated), or the breach in any material respect of any representation, warranty, covenant or agreement contained herein; (d) Shall not pay quarterly dividends or make distributions payable with respect to the AIP Common Shares and RELP Partnership Interests, respectively; and 20 (e) Shall promptly deliver to the other true and correct copies of any report, statement or schedule filed with the SEC subsequent to the date of this Agreement. (ii) Prior to the Effective Time, except as may be set forth in the RELP Disclosure Letter, unless AIP has consented (such consent not to be unreasonably withheld or delayed) in writing thereto, RELP: (a) Shall conduct its operations according to its usual, regular and ordinary course in substantially the same manner as heretofore conducted; (b) Shall not amend the RELP Organizational Documents; (c) Shall not (i) except pursuant to the exercise of options, warrants, conversion rights and other contractual rights existing on the date hereof and disclosed pursuant to this Agreement, issue any RELP Interests, make any distribution, effect any recapitalization or other similar transaction, (ii) grant, confer or award any option, warrant, conversion right or other right not existing on the date hereof to acquire any RELP Interest, (iii) increase any compensation or enter into or amend any employment agreement with any of its present or future officers or directors of the General Partner, or (iv) adopt any new employee benefit plan or amend any existing employee benefit plan in any material respect, except for changes which are less favorable to participants in such plans; (d) Shall not declare, set aside or make any distribution or payment with respect to any RELP Interest or directly or indirectly redeem, purchase or otherwise acquire any RELP Interest, or make any commitment for any such action; (e) Shall not sell or otherwise dispose of (i) any RELP Properties, or (ii) except in the ordinary course of business, any of its other assets which are material, individually or in the aggregate; (f) Shall not make any loans, advances or capital contributions to, or investments in, any other person; (g) Shall not pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business consistent with past practice or in accordance with their terms, of liabilities reflected or reserved against in, or contemplated by, the most recent consolidated financial statements (or the notes thereto) of RELP included in the RELP Reports or incurred in the ordinary course of business consistent with past practice; (h) Shall not enter into any commitment which individually may result in total payments or liability by or to it in excess of $250,000 in the case of any one commitment or in excess of $500,000 for all commitments; 21 (i) Shall not, and shall not permit any of its Subsidiaries to, enter into any commitment with any officer, director or affiliate of RELP or its General Partner except to the extent the same occur in the ordinary course of business consistent with past practice and would not have a RELP Material Adverse Effect; and (j) Shall not enter into or terminate any lease representing annual revenues of $100,000 or more. (iii) Prior to the Effective Time, except as may be set forth in the AIP Disclosure Letter, unless RELP has consented (such consent not to be unreasonably withheld or delayed) in writing thereto, AIP: (a) Shall, and shall cause each of its Subsidiaries to, conduct its operations according to their usual, regular and ordinary course in substantially the same manner as heretofore conducted; (b) Shall not amend its Declaration of Trust or Bylaws except as contemplated by this Agreement; (c) Shall not (i) except pursuant to the exercise of options, warrants, conversion rights and other contractual rights (including AIP's existing dividend reinvestment plan) existing on the date hereof and disclosed pursuant to this Agreement, issue any shares of its capital stock, effect any share split, reverse share split, share dividend, recapitalization or other similar transaction, (ii) grant, confer or award any option, warrant, conversion right or other right not existing on the date hereof to acquire any shares of its capital shares (except pursuant to any employee incentive plan approved by shareholders), (iii) amend any employment agreement with any of its present or future officers or Trust Managers, or (iv) adopt any new employee benefit plan (including any share option, share benefit or share purchase plan) except the employee incentive plan to be voted on at its shareholder meeting for the fiscal year ended December 31, 1995; (d) Shall not declare, set aside or pay any dividend or make any other distribution or payment with respect to any Common Shares or directly or indirectly redeem, purchase or otherwise acquire any Common Shares or capital stock of any of its Subsidiaries, or make any commitment for any such action; (e) Except as will be set forth in the AIP Disclosure Letter, shall not, and shall not permit any of its Subsidiaries to, sell or otherwise dispose of (i) any AIP Properties or any of its capital stock of or other interests in Subsidiaries or (ii) except in the ordinary course of business, any of its other assets which are material, individually or in the aggregate; 22 (f) Shall not, and shall not permit any of its Subsidiaries to, make any loans, advances or capital contributions to, or investments in, any other person other than in connection with the sale of properties; (g) Shall not, and shall not permit any of its Subsidiaries to, pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business consistent with past practice or in accordance with their terms, of liabilities reflected or reserved against in, or contemplated by, the most recent consolidated financial statements (or the notes thereto) of AIP included in the AIP Reports or incurred in the ordinary course of business consistent with past practice; (h) Shall not, and shall not permit any of its Subsidiaries to, enter into any commitment which individually may result in total payments or liability by or to it in excess of $500,000 in the case of any one commitment or in excess of $500,000 for all commitments; and (i) Shall not, and shall not permit any of its Subsidiaries to, enter into any commitment with any officer, Trust Manager or affiliate of AIP or any of its Subsidiaries, except as herein or in the AIP Disclosure Letter provided and except in the ordinary course of business. For purposes of this Section 7.2, any consent shall be deemed to be unreasonably delayed if notice of consent or withholding of consent is not received within three days of request. Further, if no response is received by the end of business on such third day, the party receiving the request shall be deemed to have consented to such action. 7.3 Meetings of Shareholders and Partners. Each of AIP and RELP will take all action necessary in accordance with applicable law and its organizational documents to convene a meeting of its shareholders or partners, as applicable, as promptly as practicable to consider and vote upon or otherwise to obtain the consent of its shareholders or partners, as applicable, to (i) in the case of AIP, approve this Agreement and the transactions contemplated hereby, and (ii) in the case of RELP, approve this Agreement and the transactions contemplated hereby. The Board of Trust Managers and the General Partner shall each recommend such approval and AIP and RELP shall each take all lawful action to solicit such approval, including, without limitation, timely mailing the Proxy Statement/Prospectus (as defined in Section 7.7); provided, however, that such recommendation or solicitation is subject to any action taken by, or upon authority of, the Board of Trust Managers or the General Partner, as the case may be, in the exercise of its good faith judgment as to its fiduciary duties to its shareholders or partners, as applicable, imposed by law as advised by counsel. AIP and RELP shall coordinate and cooperate with respect to the timing of such meetings and shall use their best efforts to hold such meetings on the same day. 7.4. Filings; Other Action. Subject to the terms and conditions herein provided, RELP and AIP shall: (a) use all reasonable efforts to cooperate with one another in (i) determining which filings are required to be made prior to the Effective Time with, and which consents, approvals, 23 permits or authorizations are required to be obtained prior to the Effective Time from governmental or regulatory authorities of the United States and the several states in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and (ii) timely making all such filings and timely seeking all such consents, approvals, permits or authorizations; (b) use all reasonable efforts to obtain in writing any consents required from third parties in form reasonably satisfactory to RELP and AIP necessary to effectuate the Merger; and (c) use all reasonable efforts to take, or cause to be taken, all other action and do, or cause to be done, all other things necessary, proper or appropriate to consummate and make effective the transactions contemplated by this Agreement. If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purpose of this Agreement, the proper officers and directors of AIP and the General Partner shall take all such necessary action. 7.5. Inspection of Records. From the date hereof to the Effective Time, each of RELP and AIP shall allow all designated officers, attorneys, accountants and other representatives of the other access at all reasonable times to the records and files, correspondence, audits and properties, as well as to all information relating to commitments, contracts, titles and financial position, or otherwise pertaining to the business and affairs of RELP and AIP and their respective Subsidiaries. 7.6. Publicity. RELP and AIP shall, subject to their respective legal obligations (including requirements of stock exchanges and other similar regulatory bodies), consult with each other, and use reasonable efforts to agree upon the text of any press release before issuing any such press release or otherwise making public statements with respect to the transactions contemplated hereby and in making any filings with any federal or state governmental or regulatory agency or with any national securities exchange with respect thereto. 7.7. Registration Statement. AIP and RELP shall cooperate and promptly prepare and AIP shall file with the SEC as soon as practicable a Registration Statement on Form S-4 (the "Form S-4") under the Securities Act, with respect to the AIP Common Shares issuable in the Merger, a portion of which Registration Statement shall also serve as the joint proxy statement with respect to the meetings of the shareholders and partners, respectively, of AIP and RELP in connection with the Merger (the "Proxy Statement/Prospectus"). The respective parties will cause the Proxy Statement/Prospectus and the Form S-4 to comply as to form in all material respects with the applicable provisions of the Securities Act, the Exchange Act and the rules and regulations promulgated thereunder. AIP shall use all reasonable efforts, and RELP will cooperate with AIP to have the Form S-4 declared effective by the SEC as promptly as practicable. AIP shall use its best efforts to obtain, prior to the effective date of the Form S-4, all necessary state securities law or "Blue Sky" permits or approvals required to carry out the transactions contemplated by this Agreement and will pay all expenses incident thereto. AIP agrees that the Proxy Statement/Prospectus and each amendment or supplement thereto, at the time of mailing thereof and at the time of the respective meetings of shareholders and partners, respectively, of AIP and RELP, or, in the case of the Form S-4 and each amendment or supplement thereto, at the time it is filed or becomes effective, will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the foregoing shall not apply to the extent that any such untrue statement of a material fact or omission to state a 24 material fact was made by AIP in reliance upon and in conformity with written information concerning RELP furnished to AIP by RELP specifically for use in the Proxy Statement/Prospectus. RELP agrees that the written information provided by it specifically for inclusion in the Proxy Statement/Prospectus and each amendment or supplement thereto, at the time of mailing thereof and at the time of the respective meetings of shareholders and partners, respectively, of AIP and RELP, or, in the case of written information provided by RELP specifically for inclusion in the Form S-4 or any amendments or supplement thereto, at the time it is filed or becomes effective, will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. AIP will advise RELP, promptly after it receives notice thereof, of the time when the Form S-4 has become effective or any supplement or amendment has been filed, the issuance of any stop order, the suspension of the qualification of the AIP Common Shares issuable in connection with the Merger for offering or sale in any jurisdiction, or any request by the SEC for amendment of the Proxy Statement/Prospectus or the Form S-4 or comments thereon and responses thereto or requests by the SEC for additional information. 7.8. Listing Application. AIP shall promptly prepare and submit to the NYSE a listing application covering the AIP Common Shares issuable in the Merger, and shall use its reasonable efforts to obtain, prior to the Effective Time, approval for the listing of such AIP Common Shares, subject to official notice of issuance. 7.9. Further Action. Each party hereto shall, subject to the fulfillment at or before the Effective Time of each of the conditions of performances set forth herein or the waiver thereof, perform such further acts and execute such documents as may reasonably be required to effect the Merger. 7.10. Expenses. Subject to Section 9.5, if the Merger is approved by RELP's partners, all transaction costs of the proposed consolidation shall be paid by AIP. If three of the four limited partnerships party to the Proxy Statement/Prospectus (the "Other RELPS") do not approve their proposed merger into AIP, Realco shall reimburse AIP for AIP's expenses relating to the proposed merger up to $250,000. If RELP and the Other RELPS approve their proposed merger into AIP, but the shareholders of AIP do not approve the proposer merger, and if Realco voted its AIP Common Shares in favor of such mergers, AIP will reimburse RELP and the Other RELPS for all expenses they incurred in connection with the proposed merger. Any expenses to be reimbursed hereunder shall include, but not be limited to, costs of fairness opinions, property appraisals, engineering and environmental reports, title policies, accounting fees, legal fees, printing and solicitation expenses. RELP will bear the costs of preparing its initial fairness opinion, with later reimbursement by AIP in the event the Merger is approved by RELP's partners. If the limited partners of RELP fail to approve the proposed Merger, then Realco will reimburse AIP for the RELP's expenses (to the extent paid by AIP) as follows: the actual cost of such RELP's fairness opinion, legal fees up to $80,000, and the actual cost or the Allocable Share (if the actual cost is not separately determined), of RELP's accounting fees, engineering and environmental reports, printing and solicitation expenses. Allocable Share, for this purpose, shall be the ratio of such RELP's net book value of assets at March 31, 1997 to the total net book value of all of the assets of RELP and the Other RELPS at March 31, 1997. 25 7.11. Indemnification. For a period of six years from and after the Effective Time, AIP shall indemnify the partners, or agents of RELP who at any time prior to the Effective Time were entitled to indemnification under the Agreement of Limited Partnership of RELP existing on the date hereof to the same extent as such partners or agents are entitled to indemnification under such Agreement of Limited Partnership in respect of actions or omissions occurring at or prior to the Effective Time (including, without limitation, the transactions contemplated by this Agreement). 7.12. Reorganization. From and after the date and until the Effective Time, neither AIP nor RELP nor any of their respective Subsidiaries or other affiliates shall (i) knowingly take any action, or knowingly fail to take any action, that would jeopardize qualification of the Merger as a reorganization within the meaning of Section 368(a)(1)(A) of the Code; or (ii) enter into any contract, agreement, commitment or arrangement with respect to the foregoing. Following the Effective Time, AIP shall use its best efforts to conduct its business in a manner that would not jeopardize the characterization of the Merger as a reorganization within the meaning of Section 368(a)(1)(A) of the Code. 7.13. Survival of RELP Obligations; Assumption of RELP Liabilities by AIP. All of the obligations of RELP that are outstanding at the Closing shall survive the Closing and shall not be merged therein. Upon the consummation of the Merger, such obligations shall be assumed, automatically, by AIP; provided, however, that such assumption shall not impose upon or expose AIP to any liability for which RELP was not liable, and provided, further, that AIP shall be entitled to the same defenses, offsets and counterclaims to which RELP would have been entitled, but for the Merger. 7.14. Third Party Consents. AIP and RELP each shall take all necessary corporate and other action and will use its commercially reasonable efforts to obtain the consents and applicable approvals from third parties that may be required to enable it to carry out the transactions contemplated by this Agreement. 7.15. Efforts to Fulfill Conditions. AIP and RELP each shall use commercially reasonable efforts to insure that all conditions precedent to its obligations hereunder are fulfilled at or prior to the Closing. 7.16. Representations, Warranties and Conditions Prior to Closing. AIP and RELP each shall use its commercially reasonable efforts to cause its representations and warranties contained in this Agreement to be true and correct on and as of the Closing Date in all material respects. Prior to Closing, AIP and RELP each shall promptly notify the other in writing (i) if any representation or warranty contained in this Agreement is discovered to be or becomes untrue or (ii) if AIP or RELP fails to perform or comply with any of its covenants or agreements contained in this Agreement or it is reasonably expected that it will be unable to perform or comply with any of its covenants or agreements contained in this Agreement. 7.17. Cooperation of the Parties. AIP and RELP each will cooperate with the other in supplying such information as may be reasonably requested by the other in connection with obtaining consents or approvals to the transactions contemplated by this Agreement. 26 7.18. Lock-Ups. The General Partner shall use its best efforts prior to the Closing to have each of its directors and officers and Realco execute a 90-day lock-up agreement in a form (reasonably acceptable to RELP) supplied to RELP by AIP. The executed agreements will be delivered to AIP at the Closing. AIP shall use its best efforts prior to the Closing to have each of its Trust Managers and officers execute a 90-day lock-up agreement, in a form (reasonably acceptable to AIP) supplied to AIP by RELP. The agreements will be delivered to RELP at the Closing. ARTICLE VIII. CONDITIONS 8.1. Conditions to Each Party's Obligations to Effect the Merger. The respective obligation of each party to effect the Merger shall be subject to the fulfillment at or prior to the Closing Date of the following conditions: (a) This Agreement and the transactions contemplated hereby shall have been approved in the manner required by the Declaration of Trust and Bylaws and Agreement of Limited Partnership of AIP and RELP, respectively, and by applicable law or by applicable regulations of any stock exchange or other regulatory body by the holders of the AIP Common Shares and RELP Interests entitled to vote thereon. (b) Neither of the parties hereto shall be subject to any order or injunction of a court of competent jurisdiction which prohibits the consummation of the transactions contemplated by this Agreement. In the event any such order or injunction shall have been issued, each party agrees to use its reasonable efforts to have any such injunction lifted. (c) The Form S-4 shall have become effective and all necessary state securities law or "Blue Sky" permits or approvals required to carry out the transactions contemplated by this Agreement shall have been obtained and no stop order with respect to any of the foregoing shall be in effect. (d) AIP shall have obtained the approval for the listing of the AIP Common Shares issuable in the Merger on the NYSE, subject to official notice of issuance. (e) All consents, authorizations, orders and approvals of (or filings or registrations with) any governmental commission, board, other regulatory body or third parties required in connection with the execution, delivery and performance of this Agreement shall have been obtained or made, except for filings in connection with the Merger and any other documents required to be filed after the Effective Time and except where the failure to have obtained or made any such consent, authorization, order, approval, filing or registration would not have a material adverse effect on the business, results of operations or financial condition of AIP and RELP (and their respective Subsidiaries), taken as a whole, following the Effective Time. 27 8.2 Conditions to Obligations of RELP to Effect the Merger. The obligation of RELP to effect the Merger shall be subject to the fulfillment at or prior to the Closing Date of the following conditions, unless waived by RELP: (a) AIP shall have performed its agreements contained in this Agreement required to be performed on or prior to the Closing Date and the representations and warranties of AIP contained in this Agreement shall be true and correct in all material respects as of the Closing Date as if made on the Closing Date, and RELP shall have received a certificate of the President or an Executive or Senior Vice President of AIP, dated the Closing Date, certifying to such effect. (b) RELP shall have received the opinion of Liddell, Sapp or another recognized law firm selected by AIP and approved by RELP, dated the Closing Date, to the effect that the Merger will be treated for Federal income tax purposes as a reorganization within the meaning of Section 368(a)(1)(A) of the Code, and that RELP and AIP will each be a party to that reorganization within the meaning of Section 368(b) of the Code. In rendering its opinion, said counsel shall be entitled to rely as to any factual matter upon certificates given by executive officers of RELP and AIP and shall be entitled to assume that the covenants of AIP pursuant to Section 7.15 shall be fully complied with. (c) From the date of the Agreement through the Effective Time, there shall not have occurred any change in the financial condition, business or operations of AIP and its Subsidiaries, taken as a whole, that would have or would be reasonably likely to have an AIP Material Adverse Effect other than any such change that affects both RELP and AIP in a substantially similar manner. (d) The opinion of Houlihan addressed to RELP that the Purchase Price is fair, from a financial point of view, to the partners of RELP shall not have been withdrawn or materially modified. (e) RELP shall have received the opinion of Liddell, Sapp or another recognized law firm selected by AIP and approved by RELP, dated the Closing Date, as to such customary matters as RELP may reasonably request, such opinion to be reasonably satisfactory to RELP. 8.3 Conditions to Obligation of AIP to Effect the Merger. The obligations of AIP to effect the Merger shall be subject to the fulfillment at or prior to the Closing Date of the following conditions, unless waived by AIP: (a) RELP shall have performed its agreements contained in this Agreement required to be performed on or prior to the Closing Date and the representations and warranties of RELP contained in this Agreement shall be true and correct in all material respects as of the Closing Date as if made on the Closing Date and AIP shall have received 28 a certificate of the Chief Executive Officer, President or an Executive Vice President of the General Partner dated the Closing Date, certifying to such effect. (b) AIP shall have received the opinion of Liddell, Sapp or another recognized law firm selected by RELP and approved by AIP, dated the Closing Date, to the effect that the consummation of the Merger will not result in AIP's failure to continue to satisfy the requirements for qualification as a REIT for federal income tax purposes. In rendering its opinion, said counsel shall be entitled to rely as to any factual matter upon certificates given by executive officers of AIP and RELP and shall be entitled to assume that the covenants of Section 7.15 shall be fully complied with. (c) From the date of this Agreement through the Effective Time, there shall not have occurred any change in the financial condition, business or operations of RELP and its Subsidiaries, taken as a whole, that would have or would be reasonably likely to have an RELP Material Adverse Effect, other than any such change that affects both RELP and AIP in a substantially similar manner. (d) Each person listed on Exhibit 8.3(d) attached hereto shall have delivered to AIP a written agreement to the effect that such person will not offer to sell, sell or otherwise dispose of any shares of AIP Common Stock issued in the Merger, except, in each case, pursuant to an effective registration statement or in compliance with Rule 145, as amended from time to time, or in a transaction which, in the opinion of legal counsel reasonably satisfactory to AIP, is exempt from the registration requirements of the Securities Act and that the certificates representing the AIP shares issued to him or her in the Merger may bear a legend to such effect. (e) The opinion of Prudential addressed to the Board of Trust Managers of AIP that the consideration to be paid by AIP pursuant to the Merger is fair, from a financial point of view, to AIP shall not have been withdrawn or materially modified. (f) AIP shall have received the opinion of Liddell, Sapp or another recognized law firm selected by RELP and approved by AIP, dated the Closing Date, as to such customary matters as AIP may reasonably request, such opinion to be reasonably satisfactory to AIP. (g) The limited partners of at least two of the Other RELPS shall have approved the merger of such limited partnership with and into AIP. ARTICLE IX. TERMINATION 9.1 Termination by Mutual Consent. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, before or after the approval of this Agreement by the partners of RELP or the shareholders of AIP or by the mutual written consent of AIP and RELP, with the prior approval of their respective Board of Trust Managers and General Partner. 29 9.2 Termination by Either AIP or RELP. This Agreement may be terminated and the Merger may be abandoned by action of the General Partner of RELP or the Board of Trust Managers of AIP if (i) the Merger shall not have been consummated by March 31, 1998, (ii) a meeting of RELP's partners shall have been duly convened and held and the approval of RELP's partners required by Section 8.1(a) shall not have been obtained at such meeting or at any adjournment thereof, (iii) a meeting of AIP's shareholders shall have been duly convened and held and the approval of AIP's shareholders required by Section 8.1(a) shall not have been obtained at such meeting or at any adjournment thereof, (iv) as a result of due diligence investigation by one of the parties hereto, it is determined in good faith by such party that certain facts or circumstances not previously known by such party constitute a Material Adverse Effect on the business, results of operations or financial condition of the other party, (v) a United States federal or state court of competent jurisdiction or United States federal or state governmental, regulatory or administrative agency or commission shall have issued an order, decree or ruling or taken any other action permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree, ruling or other action shall have become final and non-appealable, provided that the party seeking to terminate this Agreement pursuant to this clause (v) shall have used all reasonable efforts to remove such order, decree, ruling or injunction, or (vi) any of the conditions set forth in Article VIII shall not have been satisfied, and provided, in the case of a termination pursuant to clause (i) or (vi) above, that the terminating party shall not have breached in any material respect its obligations under this Agreement in any manner that shall have proximately contributed to the occurrence of the failure referred to in said clause. AIP and RELP each shall (i) deliver its Disclosure Letter to one another not later than 5:00 P.M., Central Time, August 11, 1997, and (ii) shall complete its due diligence investigations not later than 5:00 P.M., Central Time, on July 31, 1997 (the period from the date of this Agreement through July 31, 1997 being hereinafter referred to as the "Due Diligence Period"). Until the expiration of the Due Diligence Period, either party may terminate this Agreement without liability or penalty due to (i) the discovery of a fact or circumstance that reasonably could be expected to constitute a Material Adverse Effect on the business, results of operations or financial condition of the other party, or (ii) the party's failure to receive a written fairness opinion as described herein within seven business days from the date of execution of this Agreement. 9.3 Termination by RELP. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, before or after the adoption and approval by the partners of RELP referred to in Section 8.1(a), by action of the General Partner, if (i) in the exercise of its good faith judgment as to its fiduciary duties to its partners imposed by law, as advised by counsel, the General Partner determines that such termination is required by reason of a RELP Acquisition Proposal being made, (ii) the Board of Trust Managers withdraws, materially modifies or changes in a manner materially adverse to RELP its recommendations to AIP's shareholders of this Agreement or the Merger, other than as a result of the occurrence of an event that in the good faith judgment of the Board of Trust Managers has or is reasonably likely to have a RELP Material Adverse Effect, (iii) the Board of Trust Managers postpones the date scheduled for the meeting of shareholders of AIP to approve this Agreement and the transactions contemplated hereby beyond March 31, 1998 or fails to set a date for such meeting by such date, except with the written consent of RELP, (iv) there has been a breach by AIP of any representation or warranty contained in this Agreement which would have or would be reasonably likely to have an AIP Material Adverse Effect, 30 which breach is not curable by March 31,1998, or (v) there has been material breach of any of the covenants or agreements set forth in this Agreement on the part of AIP, which breach is not curable or, if curable, is not cured within 30 days after written notice of such breach is given by RELP to AIP, or (vi) the condition set forth in Section 8.3(g) is not satisfied.. 9.4 Termination by AIP. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, before or after the approval by the shareholders of AIP referred to in Section 8.1(a), by action of the Board of Trust Managers, if (i) in the exercise of its good faith judgment as to its fiduciary duties to its shareholders imposed by law, as advised by counsel, the Board of Trust Managers determines that such termination is required by reason of an AIP Acquisition Proposal being made, (ii) the General Partner withdraws, materially modifies or changes in a manner materially adverse to AIP its recommendation to RELP's partners of this Agreement or the Merger, other than as a result of the occurrence of an event that in the good faith judgment of the General Partner has or is reasonably likely to have an AIP Material Adverse Effect, (iii) the General Partner postpones the date scheduled for the meeting of partners of RELP to approve this Agreement and the transactions contemplated hereby beyond March 31, 1998, or fails to set a date for such meeting by such date, except with the written consent of AIP, (iv) there has been a breach by RELP of any representation or warranty contained in this Agreement which would have or would be reasonably likely to have a RELP Material Adverse Effect, which breach is not curable by March 31, 1998, or (v) there has been a material breach of any of the covenants or agreements set forth in this Agreement on the part of RELP, which breach is not curable or, if curable, is not cured within 30 days after written notice of such breach is given by AIP to RELP. 9.5. Effect of Termination and Abandonment. (a) If an election to terminate this Agreement is made pursuant to (i) Section 9.2(i) (except as a result of a default or breach hereunder by AIP) or Section 9.2(ii), and a RELP Acquisition Proposal relating to RELP shall have been made and, within one year from the date of such termination, RELP consummates a RELP Acquisition Proposal or enters into an agreement to consummate a RELP Acquisition Proposal which is subsequently consummated, or (ii) Section 9.3(i), RELP shall pay to AIP, provided that AIP was not in material breach of its obligations hereunder at the time of such termination, as liquidated damages and not as a penalty or forfeiture, an amount equal to the lesser of (m) $415,000 (the "Liquidated Damages Amount") and (n) the sum of (1) the maximum amount that can be paid to AIP without causing AIP to fail to meet the requirements of Sections 856(c)(2) and (3) of the Code determined as if the payment of such amount did not constitute income described in Sections 856(c)(2)(A)-(H) and 856(c)(3)(A)-(I) of the Code ("Qualifying Income"), as determined by AIP's certified public accountants, plus (2) an amount equal to the Liquidated Damages Amount less the amount payable under clause (1) above in the event AIP receives a letter from AIP's counsel indicating that AIP has received a ruling from the IRS to the effect that Liquidated Damages Amount payments constitute Qualifying Income. In addition to the Liquidated Damages Amount, AIP shall be entitled to receive from RELP (or its successor in interest) all documented out-of-pocket costs and expenses, up to a maximum of $207,500 in connection with this Agreement and the transactions contemplated hereby (the "AIP Expenses") incurred by AIP. The payments to which AIP is entitled under this Section 9.5(a) shall be its sole remedy with respect to the termination of the Agreement under the circumstances contemplated in this Section 9.5(a). 31 (b) If an election to terminate this Agreement is made pursuant to Section 9.2(i) (as a result of the condition set forth in Section 8.3(c) not being satisfied), RELP shall, provided that AIP was not in material breach of its obligations hereunder at the time of such termination, pay AIP for the AIP Expenses, up to a maximum of $207,500, although it shall not be required to pay the Liquidated Damages Amount, which payment of the AIP Expenses shall be AIP's sole remedy for termination of the Agreement in such circumstances. (c) If an election to terminate this Agreement is made pursuant to (i) Section 9.2(i) (except as a result of a default or breach hereunder by RELP) or Section 9.2(iii), and an AIP Acquisition Proposal relating to AIP shall have been made and, within one year from the date of such termination, AIP consummates an AIP Acquisition Proposal or enters into an agreement to consummate an AIP Acquisition Proposal which is subsequently consummated, or (ii) Section 9.4(i), AIP shall pay to RELP, provided that RELP was not in material breach of its obligations hereunder at the time of such termination, as liquidated damages and not as a penalty or forfeiture, an amount equal to the Liquidated Damages Amount. In addition to the Liquidated Damages Amount, RELP shall be entitled to receive from AIP (or its successor in interest) all documented out-of-pocket costs and expenses, up to a maximum of $207,500, in connection with this Agreement and the transactions contemplated hereby (the "RELP Expenses" and, together with the AIP Expenses, the "Expenses") incurred by RELP. The payments to which RELP is entitled under this Section 9.5(c) shall be its sole remedy with respect to the termination of the Agreement under the circumstances contemplated in this Section 9.5(c) (d) If an election to terminate this Agreement is made pursuant to Section 9.2(i) (as a result of the condition set forth in Section 8.2(c) not being satisfied), AIP shall, provided that RELP was not in material breach of its obligations hereunder at the time of such termination, pay RELP for the RELP Expenses, up to a maximum of $207,500, although it shall not be required to pay the Liquidated Damages Amount, which payment of the RELP Expenses shall be RELP's sole remedy for termination of the Agreement in such circumstances. (e) If this Agreement is terminated pursuant to Section 9.3(iv), Section 9.3(v), Section 9.4(iv), or Section 9.4(v), the non-terminating party shall, provided that the terminating party was not in material breach of its obligations hereunder at the time of such termination, pay the terminating party all Expenses, up to a maximum of $207,500, incurred by it and the non-terminating party shall remain liable to the terminating party for its breach. (f) If either party terminates this Agreement during the Due Diligence Period described in Section 9.2 above other than for a due diligence related reason, the non-terminating party shall be entitled to receive the Liquidated Damages Amount and the Expenses as provided in this Article IX. (g) RELP agrees to amend this Section 9.5 at the request of AIP in order to (x) maximize the portion of the Liquidated Damages Amount that may be distributed to AIP hereunder without causing AIP to fail to meet the requirements of Sections 856(c)(2) and (3) of the Code or (y) improve AIP's chances of securing a favorable ruling described in this Section 9.5, provided that no such amendment may result in any additional cost or expense to such other party. 32 (h) In the event of termination of this Agreement and the abandonment of the Merger pursuant to this Article IX, all obligations of the parties hereto shall terminate, except the obligations of the parties pursuant to this Section 9.5 and Section 7.10 and except for the provisions of Section 10.3, 10.4, 10.5, 10.6, 10.7, 10.9, 10.10, 10.13, 10.14 and 10.16. In the event AIP or RELP has received the Liquidated Damages Amount, such recipient shall not assert or pursue in any manner, directly or indirectly, any claim or cause of action against the other party hereto or any of its officers, Trust Managers, or General Partners, as applicable, based in whole or part upon its or their receipt, consideration, recommendation or approval of an Acquisition Proposal or the exercise by AIP of its right to termination under Section 9.4(i) or the exercise by RELP of its right to termination under Section 9.3(i). Notwithstanding the foregoing, in the event AIP or RELP is required to file suit to seek all or a portion of such Liquidated Damages Amount, and it ultimately succeeds, it shall be entitled to all expenses, including attorney's fees and expenses, which it has incurred in enforcing its right hereunder. (i) If either party willfully fails to perform its duties and obligations under this Agreement, the non- breaching party is additionally entitled to all remedies available to it at law or in equity and to recover its expenses from the breaching party. 9.6 Extension; Waiver. At any time prior to the Effective Time, any party hereto, by action taken by its Board of Trust Managers or General Partner, as applicable, may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (ii) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto and (iii) waive compliance with any of the agreements or conditions for the benefit of such party contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. ARTICLE X. GENERAL PROVISIONS 10.1. Nonsurvival of Representations, Warranties and Agreements. All representations, warranties and agreements in this Agreement or in any instrument delivered pursuant to this Agreement shall not survive the Merger; provided, however, that the agreements contained in Article IV, the last sentence of Section 7.4 and Sections 7.10, 7.11, 7.12, 7.13, 7.14, 7.15 and 7.16 and this Article X shall survive the Merger. 10.2. Notices. Any notice required to be given hereunder shall be in writing and shall be sent by facsimile transmission (confirmed by any of the methods that follow), courier service (with proof of service), hand delivery or certified or registered mail (return receipt requested and first-class postage prepaid) and addressed as follows: If to AIP: American Industrial Properties REIT 6220 N. Beltline Road, Suite 205 Irving, Texas 75063 Attention: Charles W. Wolcott, President Telecopy: (972) 550-6037 33 If to RELP: USAA Real Estate Company 8000 I-H 10 West, Suite 600 San Antonio, Texas 78230 Attention: Patrick Duncan, Senior Vice-President Telecopy: (210) 498-6214 or to such other address as any party shall specify by written notice so given, and such notice shall be deemed to have been delivered as of the date so delivered. 10.3. Assignment; Binding Effect; Benefit. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. Notwithstanding anything contained in this Agreement to the contrary, except as provided in the following sentence, nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective heirs, successors, executors, administrators and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. The provisions of Article IV and Sections 7.11, 7.12, 7.13, 7.14 and 7.15 (collectively, the "Third Party Provisions") shall benefit the persons identified therein, but the aggregate liability of AIP with respect thereto shall not exceed the amount specified in Article IX. 10.4. Entire Agreement. This Agreement, the Exhibits, the RELP Disclosure Letter, the AIP Disclosure Letter, the RELP Ancillary Agreements, the AIP Ancillary Agreements and any documents delivered by the parties in connection herewith constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings among the parties with respect thereto. No addition to or modification of any provision of this Agreement shall be binding upon any party hereto unless made in writing and signed by all parties hereto. 10.5. Confidentiality. (a) As used herein, "Confidential Material" means, with respect to either party hereto (the "Providing Party"), all information (written or oral) furnished (whether before or after the date hereof) by the Providing Party and its directors, officers, employees, affiliates or representatives of advisors, including counsel, lenders and financial advisors (collectively, the "Providing Party Representatives") to the other party hereto (the "Receiving Party") or such Receiving Party's directors, officers, employees, affiliates or representatives of advisors, including counsel, lenders and financial advisors or the Receiving Party's potential sources of financing for the transactions contemplated by this Agreement (collectively "the Receiving Party Representatives") and all analyses, compilations, forecasts and other studies or other documents prepared by the Providing Party or the Providing Party Representatives in connection with its or their review of the transactions contemplated by this Agreement which contain or reflect such information. The term "Confidential Material" does not include, however, information which (i) at the time of disclosure 34 or thereafter is generally available to and known by the public other than as a result of a disclosure directly or indirectly by the Receiving Party or the Receiving Party Representatives in violation of this Agreement, (ii) at the time of disclosure was available on a nonconfidential basis from a source other than the Providing Party or the Providing Party Representatives, providing that such source is not and was not bound by a confidentiality agreement with the Providing Party, (iii) was known by the Receiving Party prior to receiving the Confidential Material from the Providing Party or has been independently acquired or developed by the Receiving Party without violating any of its obligations under this Agreement, or (iv) is contained in any RELP Reports or AIP Reports or Proxy Statement/Prospectus. (b) Subject to paragraph (c) below or except as required by law, the Confidential Material will be kept confidential and will not, without the prior written consent of the Providing Party, be disclosed by the Receiving Party or its Representatives, in whole or in part and will not be used by the Receiving Party or its Representatives, directly or indirectly, for any purpose other than in connection with this Agreement, the Merger or the evaluating, negotiating or advising with respect to a transaction contemplated herein. Moreover, each Receiving Party agrees to transmit Confidential Material to its Representatives only if and to the extent that such Representatives need to know the Confidential Material for purposes of such transaction and are informed by such Receiving Party of the confidential nature of the Confidential Material and of the terms of this Section. (c) In the event that either Receiving Party, its Representatives or anyone to whom such Receiving Party or its Representatives supply the Confidential Material, are requested or required (by oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demand, any informal or formal investigation by any government or governmental agency or authority or otherwise in connection with legal processes) to disclose any Confidential Material, such Receiving Party agrees (i) to immediately notify the Providing Party of the existence, terms and circumstances surrounding such a request, (ii) to consult with the Providing Party on the advisability of taking legally available steps to resist or narrow such request and (iii) if disclosure of such information is required, to furnish only that portion of the Confidential Material which, in the opinion of such Receiving Party's counsel, such Receiving Party is legally compelled to disclose and to cooperate with any action by the Providing Party to obtain an appropriate protective order or otherwise reliable assurances that confidential treatment will be accorded the Confidential Material (it being agreed that the Providing Party shall reimburse the Receiving Party for all reasonable out-of-pocket expenses incurred by the Receiving Party in connection with such cooperation). (d) In the event of the termination of this Agreement in accordance with its terms, promptly upon request from either Providing Party, the Receiving Party shall, except to the extent prevented by law, redeliver to the Providing Party or destroy all tangible Confidential Material and will not retain any copies, extracts or other reproductions thereof in whole or in part. Any such destruction shall be certified in writing to the Providing Party by an authorized officer of the Receiving Party supervising the same. Notwithstanding the foregoing, each Receiving Party and one Representative designated by each Receiving Party shall be permitted to retain one permanent file copy of each document constituting Confidential Material. 35 (e) Each party hereto further agrees that if this Agreement is terminated in accordance with its terms, until one year from the date of termination, (1) it will not offer to hire or hire any person currently or formerly employed by the other party with whom such party has had contact prior hereto other than persons whose employment shall have been terminated by such other party prior to the date of such offer to hire or hiring and (2) neither it nor its affiliates shall directly or indirectly, (a) (w) solicit, seek or offer to effect or effect, (x) negotiate with or provide any information to the Board of Trust Managers or General Partner, as applicable, of the other party, or officer of the other party or any shareholder or partner, as applicable, of the other party with respect to, (y) make any statement or proposal, whether written or oral, either alone or in concert with others, to the Board of Trust Managers or Board of Directors of the General Partner of the other party, any director, Trust Manager or officer of the other party or any shareholder or partner of the other party or any other person with respect to, or (z) make any public announcement (except as required by law in respect of actions permitted hereby) or proposal or offer whatsoever (including, but not limited to, any "solicitation"of "proxies"as such terms are defined or used in Regulation 14A of the Exchange Act) with respect to, (i) any form of business combination or similar or other extraordinary transaction involving the other party or any affiliate thereof, including, without limitation, a merger, tender or exchange offer or liquidation of the other party's assets, (ii) any form of restructuring, recapitalization or similar transaction with respect to the other party or any affiliate thereto, (iii) any purchase of any securities or assets, or rights or options to acquire any securities or assets (through purchase, exchange, conversion or otherwise), of the other party or any affiliate thereof, (iv) any proposal to seek representation on the Board of Trust Managers or the Board of Directors of the General Partner, as applicable, or otherwise to seek to control or influence the management, Board of Trust Managers or the Board of Directors of the General Partner, as applicable, or policies of the other party or any affiliate thereof, (v) any request or proposal to waive, terminate or amend the provisions of this Section 10.5 or (vi) any proposal or other statement inconsistent with the terms of this Section 10.5 or (b) instigate, encourage, join, act in concert with or assist (including, but not limited to, providing or assisting in any way in the obtaining of financing for, or acting as a joint or co-bidder for the other party with) any third party to do any of the foregoing, unless and until such party has received the prior written invitation or approval of a majority of the Board of Trust Managers or the General Partner, as applicable, to do any of the foregoing; provided that without such invitation or approval, either party may at any time, on a confidential non-public basis, submit to the Chief Executive Officer of AIP or the General Partner, as applicable, a proposal to (a) amend any of the provisions of this Section 10.5(e) or (b) effect a business combination or other extraordinary transaction with the other party providing for the acquisition of all or substantially all of the assets or the securities of the other party, including, without limitation, a merger, tender offer or exchange offer. Each party hereto agrees that it will not agree with any third party to waive its rights under this Section 10.5. 10.6. Amendment. This Agreement may be amended by the parties hereto, by action taken by the Board of Trust Managers or the Board of Directors of the General Partner, as applicable, at any time before or after approval of this Agreement or any other matter presented in connection with the Merger by the shareholders of AIP and partners of RELP, but after any such approval, no amendment shall be made which by law requires the further approval of shareholders or partners, as applicable, without obtaining such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. 36 10.7. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas without regard to its rules of conflict of laws. Each of AIP and RELP hereby irrevocably and unconditionally consents to submit to the exclusive jurisdiction of the courts of the State of Texas and of the United States District Court, Northern District of Texas (the "Texas Courts") for any litigation arising out of or relating to this Agreement and the transactions contemplated hereby (and agrees not to commence any litigation relating thereto except in such courts), waives any objection to the laying of venue of any such litigation in the Texas Courts and agrees not to plead or claim in any Texas Court that such litigation brought therein has been brought in an inconvenient forum. 10.8. Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a number of copies hereof each signed by less than all, but together signed by all of the parties hereto. 10.9. Headings. Heading of the Articles and Sections of this Agreement are for the convenience of the parties only and shall be given no substantive or interpretive effect whatsoever. 10.10. Interpretation. In this Agreement, unless the context otherwise requires, words describing the singular number shall include the plural and vice versa, and words denoting any gender shall include all genders and words denoting natural persons shall include corporations and partnerships and vice versa. 10.11. Waivers. Except as provided in this Agreement, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained in this Agreement. The waiver by any party hereto of a breach of any provision hereunder shall not operate or be construed as a waiver of any prior or subsequent breach of the same or any other provision hereunder. 10.12. Incorporation. The RELP Disclosure Letter and the AIP Disclosure Letter and all Exhibits and Schedules attached hereto and thereto and referred to herein and therein are hereby incorporated herein and made a part hereof for all purposes as if fully set forth herein. 10.13. Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any current or future law, and if the rights or obligations of the parties under this Agreement would not be materially and adversely affected thereby, such provision shall be fully separable, and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part thereof, and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance therefrom. In lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as a part of this Agreement, a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as 37 may be possible, and the parties hereto request the court or any arbitrator to whom disputes relating to this Agreement are submitted to reform the otherwise illegal, invalid or unenforceable provision in accordance with this Section 10.13. 10.14. Enforcement of Agreement. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement was not performed in accordance with its specific terms or was otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any Texas Court, this being in addition to any other remedy to which they are entitled at law or in equity. 10.15. Subsidiaries. As used in this Agreement, the word "Subsidiary" when used with respect to any party means any corporation, partnership, joint venture, business trust or other entity, of which such party directly or indirectly owns or controls at least a majority of the securities or other interests having by their terms ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such corporation or other organization. 10.16. Non-Recourse. Neither the officers, Trust Managers nor shareholders of AIP shall be personally bound or have any personal liability hereunder. RELP shall look solely to the assets of AIP for satisfaction of any liability of AIP with respect to this Agreement and the Ancillary Agreements to which it is a party. RELP will not seek recourse or commence any action against any of the shareholders of AIP or any of their personal assets, and will not commence any action for money judgments against any of the Trust Managers or officers of AIP or seek recourse against any of their personal assets, for the performance or payment of any obligation of AIP hereunder or thereunder. The partners of RELP shall not be personally bound or have any personal liability hereunder. AIP shall look solely to the assets of RELP for satisfaction of any liability of RELP with respect to this Agreement and the Ancillary Agreements to which it is a party. AIP will not seek recourse or commence any action against any of the partners of RELP or any of their personal assets, and will not commence any action for money judgments against any of the directors or officers of RELP or seek recourse against any of their personal assets, for the performance or payment of any obligation of RELP hereunder or thereunder. 38 IN WITNESS WHEREOF, the parties have executed this Agreement and caused the same to be duly delivered on their behalf on the day and year first written above. AMERICAN INDUSTRIAL PROPERTIES REIT /s/ CHARLES W. WOLCOTT ----------------------------------- Charles W. Wolcott, President and Chief Executive Officer USAA INCOME PROPERTIES IV LIMITED PARTNERSHIP By: USAA Properties IV, Inc., Its General Partner /s/ T. PATRICK DUNCAN ------------------------------- T. Patrick Duncan Senior Vice President - Operations EX-10.5 6 COMMON SHARE PUCHASE AGREEMENT 1 EXHIBIT 10.5 COMMON SHARE PURCHASE AGREEMENT dated as of June 20, 1997 Among AMERICAN INDUSTRIAL PROPERTIES REIT, and MS REAL ESTATE SPECIAL SITUATIONS, INC. and MORGAN STANLEY ASSET MANAGEMENT, INC. as Agent and Attorney-In-Fact on behalf of the clients listed on Exhibit A hereto 2 TABLE OF CONTENTS SECTION 1. DEFINITIONS AND RULES OF CONSTRUCTION . . . . . . . . . . . . . . -1- 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . -1- 1.2 Rules of Construction . . . . . . . . . . . . . . . . . . . . . . -10- SECTION 2. PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . . . . -10- 2.1 Purchase and Sale of the Common Shares . . . . . . . . . . . . . . -10- 2.2 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . -10- 2.3 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10- 2.4 Share Ownership Limitation . . . . . . . . . . . . . . . . . . . . -11- SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLER . . . . . . . . . . . . . -11- 3.1 Organization and Related Matters . . . . . . . . . . . . . . . . . -11- 3.2 Capital Stock; Title to Shares. . . . . . . . . . . . . . . . . . -12- 3.3 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . -13- 3.4 SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . -14- 3.5 Authorization; No Conflicts . . . . . . . . . . . . . . . . . . . -14- 3.6 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . -15- 3.7 Compliance with Law and Permits . . . . . . . . . . . . . . . . . -16- 3.8 Dividends and Other Distributions . . . . . . . . . . . . . . . . -16- 3.9 Certain Interests . . . . . . . . . . . . . . . . . . . . . . . . -16- 3.10 No Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . -17- 3.11 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . -17- 3.12 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . -18- 3.13 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18- 3.14 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . -20- 3.15 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . -22- 3.16 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22- 3.17 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . -23- 3.18 Trust Records; Accounting Records . . . . . . . . . . . . . . . . -23- 3.19 New York Stock Exchange Listing . . . . . . . . . . . . . . . . . -23- 3.20 Disclosure of Facts . . . . . . . . . . . . . . . . . . . . . . . -24- 3.21 Pension-Held REIT . . . . . . . . . . . . . . . . . . . . . . . . -24- SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . . . -24- 4.1 Organization and Related Matters . . . . . . . . . . . . . . . . . -24- 4.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . -24- 4.3 No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . -24- 4.4 No Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . -25- 4.5 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . -25- 4.6 Investment Representation . . . . . . . . . . . . . . . . . . . . -25- 4.7 Legends; Stop-Transfer Orders . . . . . . . . . . . . . . . . . . -25-
-i- 3 4.8 Status for REIT Ownership and Income Tests . . . . . . . . . . . . . . . . -25- 4.9 Authority of MSAM . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26- SECTION 5. COVENANTS WITH RESPECT TO CONDUCT OF SELLER PRIOR TO FINAL CLOSING . . . . -26- 5.1 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26- 5.2 Material Adverse Changes; SEC Filings; Reports; Financial Statements . . . -27- 5.3 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . -27- 5.4 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . -29- 5.5 Adjustment of Share Price . . . . . . . . . . . . . . . . . . . . . . . . -29- SECTION 6. ADDITIONAL CONTINUING COVENANTS AND AGREEMENTS . . . . . . . . . . . . . -31- 6.1 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -31- 6.2 Appointment of Trust Managers . . . . . . . . . . . . . . . . . . . . . . -31- 6.3 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . -32- 6.4 Status for REIT Ownership and Income Tests . . . . . . . . . . . . . . . . -32- 6.5 Prohibited Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . -32- 6.6 Seller/Buyer Registration Rights Agreement . . . . . . . . . . . . . . . . -32- 6.7 REIT Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32- 6.8 Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33- 6.9 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33- 6.10 Furnish Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33- 6.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34- 6.12 Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . -34- SECTION 7. GENERAL CONDITIONS OF PURCHASE . . . . . . . . . . . . . . . . . . . . . -34- 7.1 No Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34- 7.2 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34- 7.3 Absence of Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . -34- 7.4 New York Stock Exchange . . . . . . . . . . . . . . . . . . . . . . . . . -34- 7.5 Shareholder Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . -35- SECTION 8. CONDITIONS TO OBLIGATIONS OF BUYERS . . . . . . . . . . . . . . . . . . . -35- 8.1 Accuracy of Seller's Representations and Warranties . . . . . . . . . . . -35- 8.2 Performance by Seller . . . . . . . . . . . . . . . . . . . . . . . . . . -35- 8.3 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . -35- 8.4 Certification by Seller . . . . . . . . . . . . . . . . . . . . . . . . . -35- 8.5 Opinion of Seller's Counsel . . . . . . . . . . . . . . . . . . . . . . . -35- 8.6 Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36- 8.7 Realco Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36- SECTION 9. CONDITIONS TO OBLIGATIONS OF SELLER . . . . . . . . . . . . . . . . . . . -36- 9.1 Accuracy of Buyers' Representations and Warranties . . . . . . . . . . . . -36-
-ii- 4 9.2 Buyers' Performance . . . . . . . . . . . . . . . . . . . . . . . -36- 9.3 Certification . . . . . . . . . . . . . . . . . . . . . . . . . . -36- 9.4 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . -36- 9.5 REIT Status . . . . . . . . . . . . . . . . . . . . . . . . . . . -36- SECTION 10. TERMINATION OF OBLIGATIONS; SURVIVAL . . . . . . . . . . . . . . . -36- 10.1 Termination of Agreement . . . . . . . . . . . . . . . . . . . . . -36- 10.2 Shareholder Approval . . . . . . . . . . . . . . . . . . . . . . . -37- 10.3 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . -37- 10.4 Survival of Representations, Warranties and Covenants . . . . . . -37- SECTION 11. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . -37- 11.1 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . -37- 11.2 Obligations of Buyers . . . . . . . . . . . . . . . . . . . . . . -38- 11.3 Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39- 11.4 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39- 11.5 Notice by Seller . . . . . . . . . . . . . . . . . . . . . . . . . -40- SECTION 12. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -40- 12.1 Amendments; Waivers . . . . . . . . . . . . . . . . . . . . . . . -40- 12.2 Schedules; Exhibits; Integration . . . . . . . . . . . . . . . . . -40- 12.3 Best Efforts; Further Assurances . . . . . . . . . . . . . . . . . -40- 12.4 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . -40- 12.5 No Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . -40- 12.6 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -41- 12.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . -41- 12.8 Publicity and Reports . . . . . . . . . . . . . . . . . . . . . . -41- 12.9 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . -41- 12.10 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . -42- 12.11 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -42- 12.12 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -42- 12.13 Remedies; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . -43- 12.14 Representation By Counsel; Interpretation . . . . . . . . . . . . -43- 12.15 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . -43- 12.16 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . -43- 12.17 Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -43- EXHIBITS EXHIBIT A MSAM Clients EXHIBIT B Registration Rights Agreement
-iii- 5 SCHEDULES SCHEDULE 3.1 Jurisdictions; Officers and Trust Managers SCHEDULE 3.2 Capital Stock; Title to Shares SCHEDULE 3.3 Additional Liabilities or Contingencies SCHEDULE 3.5 Permits and Approvals SCHEDULE 3.6 Litigation SCHEDULE 3.7 Compliance with Law and Permits SCHEDULE 3.8 Dividends and Other Distributions SCHEDULE 3.9 Certain Interests SCHEDULE 3.11 Seller Benefit Plans SCHEDULE 3.13 Properties and Encumbrances SCHEDULE 3.14 Taxes SCHEDULE 3.15 Material Contracts SCHEDULE 3.16 Insurance SCHEDULE 3.17 Environmental Compliance SCHEDULE 3.18 Trust Records SCHEDULE 5.3 Conduct of Business SCHEDULE 8.5 List of Opinions of Seller's Counsel SCHEDULE 9.4 List of Opinions of MSRE's and MSAM's Counsel -iv- 6 COMMON SHARE PURCHASE AGREEMENT THIS COMMON SHARE PURCHASE AGREEMENT (this "AGREEMENT") is made and entered into as of June 20, 1997, by and among AMERICAN INDUSTRIAL PROPERTIES REIT, a Texas real estate investment trust ("SELLER"), MS Real Estate Special Situations Inc., a Delaware corporation ("MSRE"), and Morgan Stanley Asset Management Inc., a Delaware corporation (the "MSAM"), as agent and attorney-in-fact on behalf of the clients (the "MSAM PURCHASERS") listed on Exhibit A hereto (the MSAM Purchasers and MSRE shall be referred to herein collectively as "BUYERS"). R E C I T A L S A. Seller qualifies and operates as a real estate investment trust for federal income tax purposes. B. Seller desires to sell to Buyers, and Buyers desire to purchase from Seller, severally and not jointly, Common Shares having an aggregate purchase price as specified herein of up to $20 million (the "Shares") upon the terms and subject to the conditions set forth in this Agreement. C. The proceeds from the sale of the Shares are to be used for the purposes set forth in this Agreement. A G R E E M E N T NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: SECTION 1. DEFINITIONS AND RULES OF CONSTRUCTION 1.1 DEFINITIONS. The capitalized terms used in this Agreement, the Exhibits and the Schedules attached hereto shall have the meanings set forth below: "ACTION" means any action, complaint, investigation, suit or other proceeding, whether civil or criminal, in law or in equity, or before any mediator, arbitrator or Governmental Entity. "AFFILIATE" means a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, a specified Person. "AGREEMENT" means this Common Share Purchase Agreement, by and among Seller, MSRE and MSAM, on behalf of the MSAM Purchasers, as amended from time to time pursuant to the terms of this Agreement, together with all Exhibits and all Schedules attached hereto. -1- 7 "ANNUAL MEETING" shall mean the Seller's annual meeting to be held June 30, 1997 or any adjournments or postponements thereof. "APPROVAL" means any approval, authorization, consent, qualification or registration, or any waiver of the foregoing, or any notice, statement or other communication required to be filed with or delivered to any Governmental Entity or any other Person. "ASSOCIATE" of a Person means (i) a corporation or organization (other than Seller or a party to this Agreement) of which such Person is an officer or partner or is, directly or indirectly, the beneficial owner of 10% or more of any class of equity securities; (ii) any trust or other estate in which such Person has a substantial beneficial interest or as to which such Person serves as trustee or in a similar capacity; and (iii) any relative or spouse of such Person who has the same residence as such Person. "AUDITED FINANCIAL STATEMENTS" has the meaning set forth in Section 3.3(a) of this Agreement. "AUDITORS" means Ernst & Young, LLP, independent public accountants to Seller. "BANKRUPTCY CODE" means Title 11 of the United States Code entitled "Bankruptcy," as now and hereafter in effect, and any successor statute, as well as any existing or future law of any jurisdiction, foreign or domestic, relating to bankruptcy, insolvency, reorganization, conservatorship or relief of debtors. "BUSINESS DAY" means a day other than a Saturday, a Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. "BUYERS" means collectively, the MSAM Purchasers and MSRE, or their permitted assigns (each, a "Buyer"). "BUYER INDEMNIFIED PERSON" has the meaning set forth in Section 11.1 of this Agreement. "CAPITALIZED LEASE" means any lease of property, real or personal, the obligations of the lessee in respect of which are required in accordance with GAAP to be capitalized on a balance sheet of the lessee. -2- 8 "CAPITALIZED LEASE OBLIGATION" means, as to any Person, the obligation of such Person to pay rent or other amounts under a Capitalized Lease and, for purposes of this Agreement, the amount of such obligation shall be the capitalized amount thereof, determined in accordance with GAAP. "CAPITAL STOCK" means any capital stock, beneficial interest or other equity interest, or any securities convertible into or exchangeable or exercisable for capital stock, beneficial interests or other equity interests, or any other rights, warrants or options to acquire any of the foregoing securities. "CHARTER DOCUMENTS" means Seller's Second Amended and Restated Declaration of Trust and Fourth Amended and Restated Bylaws as in effect as of the date of this Agreement. "CLOSING" has the meaning set forth in Section 2.3(a) of this Agreement. "CLOSING AGREEMENT" shall mean a written and legally binding agreement with a taxing authority relating to Taxes. "CLOSING DATE" means each date specified in Section 2.3(a) of this Agreement. "CODE" means the Internal Revenue Code of 1986, as amended, and, as applicable, the regulations promulgated thereunder. "COMMISSION" has the meaning set forth in Section 6.12(a) of this Agreement. "COMMON SHARES" means common shares of beneficial interest, par value $.10 per share, of Seller. "CONTRACT" means any agreement, arrangement, bond, commitment, franchise, indemnity, indenture, instrument, lease, license or understanding, whether or not in writing. "CURRENTLY OUTSTANDING SHARES" has the meaning set forth in Section 2.4 of this Agreement. "DEBT" means, with respect to any Person, without duplication, and without regard to whether it is contingent or direct, (a) all indebtedness of such Person for borrowed money, (b) any obligation incurred for all or any part of the purchase price of property or services, other than accounts payable and accrued expenses included in current liabilities in accordance with GAAP and incurred in respect of property or services purchased in the ordinary course of business, (c) indebtedness or obligations evidenced by bonds, notes or similar written instruments, (d) all reimbursement obligations of such Person (whether contingent or otherwise) in respect of letters of credit, banker's acceptances, surety or other bonds and similar instruments, (e) any obligation (whether or not such Person has assumed or becomes liable for the payment of such obligation) secured by a lien on any -3- 9 property of such Person, (f) all Capitalized Lease Obligations of such Person and (g) all Guarantees by such Person of obligations of any other Person of the types referred to in the foregoing clauses (a) through (f), inclusive, excluding, (i) the payment of commissions to Prudential Securities Incorporated in connection with the transactions contemplated herein and to be voted upon at the Annual Meeting, and (ii) a $25 million line of credit from Prudential Securities Incorporated or its Affiliates (the "Prudential Line of Credit"). "ENCUMBRANCE" means any claim, charge, easement, encumbrance, lease, covenant, security interest, lien, option, pledge, rights of others, preferential right, right of first refusal or restriction (whether on voting, sale, transfer, disposition or otherwise), whether imposed by agreement, understanding, law, equity or otherwise, except that "Encumbrance" does not include any such item that (i) is reflected in the Audited Financial Statements or (ii) constitutes a statutory lien arising in the ordinary course of business. "ENVIRONMENTAL CLAIMS" means any of the following to the extent they relate to, or arise out of, directly or indirectly, Environmental Noncompliance with respect to the Properties or actual or alleged Environmental Conditions or any Notification which may lead to: (i) claims, demands, suits, causes of action for personal injury, death or property damage; (ii) claims for actual or threatened damages to natural resources; (iii) claims for the recovery of response costs, or administrative or judicial orders directing the performance of investigations, response or remedial actions under any Environmental Law; (iv) a requirement to implement "corrective action" pursuant to any restitution, contribution or equitable indemnity to third parties or any Governmental Entity; (v) fines, penalties, liens against the Properties; (vi) claims for injunctive relief or other orders or notices of violation from any Governmental Entity; or (vii) with regard to any present or former employees, tenants or guests, exposure to or injury from Environmental Conditions. "ENVIRONMENTAL CONDITIONS" means conditions of the environment, including the ocean, natural resources (including flora and fauna), soil, surface water, ground water, any actual or potential drinking or water supply, subsurface strata, or air, including ambient air, relating to or arising out of the use, handling, storage, treatment, recycling, generation, transportation, release, spilling, leaking, pumping, pouring, emptying, discharging, injecting, escaping, leaching, disposal, dumping or threatened release of Hazardous Materials from, in, on, or onto the Properties. "ENVIRONMENTAL NONCOMPLIANCE" means any of the following to the extent they are applicable to the Properties or alleged to be applicable to the Properties or to Seller, Subsidiaries or a Seller Partnership: (i) the Release of any Hazardous Material into the environment, any storm drain, sewer, septic system or publicly-owned treatment works, in violation of any effluent or emission limitations, standards or other criteria or guidelines established by any Environmental Law; (ii) any noncompliance of physical structure, equipment, process or premises with the requirements of building or fire codes, zoning or land use regulations or ordinances or conditional use permits; (iii) any noncompliance with federal, state or local requirements governing occupational safety and health; (iv) any operations, procedures and designs at or on the Properties which do not conform to the statutory or regulatory requirements of any Law (including land use regulations and ordinances) -4- 10 intended to protect public health, welfare and the environment; (v) the failure to have obtained permits, licenses, variances or other governmental authorizations necessary for the legal use and/or operation of any equipment, process or any activity at the Properties; or (vi) the operation and/or use of any process or equipment in violation of any permit condition, schedule of compliance, administrative or court order. "ENVIRONMENTAL PERMITS" has the meaning set forth in Section 3.17(a) of this Agreement. "EQUITABLE REMEDIES" has the meaning set forth in Section 3.5 of this Agreement. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "FINAL CLOSING DATE" means the date on which Buyers have purchased, in the aggregate with all Common Shares as Buyers may have purchased on previous Closing Dates, Common Shares having an aggregate purchase price of $20 million. "FIRST CLOSING DATE" has the meaning set forth in Section 2.3 of this Agreement. "GAAP" means generally accepted accounting principles as in effect from time to time. "GOVERNMENTAL ENTITY" means any agency, bureau, commission, court, department, official, political subdivision, tribunal or other instrumentality of any government, whether federal, state or local, domestic or foreign. "GUARANTEE" means, with respect to any Person, any guarantee or other contingent liability (other than any endorsement for collection or deposit in the ordinary course of business and performance bonds, indemnities and similar obligations not guaranteeing or otherwise insuring payment of any Debt or other financial obligation), direct or indirect, of such Person with respect to any Debt or other obligation of another Person (including obligations under leases), through an agreement or otherwise, including (a) any other endorsement or discount with recourse or undertaking substantially equivalent to or having economic effect similar to a guarantee in respect of any such Debt or other obligations and (b) any agreement (i) to purchase, or to advance or supply funds for the payment or purchase of, any such obligations, (ii) to purchase, sell or lease property, products, materials or supplies, or transportation or services, in respect of enabling such other Person to pay any such obligation or to assure the owner thereof against loss regardless of the delivery or nondelivery of the property, products, materials or supplies or transportation or services or (iii) to make any loan, advance or capital contribution to or other investment in, or to otherwise provide funds to or for, such other Person in respect of enabling such Person to satisfy any obligation (including any liability for a dividend, stock liquidation payment or expense) or to assure a minimum equity, working capital or -5- 11 other balance sheet condition in respect of any such obligation. The amount of any Guarantee shall be equal to the outstanding amount of the obligations of such other Person directly or indirectly guaranteed. "HAZARDOUS MATERIALS" means any substance, matter, material, waste, solid, liquid, gas, or pollutant, the generation, storage, disposal, handling, recycling, Release (or threatened Release) or treatment of which is regulated, prohibited, or limited under: (1) the Resource Conservation and Recovery Act, as amended by the Hazardous and Solid Waste Amendments of 1984, as now or hereafter amended ("RCRA") (42 U.S.C. Sections 6901 et seq.); (ii) the Comprehensive Environmental Response, Compensation and Liability Act, as amended by the Superfund Amendments and Reauthorization Act of 1986, as now or hereafter amended ("CERCLA") (42 U.S.C. Sections 9601 et seq.); (iii) the Clean Water Act, as now or hereafter amended ("CWA") (33 U.S.C. Sections 1251 et seq.); (iv) the Toxic Substances Control Act, as now or hereafter amended ("TSCA") (15 U.S.C. Sections 2601 et seq.); (v) the Clean Air Act, as now or hereafter amended ("CAA") (42 U.S.C. Sections 7401 et seq.) (RCRA, CERCLA, CWA, TSCA and CAA are collectively referred to herein as the "FEDERAL ENVIRONMENTAL LAWS"); (vi) any local, state or foreign law, statute, regulation, or ordinance analogous to any of the Federal Environmental Laws; or (vii) any other federal, state, local, or foreign law (including any common law), statute, regulation, or ordinance regulating, prohibiting, or otherwise restricting the placement, Release, threatened Release, generation, treatment, or disposal upon or into any environmental media of any substance, pollutant, or waste which is now or hereafter classified or considered to be hazardous or toxic to human health or the environment. All of the laws, statutes, regulations and ordinances referred to in subsections (vi) and (vii) above, together with the Federal Environmental Laws, are collectively referred to herein as "ENVIRONMENTAL LAWS." The term "HAZARDOUS MATERIALS" shall also include: (a) gasoline, diesel fuel, fuel oil, motor oil, waste oil, and any other petroleum hydrocarbons, including any additives or other by-products associated therewith; (b) "friable" asbestos (as the term "friable" is defined under 40 C.F.R. Section 61.141) and friable asbestos-containing materials in any form; (c) polychlorinated biphenyls; or (d) any substance the presence of which on the Properties, (x) requires reporting or remediation under any Environmental Law, (y) causes or threatens to cause a nuisance on the Properties or poses or threatens to pose a hazard to the health or safety of persons on the Properties, or (z) which, if it emanated or migrated from the Properties, could constitute a trespass, nuisance or health or safety hazard to persons on adjacent property. "INDEMNIFIABLE CLAIM" means any Loss for or against which any Person is entitled to indemnification under this Agreement. "INDEMNIFIED PERSON" shall mean each Buyer Indemnified Person and each Seller Indemnified Party. "INDEMNIFYING PARTY" has the meaning set forth in Section 11.3(a) of this Agreement. "INITIAL REIT YEAR" has the meaning set forth in Section 3.14(c) of this Agreement. -6- 12 "INVESTMENT COMMITTEE" means the investment committee of the Seller's Board of Trust Managers which after the Annual Meeting shall consist of one Trust Manager designee of MSAM, one Trust Manager designee of Realco and one independent Trust Manager. "LAW" means any constitutional provision, statute or other law, rule, regulation or interpretation of any thereof and any Order of any Governmental Entity (including Environmental Laws, including, without limitation, the Americans with Disabilities Act). "LOSS" means any claim, amount paid in settlement, cost, damage (including, without limitation, consequential damage), disbursement, expense (including legal fees and expenses), liability, loss, deficiency, diminution in value or obligation. "MATERIAL CONTRACT" means any Contract to which Seller, any Subsidiary or any Seller Partnership is a party or by which any such Person or any of their respective Properties are bound that currently is in effect and (a) after December 31, 1996 obligates Seller, any Subsidiary or any Seller Partnership to pay an amount equal to $100,000 or more, (b) is one of the group of Tenant Leases that is anticipated by Seller to produce 66 2/3% of Seller's gross income during the fiscal year ending December 31, 1997, such group of Tenant Leases calculated beginning with the Tenant Lease that is anticipated to produce the most gross income during such period and thereafter in descending order of magnitude of gross income anticipated to be earned during such period under each other Tenant Lease until such percentage of gross income is reached, (c) is a Tenant Lease involving the lease of space in excess of 10,000 square feet for any Property, (d) other than any Tenant Lease, has an unexpired term as of December 31, 1996 in excess of five (5) years, (e) other than any Tenant Lease, contains a covenant not to compete or otherwise significantly restricts business activities of Seller, any Subsidiary or any Seller Partnership, (f) provides for the extension of credit by Seller, any Subsidiary or any Seller Partnership or a line of credit to Seller, any Subsidiary or any Seller Partnership in excess of $50,000, (g) provides for a guaranty or indemnity by Seller, any Subsidiary or any Seller Partnership, (h) grants a power of attorney, agency or similar authority to another Person, (i) contains an option to purchase or a right of first refusal relating to any of the Properties, (j) relates to the sale or issuance of any equity securities of Seller or securities exercisable for or convertible into any equity securities of Seller, or (k) any other Contract that is not within the general descriptions of clauses (a) through (j) (i.e., is not a Tenant Lease or within any of the other general categories listed above) but is material to the business, financial condition, assets, results of operations or prospects of Seller, Subsidiaries or Seller Partnerships. "MINIMUM EQUITY CAPITALIZATION" means $150 million as calculated using the average closing price of the Common Shares on the New York Stock Exchange for the 10 trading days immediately preceding the applicable date of determination multiplied by the current number of issued and outstanding Common Shares and Common Share equivalents; provided, however, it shall not in any event include operating partnership units in excess of $50 million. "MSAM" means Morgan Stanley Asset Management, Inc., a Delaware corporation. -7- 13 "MSAM PURCHASERS" means the clients of MSAM listed on Exhibit A hereto. "MSRE" means MS Real Estate Special Situations Inc., a Delaware corporation. "NOTIFICATION" means any summons, citation, directive, order, claim, litigation, pleading, investigation, proceeding, judgment, letter or any other written or oral communication from any Governmental Entity, any entity or any individual, concerning any intentional or unintentional act or omission which has resulted in or which may result in any Environmental Noncompliance or Environmental Claim. "ORDER" means any decree, injunction, judgment, order, ruling, assessment or writ. "PERMIT" means any license, permit, franchise, certificate of authority or order, or any waiver of the foregoing, required to be issued by any Governmental Entity. "PERSON" means an individual, corporation, partnership, limited liability company, joint venture, an unincorporated organization, government or any department or agency thereof, estate, trust, association, or private foundation within the meaning of Section 509(a) of the Code, or joint stock company. "PREEMPTIVE RIGHTS" has the meaning set forth in Section 6.8 of this Agreement. "PREFERRED SHARES" means any class of capital stock of a Person which is entitled to a preference or priority over any other class of capital stock of such Person with respect to any distribution of such Person's assets, whether with respect to dividends, or upon liquidation or dissolution, or both. "PROPERTIES" means the real property owned or leased by Seller, Subsidiaries and Seller Partnerships listed on Schedule 3.13 hereto. "PURCHASE PRICE" means, with respect to any Closing Date, the aggregate price paid for the Common Shares purchased by Buyers on such Closing Date. "REALCO" means USAA Real Estate Company, a Delaware corporation. "REALCO DEBT" has the meaning set forth in Section 3.2 of this Agreement. "REGISTRATION RIGHTS AGREEMENT" means the registration rights agreement among Seller, MSRE and MSAM, on behalf of the MSAM Purchasers, to be executed contemporaneously with the execution of this Agreement. "REIT" has the meaning set forth in Section 3.14(b) of this Agreement. -8- 14 "RELEASE" means releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, ejecting, escaping, leaching, disposing, seeping, infiltrating, draining or dumping of any Hazardous Material. This term shall be interpreted to include both the present and past tense, as appropriate. "SCHEDULE" means any schedule attached to this Agreement. "SEC FILINGS" has the meaning set forth in Section 3.4 of this Agreement. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SELLER" means American Industrial Properties REIT, a Texas real estate investment trust. "SELLER BENEFIT PLANS" has the meaning set forth in Section 3.11 of this Agreement. "SELLER INDEMNIFIED PARTIES" has the meaning set forth in Section 12.2 of this Agreement. "SELLER PARTNERSHIPS" has the meaning set forth in Section 3.1 of this Agreement. "SELLER PERMITS" has the meaning set forth in Section 3.7(b) of this Agreement. "SHARE OWNERSHIP LIMITATION" has the meaning set forth in Section 2.4 of this Agreement. "SHARE PRICE" has the meaning set forth in Section 2.1 of this Agreement. "SHAREHOLDER APPROVAL" means the approval by Seller's shareholders at the Annual Meeting of the proposal to approve the sale to Buyers of Common Shares having an aggregate purchase price of up to $20 million, and the authorization of the issuance of a sufficient number of Common Shares to allow such sale to occur. "SHARES" has the meaning set forth in Section 2.1 of this Agreement. "SUBSIDIARIES" has the meaning set forth in Section 3.1 of this Agreement. "TAXES" has the meaning set forth in Section 3.14(a) of this Agreement. "TAX RETURN" has the meaning set forth in Section 3.14(b) of this Agreement. -9- 15 "TENANT LEASES" has the meaning set forth in Section 3.13(b) of this Agreement. "TRUST MANAGERS" means the Trust Managers of Seller. "UNAUDITED FINANCIAL STATEMENTS" has the meaning set forth in Section 3.3(b) of this Agreement. 1.2 RULES OF CONSTRUCTION. This Agreement shall be construed in accordance with the following rules of construction: (a) the terms defined in this Agreement include the plural as well as the singular; (b) all accounting terms not otherwise defined herein have the meanings given such terms under GAAP; (c) all references in the Agreement to designated "Sections" and other subdivisions are to the designated Sections and other subdivisions of the body of this Agreement; (d) pronouns of either gender or neuter shall include, as appropriate, the other pronoun forms; (e) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Section or other subdivision; (f) the words "includes" and "including" are not limiting; and (g) knowledge of any Subsidiary or any Seller Partnership shall be deemed to be knowledge of Seller. SECTION 2. PURCHASE AND SALE 2.1 PURCHASE AND SALE OF THE COMMON SHARES. Subject to the terms and conditions set forth herein, Seller shall issue to Buyers, and Buyers shall purchase from Seller, severally and not jointly, up to an aggregate of 8,163,265 Common Shares (the "Shares") at a price of $2.45 per Common Share, subject to adjustment as set forth in Section 5.5 (the "Share Price"). 2.2 USE OF PROCEEDS. The proceeds of the purchase of Shares hereunder shall be used by the Seller to purchase real property as approved by the Investment Committee. 2.3 CLOSING. (a) (i) Within five Business Days of Seller's receiving the Shareholder Approval (or on such other date as shall have been agreed to by MSAM and Seller) (the "FIRST CLOSING DATE"), each Buyer shall purchase the number of Shares set forth opposite such Buyer's name, as set forth on Exhibit A hereto (the "MAXIMUM SHARE COMMITMENT"), subject to Section 2.4 . -10- 16 (ii) Seller shall provide MSAM with prompt notice of any increase in the number of its Currently Outstanding Shares. On one or more subsequent dates (each, a "Subsequent Closing Date, and together with the First Closing Date, each a "Closing Date") and each within five Business Days of MSAM's receipt of written notice by Seller as to an increase in the number of Currently Outstanding Shares (or on such other date as shall have been agreed to by MSAM and Seller), each Buyer shall purchase the number of Shares, if any, equal to the difference between (x) such Buyer's Maximum Share Commitment, and (y) the number of Shares purchased by such Buyer on previous Closing Dates, subject to Section 2.4. Each Closing shall take place at such time and place within the time periods specified in this Section 2.3 as MSAM and Seller shall mutually agree. (b) At each Closing, Seller shall deliver to MSRE and MSAM the certificates evidencing the Shares purchased by Buyers on the applicable Closing Date, registered in the names of each Buyer or its nominee in such proportions as specified by MSAM hereto. In addition, all other actions shall be taken and all other documents shall be delivered which are necessary to consummate the purchase and sale of the Shares purchased by Buyers on the applicable Closing Date. (c) At each Closing, MSRE and MSAM, on behalf of the MSAM Purchasers, shall pay and deliver to Seller the proportion of the Purchase Price payable by MSRE or the MSAM Purchasers in the aggregate, as the case may be, in accordance with the number of Shares purchased by MSRE or the MSAM Purchasers in the aggregate, as the case may be, on the applicable Closing Date. (d) Notwithstanding anything herein to the contrary, the parties agree that MSAM shall be entitled on any Closing Date to reallocate among the Buyers the Aggregate Commitment Amounts and the Maximum Share Commitment set forth on Exhibit A (subject to Section 2.4) in such manner as shall have been agreed to by Buyers. 2.4 SHARE OWNERSHIP LIMITATION. Notwithstanding anything in this Agreement to the contrary, Buyers will not be required to purchase Shares hereunder to the extent that such purchase would result in any Buyer owning in excess of the percentage set forth opposite such Buyer's name on Exhibit A hereto (the "SHARE OWNERSHIP LIMITATION") of the Common Shares outstanding immediately after such purchase assuming no conversion of any convertible securities then outstanding (the "CURRENTLY OUTSTANDING SHARES"). At least two Business Days prior to each Closing, Seller shall deliver to MSRE and MSAM a certificate as to the Currently Outstanding Shares, and MSAM shall notify Seller as to the number of Shares that each Buyer may purchase in accordance with the Share Ownership Limitation based on such number of Currently Outstanding Shares, such Buyer's aggregate commitment amount and, following the First Closing Date, the number of Shares purchased by such Buyer on previous Closing Dates. SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLER Seller represents and warrants to, and agrees with, MSAM and each Buyer as follows: 3.1 ORGANIZATION AND RELATED MATTERS. Seller is duly organized, validly existing and in good standing under the laws of the State of Texas. Seller has all necessary power and authority to execute, deliver and perform this Agreement. Schedule 3.1 lists all Subsidiaries (the -11- 17 "SUBSIDIARIES") and all Partnerships of Seller (the "SELLER PARTNERSHIPS") and correctly sets forth Seller's ownership interest therein, the jurisdiction in which each Subsidiary and each Seller Partnership is organized and each jurisdiction in which Seller, each Subsidiary and each Seller Partnership is and is required to be qualified or licensed to do business as a foreign Person. Each Subsidiary and each Seller Partnership is duly organized, validly existing and, with respect to each Subsidiary, in good standing under the laws of the jurisdiction of its incorporation or organization. Seller, Subsidiaries and Seller Partnerships have all necessary power (whether corporate, partnership or other power, as applicable) and authority to own their respective properties and assets and to carry on their respective businesses as now conducted. Seller, Subsidiaries and Seller Partnerships are duly qualified or licensed to do business as foreign Persons in good standing in all jurisdictions in which the character or the location of the assets owned or leased by any of them or the nature of the business conducted by any of them requires licensing or qualification, except where the failure to be so qualified or licensed is not and will not be material to their respective businesses, financial condition, assets, results of operations or prospects. Schedule 3.1 correctly lists the current Trust Managers, directors, general partners and executive officers of Seller, Subsidiaries and Seller Partnerships. True, correct and complete copies of the Charter Documents and the charter or organizational documents of Subsidiaries and Seller Partnerships (including the declaration of trust, articles or certificate of incorporation, bylaws and partnership agreements, as applicable) as in effect on the date hereof have been delivered to MSAM. Seller is registered and is a reporting company under the Exchange Act. Neither any Subsidiary nor any Seller Partnership is registered or is a reporting company under the Exchange Act. Except as listed on Schedule 3.1, Seller does not directly or indirectly own or control any equity interest in any Person. 3.2 CAPITAL STOCK; TITLE TO SHARES. The authorized Capital Stock of Seller consists of 10,000,000 Common Shares, all of which are issued and outstanding. Seller owns all of the outstanding Capital Stock of Subsidiaries free and clear of any Encumbrances, equities and claims except as specified in Schedule 3.2. Seller owns the equity interest in each Seller Partnership free and clear of any Encumbrances, equities and claims except as specified in Schedule 3.2. No Common Shares or Capital Stock of any Subsidiary are held in treasury. Except as set forth in Schedule 3.2 or as contemplated in this Agreement, there are no outstanding Contracts or other rights to subscribe for or purchase, or Contracts or other obligations to issue or grant any rights to acquire, any Common Shares, any Capital Stock of any Subsidiary or any Seller Partnership or to restructure or recapitalize Seller, any Subsidiary or any Seller Partnership. Except as set forth in Schedule 3.2, there are no outstanding Contracts of Seller, any Subsidiary or any Seller Partnership to repurchase, redeem or otherwise acquire any of their respective Common Shares or Capital Stock, as applicable. No bonds, debentures, notes or other indebtedness having general voting rights (or convertible into securities having general voting rights) of Seller, any Subsidiary or any Seller Partnership are issued or outstanding other than the Seller's note in the aggregate principal amount of $5,449,618 (the "REALCO DEBT") held by Realco. There are no voting trusts or other agreements or understandings to which Seller, any Subsidiary or any Seller Partnership is a party or is bound, or to the knowledge of Seller, to which any other Person is a party or is bound, with respect to the voting of the Common Shares or the Capital Stock of any Subsidiary or any Seller Partnership. All issued and outstanding Common Shares and Capital Stock of all Subsidiaries and Seller Partnerships were duly authorized and validly -12- 18 issued at the time of issuance and are fully paid and nonassessable. Except as contemplated by this Agreement, there are no preemptive rights in respect of any Common Shares or Capital Stock of any Subsidiary or any Seller Partnership. Upon any issuance of Shares to any Buyer, such Shares will have been duly authorized, validly issued and be validly outstanding, fully paid and nonassessable, and the issuance of such Shares will not be subject to preemptive rights of any other shareholder of Seller. Each Buyer shall receive good and marketable title to all Shares acquired by such Buyer pursuant to this Agreement, free and clear of all Encumbrances created by Seller, except for restrictions on the transferability of the Shares set forth in the Charter Documents or generally imposed on securities under federal and state securities laws. Such Shares will rank equally with all other Common Shares of Seller with respect to priority in payment of dividends and the distribution of assets upon any liquidation of Seller, and except for a class of preferred shares of beneficial interest which the shareholders are being asked to approve at the Annual Meeting, none of which shall be issued and outstanding as of the First Closing Date, there are no shares of any class of Capital Stock of Seller having any priority in respect thereof. 3.3 FINANCIAL STATEMENTS. (a) AUDITED FINANCIAL STATEMENTS. Seller has delivered to MSAM the consolidated balance sheets of Seller (which reflect the financial position of all Subsidiaries and Seller Partnerships), as of December 31, 1994, 1995 and 1996, and the respective related consolidated statements of operations, cash flows and shareholders' equity for the periods then ended (collectively, the "AUDITED FINANCIAL STATEMENTS"). The Audited Financial Statements have been examined by the Auditors whose report thereon is attached to such financial statements. All Audited Financial Statements have been prepared in conformity with GAAP applied on a consistent basis (except for changes, if any, disclosed therein). The Audited Financial Statements present fairly, in all material respects, the consolidated financial condition and results of operations of Seller, Subsidiaries and Seller Partnerships as of their respective dates and periods. Since December 31, 1996, there has been no change in the significant accounting policies or procedures of Seller, any Subsidiary or any Seller Partnership. Seller has not received any annual management letters from the Auditors since March 5, 1997. (b) UNAUDITED FINANCIAL STATEMENTS. Seller has delivered to MSAM the consolidated balance sheets of Seller (which reflect the financial position of all Subsidiaries and Seller Partnerships), as of March 31, 1997 and the related consolidated statements of operations, cash flows and shareholders' equity for the period then ended (the "UNAUDITED FINANCIAL STATEMENTS"). The Unaudited Financial Statements have been prepared in conformity with GAAP applied on a consistent basis (except for changes, if any, disclosed therein). The Unaudited Financial Statements present fairly, in all material respects, the consolidated financial condition and results of operations of Seller, Subsidiaries and Seller Partnerships as of March 31, 1997. (c) NO MATERIAL ADVERSE CHANGES. Since March 31, 1997, except as set forth in Schedule 3.3, or specifically disclosed in any SEC Filings filed since March 31, 1997 and prior to the date of this Agreement (copies of which have been provided to MSAM), Seller, Subsidiaries and -13- 19 Seller Partnerships have conducted their respective businesses only in the ordinary course and in a manner consistent with past practice and, whether or not in the ordinary course of business, there has not been, occurred or arisen: (i) any change in or event affecting the business of Seller, Subsidiaries and Seller Partnerships that has had a material adverse effect on such business or any materially adverse change or trend in the business, financial condition, assets, results of operations or prospects of Seller, Subsidiaries or Seller Partnerships, or (ii) any condition or action which would be proscribed by (or require consent under) Section 5.3 had it existed, occurred or arisen after the date of this Agreement, or (iii) any casualty, loss, damage or destruction of any real property of Seller, any Subsidiary or any Seller Partnership that has involved or may involve a Loss (whether or not covered by insurance) to Seller, any Subsidiary or any Seller Partnership of more than $100,000 individually, or $300,000 in the aggregate. (d) NO OTHER LIABILITIES OR CONTINGENCIES. Neither Seller nor any Subsidiary nor any Seller Partnership has any material liability of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due, probable of assertion or not, except liabilities that (i) were incurred after March 31, 1997 in the ordinary course of business in a manner consistent with past practice and are not material in amount, or (ii) are set forth in Schedule 3.3 hereto. 3.4 SEC REPORTS. Seller has filed with the Commission all forms, reports, statements, including registration statements, and other material documents, together with any amendments required to be made with respect thereto, that were required to be filed with the Commission since December 31, 1994. Such forms, reports, statements, including registration statements, and other material documents required to be filed with the Commission by Seller since December 31, 1994 are collectively referred to in this Agreement as the "SEC FILINGS." Seller has made available to MSAM all SEC Filings. As of their respective dates, (x) each of the SEC Filings, including the financial statements contained therein, was true and complete in all material respects, (y) each of the SEC Filings, including the financial statements contained therein, complied in all material respects with the Securities Act and Exchange Act, as applicable, and the rules and regulations promulgated thereunder, and (z) none contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 3.5 AUTHORIZATION; NO CONFLICTS. Seller has the requisite power and authority to enter into this Agreement and the Registration Rights Agreement and to carry out its obligations hereunder and thereunder. The execution, delivery and performance of this Agreement by Seller has been duly and validly authorized by the Trust Managers and by all other necessary action on the part of Seller, and no other proceedings on the part of Seller (including Trust Manager and shareholder approval) are necessary to authorize this Agreement or to consummate the transactions contemplated hereby -14- 20 except the shareholder consent needed to increase the number of authorized Common Shares to allow the issuance and sale of Shares on any Closing Date to occur. This Agreement has been duly executed and delivered by Seller and constitutes the legally valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws and equitable principles relating to or limiting creditors' rights generally (collectively, "EQUITABLE REMEDIES"). Except as set forth in Schedule 3.5, the execution, delivery and performance of this Agreement by Seller and the consummation by Seller of the transactions contemplated hereby will not (i) conflict with or result in the breach of any provisions of, or trigger any preferential rights under, the Charter Documents or the charter or organizational documents of Subsidiaries or Seller Partnerships, (ii) result in a breach or violation of, a default under, or the triggering of any payment or other material obligations pursuant to, or accelerate vesting under, any Seller Benefit Plans or any grant or award thereunder or any employment or consulting agreement or arrangement of Seller, any Subsidiary or any Seller Partnership, (iii) violate, conflict with, result in a breach of any provision of, constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, result in the termination or in a right of termination or cancellation of, accelerate the performance required by, result in the creation of any Encumbrance upon any Properties under, result in the triggering of any rights under, or result in being declared void, voidable or without further binding effect, any of the terms or provisions of any Material Contract of Seller, any Subsidiary or any Seller Partnership or (iv) violate any Law. Schedule 3.5 lists all Permits and Approvals required to be obtained by Seller, Subsidiaries and Seller Partnerships to consummate the transactions contemplated hereby. Except for matters identified in Schedule 3.5 as requiring that certain actions be taken by or with respect to a third party or Governmental Entity, the execution and delivery of this Agreement by Seller and the consummation of the transactions contemplated hereby will not require the consent, authorization or approval or filing or registration with, or the issuance of any Permit by, any other third party or Governmental Entity under the terms of any applicable Laws or Material Contracts of Seller, Subsidiaries or Seller Partnerships. 3.6 LEGAL PROCEEDINGS. Except as set forth in Schedule 3.6, there is no Order or Action pending, or to the knowledge of Seller threatened, against or affecting Seller, any Subsidiary, any Seller Partnership, any Trust Manager in his capacity as a Trust Manager of Seller or any of the Properties which (i) questions the validity of this Agreement, the Registration Rights Agreement or any action taken or to be taken pursuant hereto or thereto, or (ii) individually or when aggregated with one or more other Orders or Actions has, or if determined adversely will have, a material adverse effect on the business, financial condition, assets, results of operations or prospects of Seller, any Subsidiary or any Seller Partnership or on Seller's ability to perform this Agreement. To Seller's knowledge, Schedule 3.6 lists each Order and each Action that (i) involves a claim or potential claim of aggregate liability in excess of $50,000 against Seller, any Subsidiary or any Seller Partnership that is not covered by insurance, (ii) involves a claim or potential claim of aggregate liability brought by Seller, any Subsidiary or any Seller Partnership against a tenant under any Tenant Lease which Tenant Lease obligates such tenant to pay rent to Seller, any Subsidiary or any Seller Partnership during the year ending December 31, 1997 in an amount equal to or in excess of $150,000, or (iii) that enjoins or seeks to enjoin any activity by Seller, any Subsidiary or any Seller Partnership. There is no matter -15- 21 as to which Seller, any Subsidiary or any Seller Partnership has received any notice, claim or assertion in connection with which any such Person has or may reasonably be expected to have any right to be indemnified by Seller, any Subsidiary or any Seller Partnership. 3.7 COMPLIANCE WITH LAW AND PERMITS. (a) Seller, Subsidiaries and Seller Partnerships are organized and have conducted their respective businesses in accordance with applicable Laws, neither Seller nor any Subsidiaries or Seller Partnerships has received any notice of violation of any Laws which remains uncorrected, and the respective forms, procedures and practices of Seller, Subsidiaries and Seller Partnerships are in compliance with all such Laws, to the extent applicable, the violation of which would have a material adverse effect on the respective businesses, financial condition, assets, results of operations or prospects of Seller, Subsidiaries and Seller Partnerships. (b) Except as set forth in Schedule 3.7, Seller, Subsidiaries and Seller Partnerships hold all permits, licenses, variances, exemptions, authorizations, orders and approvals of all Governmental Entities necessary for the lawful conduct of their respective businesses (the "SELLER PERMITS") and Seller, Subsidiaries and Seller Partnerships are in compliance with the terms of the Seller Permits relating to each such Person, except where the failure to hold such Seller Permits or be in compliance therewith would not, individually or in the aggregate, have a material adverse effect on the business, financial condition, assets, results of operations or prospects of Seller, Subsidiaries or Seller Partnerships. Seller has made available to MSAM correct and complete copies of all Seller Permits. Except as set forth in Schedule 3.7, to the knowledge of the Seller, no investigation or review by any Governmental Entity with respect to the Seller Permits is pending or threatened. 3.8 DIVIDENDS AND OTHER DISTRIBUTIONS. Except as set forth in Schedule 3.8, there has been no dividend or other distribution of assets or securities by Seller or Seller Partnerships (other than Seller Partnerships in which Seller owns 100% beneficial interest) whether consisting of money, property or any other thing of value, declared, issued or paid to or for the benefit of Seller subsequent to December 31, 1996. 3.9 CERTAIN INTERESTS. Except as set forth in Schedule 3.1 and Schedule 3.9, no Affiliate of Seller, any Subsidiary or any Seller Partnership, nor any of their respective officers, Trust Managers, directors or partners, nor any Associate of any such individual, has any material interest in any property used in or pertaining to the respective businesses of Seller, any Subsidiary or any Seller Partnership. Except as set forth in Schedule 3.1 and Schedule 3.9, no such Person is indebted or otherwise obligated to Seller, any Subsidiary or any Seller Partnership. Except as set forth in Schedule 3.9, Seller, Subsidiaries and Seller Partnerships are not indebted or otherwise obligated to any such Person, except for amounts due under normal arrangements applicable to all employees generally as to salary or reimbursement of ordinary business expenses not unusual in amount or significance. Except as set forth in Schedule 3.1 and Schedule 3.9, there are no material transactions between Seller, any Subsidiary or any Seller Partnership and any Affiliate of Seller, any Subsidiary or any Seller Partnership or any Associate of any such Affiliate that have continuing obligations of -16- 22 any party thereunder. Except as set forth in Schedule 3.9, the consummation of the transactions contemplated by this Agreement will not (either alone, or upon the occurrence of any act or event, or with the lapse of time, or both) result in any compensation or severance or other payment or benefit arising or becoming due from Seller, any Subsidiary or any Seller Partnership or any of its assigns to any Person. 3.10 NO BROKERS OR FINDERS. No agent, broker, finder, or investment or commercial banker, or other Person or firm engaged by or acting on behalf of Seller or any of its Affiliates in connection with the negotiation, execution or performance of this Agreement or the transactions contemplated by this Agreement, is or will be entitled to any brokerage or finder's or similar fee or other commission as a result of this Agreement or such transactions except for a fee payable to Prudential Securities Incorporated. 3.11 EMPLOYEE BENEFIT PLANS. Schedule 3.11 lists all employee benefit plans and collective bargaining, labor and employment agreements or other similar benefit arrangements to which either Seller, any Subsidiary, or any Seller Partnership is a party or by which either Seller, any Subsidiary, or any Seller Partnership is bound (collectively, the "SELLER BENEFIT PLANS"), including (i) any profit-sharing, deferred compensation, bonus, stock option, stock purchase, pension, retainer, consulting, retirement, severance, welfare or incentive plan, agreement or arrangement, (ii) any plan, agreement or arrangement providing for "fringe benefits" or perquisites to employees, officers, directors, trust managers or agents, including benefits relating to automobiles, clubs, vacation, child care, parenting, sabbatical, sick leave, medical, dental, hospitalization, life insurance and other types of insurance, (iii) any employment agreement not terminable on 30 days (or less) written notice or (iv) any other "employee benefit plan" within the meaning of Section 3(3) of ERISA. True and complete copies of the Seller Benefit Plans, current descriptive booklets and summary plan descriptions of the Seller Benefit Plans, any relevant trust agreements or insurance policies or contracts and, if applicable, the most recent annual return on Form 5500 (or equivalent form) have been made available to MSAM. To the extent applicable, the Seller Benefit Plans comply, in all material respects, with the requirements of ERISA and the Code. Except as set forth in Schedule 3.11, no Seller Benefit Plan is or is intended to be a stock bonus, pension or profit-sharing plan within the meaning of Section 401(a) of the Code. Neither any Seller Benefit Plan nor Seller, any Subsidiary, or any Seller Partnership has incurred any liability or penalty under Section 4975 of the Code or Section 502(i) of ERISA. Each Seller Benefit Plan has been maintained and administered in all material respects in compliance with its terms and with ERISA and the Code to the extent applicable thereto. Except as set forth in Schedule 3.11, there are no pending, or to the knowledge of Seller threatened, claims (other than pursuant to the terms of any such plan) against or otherwise involving any of the Seller Benefit Plans and no Action has been brought against or with respect to any Seller Benefit Plan, and neither Seller nor any Subsidiary nor any Seller Partnership has incurred any liability to any party with respect to any Seller Benefit Plan. All contributions required to be made to the Seller Benefit Plans have been made or provided for. Except as set forth in Schedule 3.11, neither Seller nor any Subsidiary nor any Seller Partnership maintains or contributes to any plan or arrangement which provides or has any liability to provide life insurance or medical or other employee welfare benefits to any employee or former employee upon his retirement or termination of employment and neither Seller nor any -17- 23 Subsidiary nor any Seller Partnership has represented, promised or contracted (whether in oral or written form) to any employee or former employee that such benefits would be provided. Except as set forth in Schedule 3.11, the execution of, and performance of the transactions contemplated by, this Agreement will not (either alone or upon the occurrence of any additional or subsequent event) constitute an event under any Seller Benefit Plan or other policy, arrangement or any trust or loan that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any employee. No Seller Benefit Plan is subject to Title IV of ERISA and neither Seller nor any Subsidiary nor any Seller Partnership has, within six years prior to the date of this Agreement, contributed to or had any obligation to contribute to any employee benefit plan subject to Title IV of ERISA. For purposes of this Section 3.11, (i) the term "Seller" includes any entity required to be aggregated with the Seller pursuant to Code Section 414(b), (c), (m) or (o) and (ii) provisions of ERISA or the Code include regulations prescribed under such provisions. 3.12 LABOR MATTERS. Neither Seller nor any Subsidiary nor any Seller Partnership is a party to or bound by any collective bargaining or other labor union contracts. There is no pending or, to the knowledge of Seller, threatened labor dispute, strike or work stoppage against Seller, any Subsidiary, or any Seller Partnership. Neither Seller nor any Subsidiary nor any Seller Partnership, nor their respective representatives or employees, has committed any unfair labor practices in connection with the operation of the respective businesses of Seller, each Subsidiary, and each Seller Partnership, and there is no pending or, to the knowledge of Seller, threatened charge or complaint against Seller, any Subsidiary, or any Seller Partnership by the National Labor Relations Board or any comparable state agency. Seller, Subsidiaries, and Seller Partnerships are in compliance with all applicable Laws respecting employment, consulting, employment practices, wages, hours, and terms and conditions of employment. 3.13 PROPERTIES. (a) Schedule 3.13 contains a complete and correct list of all real property owned or leased by Seller, each Subsidiary and each Seller Partnership (collectively, the "PROPERTIES") as of the date hereof. Except as set forth in Schedule 3.13, Seller, Subsidiary or Seller Partnership, as applicable, owns good and indefeasible title to each Property, including the land and all improvements, all personalty and the Tenant Leases (as hereinafter defined). Except as set forth in Schedule 3.13, the Properties are free and clear of all Encumbrances of any nature, except for (i) liens for real property taxes or similar assessments not yet due and payable, (ii) easements for utilities servicing the Properties and (iii) such Encumbrances as do not materially detract from or interfere with the present use of the Properties subject thereto or affected thereby, or otherwise materially impair the use or value of such Properties. (b) Seller has delivered to MSAM a true, correct and complete copy of a rent roll with respect to each Property as of the date hereof setting forth, among other matters, the term (commencement or renewal date and expiration date) of each lease with respect to the Properties (collectively, the "TENANT LEASES"), the square feet for each of the Tenant Leases, the monthly base -18- 24 rental rates for each of the Tenant Leases and the security deposits for each of the Tenant Leases. Other than the Tenant Leases, no party has been granted any license, lease or other material right relating to the use or possession of the Properties which is material to the use or value of the Properties. Except as set forth in Schedule 3.13, all of the Tenant Leases are valid and subsisting and in full force and effect with respect to Seller, Subsidiaries and Seller Partnerships and, to Seller's knowledge, with respect to any other party thereto, and no tenant of the Properties is more than 30 days delinquent on its rental as of April 30, 1997 except as set forth in Schedule 3.13. To Seller's knowledge, no tenant of the Properties has initiated or threatened bankruptcy since January 1, 1997. No tenant of the Properties is an Affiliate or Associate of Seller, any Subsidiary or any Seller Partnership. Except as set forth in Schedule 3.13, there are no contracts or other material obligations outstanding for the sale, exchange or transfer of the Properties or any portion thereof. There are no attachments, executions, assignments for the benefit of creditors, receiverships, conservatorship or voluntary or involuntary proceedings in bankruptcy or pursuant to any other debtor relief laws filed by, or pending against, Seller, Subsidiaries, Seller Partnerships or the Properties. Except as set forth in Schedule 3.13, since January 1, 1997, no tenants have terminated their leases prior to expiration and, to Seller's knowledge, have no intent to do so. (c) Except as set forth in Schedule 3.13, there is no pending condemnation or similar proceeding affecting the land, the improvements or the personalty situated at the Properties or any portion thereof, and neither Seller nor any Subsidiary nor any Seller Partnership has received any written notice and has no knowledge that any such proceeding is contemplated. (d) The continued ownership, operation, use and occupancy of the land or the improvements thereon do not violate any zoning, building, administrative or other law, ordinance, order or regulation or any restrictive covenant applicable to the Properties, the violation of which would have a material adverse effect on the business, financial condition, assets, results of operations or prospects of Seller, Subsidiaries or Seller Partnerships, as applicable, and no written notice of any such violation has been received by Seller, any Subsidiary or any Seller Partnership from any Governmental Entity. (e) Seller, Subsidiaries or Seller Partnerships, as applicable, currently has in place title, liability, casualty and other insurance coverage with respect to the Properties in such amounts as are reasonable and customary for properties similar to the Properties. Each of such policies is in full force and effect, and all premiums due and payable thereunder have been, and on any Closing Date will be, fully paid when due. No notice of cancellation has been received, or to the knowledge of Seller threatened, with respect thereto. (f) Except as set forth in Schedule 3.13, there is no Action pending, or to the knowledge of Seller contemplated, by any Governmental Entity or third party to levy any special assessments against the Properties that, if successful, would have a material adverse effect on the business, financial condition, assets, results of operations or prospects of Seller, any Subsidiary or any Seller Partnership. -19- 25 (g) To Seller's knowledge, each unsatisfied brokerage obligation that is in excess of $25,000 with respect to the Properties is set forth on Schedule 3.13. (h) To Seller's knowledge and except as set forth on Schedule 3.13, no capital expenditures are contemplated by Seller to be incurred by Seller, any Subsidiary or any Seller Partnership within twelve months after the date of this Agreement in excess of $50,000 per Property with respect to any Property. (i) Except as set forth in Schedule 3.13, all management contracts with respect to the Properties are terminable by Seller on 30 days notice. (j) To Seller's knowledge, except for customary easements for access to building systems or utilities and except as set forth in Schedule 3.13, each Property is an independent unit which does not now rely on any facilities (other than facilities of municipalities or public utilities) located on any property that is not part of the Property for the furnishing to the Property of any essential building systems or utilities (including drainage facilities, catch basins and retention ponds) that if the owner of the Property could not avail the use of which, would materially detract from the value of the Property or materially interfere with the use of the Property. 3.14 TAX MATTERS. (a) For purposes of this Agreement, "TAXES" means any federal (including, without limitation, tax on its undistributed taxable income, alternative minimum tax, tax on certain sale proceeds or other nonqualifying income from foreclosure property or on income from prohibited transactions, and any taxes imposed upon Seller, Subsidiaries or Seller Partnerships under Section 857 or Section 4981 of the Code), state, county, local or foreign taxes, charges, fees, levies, or other assessments, including, without limitation, all net income, gross income, sales and use, ad valorem, transfer, gains, profits, excise, franchise, real and personal property, gross receipt, capital stock, business and occupation, disability, employment, payroll, license, estimated, or withholding taxes or charges imposed by any Governmental Entity, and includes any interest and penalties (civil or criminal) on or additions to any such taxes. (b) For purposes of this Agreement, "TAX RETURN" means a report, return or other information required to be filed with or supplied to a Governmental Entity with respect to Taxes including, without limitation, any notices or information reports or returns required to be filed by Seller, Subsidiaries or Seller Partnerships with respect to their respective operations, income, assets and shareholders or partners in order to maintain Seller's status as a real estate investment trust ("REIT") under the Code. (c) Seller elected to be taxed as a REIT under Sections 856 through 860 of the Code effective for its taxable year ended December 31, 1985 (the "INITIAL REIT YEAR"). Seller, since the Initial REIT Year through the end of the immediately preceding taxable year, has always qualified as a REIT under the Code. At all times from and after the Initial REIT Year to the date hereof, Seller has -20- 26 complied with, and through the Final Closing Date will comply with, all applicable Code and regulatory requirements necessary to maintain its qualification as a REIT under the Code and has otherwise operated, and through the Final Closing Date will have otherwise operated, in the manner necessary to maintain its qualification as a REIT under the Code. No dividend will be required to be distributed before December 31, 1997 in order for Seller to maintain its qualification as a REIT under the Code. (d) Except as disclosed in Schedule 3.14, Seller, Subsidiaries and Seller Partnerships have (i) filed all Tax Returns required to be filed by applicable Law since December 31, 1990, and all such Tax Returns were in all material respects (and, as to Tax Returns not filed as of the date hereof but filed on or before the Final Closing Date, will be in all material respects) true, complete and correct and filed on a timely basis and (ii) within the time and in the manner prescribed by law, paid (and until the Final Closing Date will pay within the time and in the manner prescribed by law) all material Taxes that were or are due and payable. (e) Except as set forth in Schedule 3.14, Seller, Subsidiaries and Seller Partnerships have established (and until the Final Closing Date will maintain) on their respective books and records reserves adequate to pay all Taxes of Seller, Subsidiaries and Seller Partnerships not yet due and payable in accordance with GAAP which are reflected in the Audited Financial Statements and Unaudited Financial Statements to the extent required by GAAP. (f) Except as disclosed in Schedule 3.14, as of the date hereof, there are no, and, as of any Closing Date, there will be no, material Tax liens upon the assets of Seller, Subsidiaries and Seller Partnerships, except liens for Taxes not yet due. (g) Except as disclosed in Schedule 3.14, Seller, Subsidiaries and Seller Partnerships have complied (and until the Final Closing Date will comply) in all material respects with the provisions of the Code relating to the payment and withholding of Taxes, including the withholding and reporting requirements under Code Sections 1441 through 1464, 3401 through 3406, and 6041 through 6049, as well as similar provisions under any other laws, and have, within the time and in the manner prescribed by law, withheld from employee wages and paid over to the proper governmental authorities all material amounts required by applicable Law. (h) Except as disclosed in Schedule 3.14, Seller, Subsidiaries and Seller Partnerships have not executed any outstanding waivers or comparable consents regarding the application of the statute of limitations with respect to any Taxes or Tax Returns. (i) No notice of any material deficiency for any Taxes has been received by Seller, any Subsidiary or any Seller Partnership that has not been resolved and paid in full or otherwise settled, no audits or other administrative proceedings or court proceedings are presently pending or, to Seller's knowledge, threatened with regard to any Taxes or Tax Returns of Seller, Subsidiaries or Seller Partnerships, and no notice of any material claim has been received by Seller, any Subsidiary or any Seller Partnership from any authority in a jurisdiction where Seller, Subsidiaries or Seller Partnerships -21- 27 do not file Tax Returns that Seller, any Subsidiary or any Seller Partnership is or may be subject to Tax in that jurisdiction. (j) Seller, Subsidiaries and Seller Partnerships have not received a Tax Ruling or entered into a Closing Agreement with the Internal Revenue Service that would have any continuing effect after the First Closing Date. (k) Seller has made available (or, with respect to all Tax Returns filed after the date hereof, will make available) to MSAM complete and accurate copies of all Tax Returns, and amendments thereto, filed by Seller, any Subsidiary or any Seller Partnership for all taxable periods or years ending on or prior to the First Closing Date. (l) Neither Seller nor any Subsidiary nor any Seller Partnership is required to include in income any adjustment pursuant to Code Section 481(a) by reason of a voluntary change in federal income tax accounting method (other than a change of federal income tax accounting method required as a result of a change in law) initiated by Seller, and the Internal Revenue Service has not proposed any such adjustment or change in accounting method. (m) Seller has made available to MSAM all relevant information with respect to the federal income tax net operating loss carryovers of Seller as of December 31, 1996, based on the federal income Tax Returns filed by Seller as of such date. (n) For all taxable years from and including its Initial REIT Year through the First Closing Date, (i) Seller has maintained permanent records containing the information required to be maintained by Code Section 857(a)(2) and Treasury Regulation Sections 1.857-(8)(a), 1.857-8(c) and 1.857-8(e) and (ii) Seller has demanded the written statements from its shareholders required by Treasury Regulation Section 1.857-8(d) in accordance with Treasury Regulation Section 1.857-8(e). 3.15 MATERIAL CONTRACTS. Schedule 3.15 sets forth an accurate list of all Material Contracts of Seller, Subsidiaries and Seller Partnerships. Seller has made available to MSAM complete and correct copies of all Material Contracts. All Material Contracts are in full force and effect. Except as set forth in Schedule 3.15, Seller, Subsidiaries and Seller Partnerships are not in violation of or default in any material respect (nor is there any waiver in effect of any event that would constitute a default but for such waiver) under, and no event has occurred that (with notice or the lapse of time or both) would constitute a violation of or default under, any Material Contract. Except as set forth in Schedule 3.15, to the knowledge of Seller, no other party to any Material Contract is in breach of the terms, provisions and conditions of such Material Contract and no other party to any Material Contract has notified Seller, any Subsidiary or any Seller Partnership that it intends to terminate or modify a Material Contract. 3.16 INSURANCE. Schedule 3.16 sets forth a complete and correct list of all insurance policies, except for title insurance policies, currently in force insuring against risks of Seller, Subsidiaries and Seller Partnerships. Seller, Subsidiaries and Seller Partnerships are in compliance -22- 28 with the terms of such policies applicable to them and there are no claims by Seller, any Subsidiary or any Seller Partnership under any such policy as to which any insurance company is denying liability or defending under a reservation of rights clause. 3.17 ENVIRONMENTAL MATTERS. (a) Except as set forth in the documentation provided to Seller pursuant to Section 3.17(b) and in Schedule 3.17, there is no material Environmental Noncompliance with respect to any Property and there are no material Environmental Claims with respect to any Property or the Seller, any Subsidiary or any Seller Partnership or, to the knowledge of Seller, any tenants under any of the Tenant Leases. All material permits, consents, licenses, certificates, approvals, registrations, and authorizations in connection with environmental matters (collectively, "ENVIRONMENTAL PERMITS") which are required by any Law have been obtained and are valid. The Properties (and all uses thereof and operations conducted thereon) comply in all material respects with all Environmental Permits. All operations on or at the Properties conducted by Seller are and have been conducted in all material respects in compliance with applicable Environmental Laws. Except as set forth in the documentation provided to Seller pursuant to Section 3.17(b) and in Schedule 3.17, Seller has not received any Notification from any Governmental Entity seeking any information or alleging any violation of any Law regarding Environmental Conditions. Except as set forth in the documentation provided to Seller pursuant to Section 3.17(b) and in Schedule 3.17, Seller has not caused or given its verbal or written authorization to cause, and has no knowledge of, any Release of any Hazardous Materials on-site or off-site of the Properties in violation of any Environmental Law. (b) Seller has made available to MSAM true, correct, and complete copies of all written reports of any environmental assessment, compliance or regulatory audit, inspection, or investigation of the Properties in its possession, and Seller has not received any other written report containing any evidence of Environmental Noncompliance. (c) Except as set forth in the documentation provided to Seller pursuant to Section 3.17(b) and in Schedule 3.17, there is not now, nor has there been in the past, any "friable" asbestos (as the term "friable" is defined under 40 C.F.R. Section 61.141) or friable asbestos containing materials located on, incorporated in, or otherwise contained in the Properties or any portion thereof, and there are not now, and have not in the past been, any underground storage tanks located on the Properties or any portion thereof. (d) Except as set forth in the documentation provided to Seller pursuant to Section 3.17(b), and in Schedule 3.17, none of the tenants under any Tenant Lease handle or store any Hazardous Material as a principal or primary business. 3.18 TRUST RECORDS; ACCOUNTING RECORDS. The minute books of Seller accurately reflect in all material respects all actions taken to the date of this Agreement by the holders of Common Shares, the Trust Managers and committees of the Trust Managers, except for those matters set forth in Schedule 3.18 for which minutes of such actions have not yet been prepared or approved. The share -23- 29 certificate books and records of Seller accurately reflect the ownership of the Common Shares. Seller maintains accounting records which fairly reflect, in all material respects, Seller's transactions. 3.19 NEW YORK STOCK EXCHANGE LISTING. The outstanding Common Shares are listed on the New York Stock Exchange. The issuance or sale and delivery of any Shares to Buyers pursuant to this Agreement will not violate any listing requirements of the New York Stock Exchange for the listing of Common Shares, including the Shares. 3.20 DISCLOSURE OF FACTS. There are no facts peculiar to Seller, Subsidiaries or the Seller Partnerships that Seller has not disclosed to MSAM that materially adversely affect, or insofar as Seller can reasonably foresee, will materially adversely affect, the business, financial condition, assets, results of operations or prospects of Seller, Subsidiaries or Seller Partnerships. 3.21 PENSION-HELD REIT. For purposes of Section 856(h)(3) of the Code, Seller hereby represents that at any time during the shorter of (i) the two-year period ending immediately prior to the First Closing Date or (ii) the period during which Seller was in existence, to the best of Seller's knowledge, no "qualified trust" has held, directly or indirectly, more than 10% of the interests in Seller. SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER Each of MSRE and MSAM represents and warrants with respect to itself (except as indicated) to, and agrees with, Seller as follows: 4.1 ORGANIZATION AND RELATED MATTERS. It is a corporation duly organized and validly existing under the laws of the state of its incorporation. It has all necessary corporate power and corporate authority to carry on its business as now being conducted. It has all necessary corporate power and corporate authority to execute, deliver and perform this Agreement and the transactions contemplated hereby. 4.2 AUTHORIZATION. The execution, delivery and performance of this Agreement have been duly and validly authorized by it and by all other necessary corporate action on its part and no other corporate proceedings on its part are necessary to authorize this Agreement or consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by it and constitutes its legally valid and binding obligation, enforceable against it in accordance with its terms, except as such enforceability may be limited by Equitable Remedies. The execution and delivery of this Agreement by it and the consummation of the transactions contemplated hereby will not require filing or registration with, or the issuance of any Permit by, any other third party or Governmental Entity under the terms of any applicable Law or its material Contracts, other than any filing required under the Exchange Act. 4.3 NO CONFLICTS. The execution, delivery and performance of this Agreement by it will not violate the provisions of, or constitute a breach or default (whether upon lapse of time and/or the -24- 30 occurrence of any act or event or otherwise) under, (a) its certificate of incorporation and bylaws, pursuant to which it was organized and by which it is governed, (b) any Law to which it is subject or (c) any Contract to which it is a party that is material to the financial condition, results of operations or conduct of its business. 4.4 NO BROKERS OR FINDERS. No agent, broker, finder or investment or commercial banker, or other Person or firms engaged by or acting on its behalf or on behalf of any of its Affiliates in connection with the negotiation, execution or performance of this Agreement or the transactions contemplated by this Agreement, is or will be entitled to any broker's or finder's or similar fees or other commissions as a result of this Agreement or such transactions. 4.5 LEGAL PROCEEDINGS. There is no Order or Action pending against or, to its knowledge, affecting it that individually or when aggregated with one or more other Actions has, or if determined adversely would have, a material adverse effect on its business, properties, or financial condition or on its ability to perform this Agreement. 4.6 INVESTMENT REPRESENTATION. Each Buyer is acquiring the Shares from Seller for its own account, for investment purposes only and not with a view to or for sale in connection with the distribution thereof. It agrees to execute any further certificate or other document representing such investment intent or as to any other matter reasonably requested by Seller to assure compliance with applicable securities laws. 4.7 LEGENDS; STOP-TRANSFER ORDERS. (a) The certificates for Shares will bear legends in substantially the following form: THE SHARES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE AND, ACCORDINGLY, MAY BE OFFERED, SOLD, TRANSFERRED OR PLEDGED ONLY IN A TRANSACTION WHICH IS REGISTERED UNDER SUCH ACT AND UNDER SUCH LAWS OR IS EXEMPTED FROM SUCH REGISTRATION REQUIREMENTS. (b) The certificates for Shares may also bear any legend required by any applicable state blue sky law. (c) Any certificates for Shares will also bear a legend relating to restrictions on transfer imposed pursuant to the percentage ownership limitation contained in the Charter Documents. (d) Seller may impose appropriate stop-transfer instructions relating to the restrictions set forth herein. 4.8 STATUS FOR REIT OWNERSHIP AND INCOME TESTS. At the Closing, each of MSRE and each MSAM Purchaser will own (assuming for purposes of this representation, only the Common -25- 31 Shares purchased pursuant to this Agreement) on a fully-diluted basis Common Shares of Seller which shall not exceed the following percentages: MSRE 5.0%, Stichting Pensionfonds ABP 5.0%, Stichting Bedrijfspensioenfonds Voor De Metaalnijverheid 5.0%, Morgan Stanley Real Estate Special Situations Fund I, L.P. 9.99%, and Morgan Stanley Real Estate Special Situations Fund II, L.P. 9.99%. At the Closing, to the best of MSAM's knowledge, the purchase of the Common Shares by the MSAM Purchasers will not result in a "qualified trust" as defined in Code Section 856(h)(3) holding more than 25% in value of the Seller's outstanding stock. MSRE and/or the MSAM Purchasers are not purchasing the Common Shares, and will not hold any or all of the Common Shares so purchased, through any arrangement or entity that would be deemed, for federal income tax purposes, to be a partnership between MSRE and/or the MSAM Purchasers. The Common Shares that each MSAM Purchaser owns will not be considered to be owned by any individual (or entity treated as an individual under Section 856(h) of the Code, other than through the operation of Section 856(h)(3)(A)(ii)) who after application of the stock ownership rules of Section 856(h) of the Code would own more than 9.8% of the lesser of the number or value of any outstanding class of Capital Stock, unless, at the time of the Closing, such individual or entity is already considered to own, under Section 856(h) of the Code, 9.7% or more of the lesser of the number or value of such class of Capital Stock. At the Closing, the Common Shares owned by MSRE shall not exceed, on a fully-diluted basis, 5% of all outstanding Common Shares. At the Closing, and at all times thereafter, applying the stock ownership rules of Code Section 856(h), as in effect at the time of the Closing (a) MSRE will be treated as a corporation, and the Common Shares that it owns will be treated as owned proportionately by its shareholders and (b) no individual (or entity treated as an individual under Section 856(h) of the Code) will be considered as owning more than 9.8% of the Common Shares owned by MSRE. At the Closing, and at all times thereafter, applying the stock ownership rules of Code Section 856(h), as in effect at the time of the Closing, (a) MSRE will be treated as a corporation, and the Common Shares that it owns will be treated as owned proportionately by its shareholders and (b) the Common Shares that MSRE owns will not be considered to be owned by any individual (or entity treated as an individual under Section 856(h) of the Code) who after application of the stock ownership rules of Section 856(h) of the Code would own more than 9.8% of the lesser of the number or value of any outstanding class of Capital Stock. 4.9 AUTHORITY OF MSAM. MSAM is duly authorized to enter into this Agreement and to consummate the transactions contemplated hereby on behalf of the MSAM Purchasers. SECTION 5. COVENANTS WITH RESPECT TO CONDUCT OF SELLER PRIOR TO FINAL CLOSING From the date of this Agreement up to and including the Final Closing Date, Seller covenants and agrees to take such actions, or refrain from taking such actions, as are set forth in this Section 5. 5.1 ACCESS. Seller shall, and shall cause the Subsidiaries and Seller Partnerships to, authorize and permit MSAM and its representatives (which term shall be deemed to include its independent accountants and counsel) to have reasonable access during normal business hours, upon -26- 32 reasonable notice and in such manner as will not unreasonably interfere with the conduct of business, to all of the Properties, books, records, operating instructions and procedures, Tax Returns and all other information with respect to the businesses of Seller, Subsidiaries and Seller Partnerships as MSAM may from time to time reasonably request, and to make copies of such books, records and other documents and to discuss the business of Seller, Subsidiaries and Seller Partnerships with MSAM and its partners and their respective officers, employees, accountants and counsel, as MSAM considers necessary or appropriate for the purposes of familiarizing itself with the business of Seller, obtaining any necessary Approvals of, or Permits for, the transactions contemplated by this Agreement and conducting an evaluation of the organization and business of Seller. From the date of this Agreement up to and including the Final Closing Date, Seller will permit, and cause Subsidiaries and Seller Partnerships to permit, MSAM and its officers, directors, agents, attorneys, accountants, and representatives, to audit such books and records, to meet with tenants of the Properties, and to conduct such investigations, tests, or inspections of the Properties as Seller shall approve in Seller's sole discretion, including intrusive sampling studies to ascertain whether or not there are any Hazardous Materials on, in, or under the Properties. 5.2 MATERIAL ADVERSE CHANGES; SEC FILINGS; REPORTS; FINANCIAL STATEMENTS. (a) Seller shall promptly notify MSAM of any event of which Seller obtains knowledge which has had or might reasonably be expected to have a material adverse effect on Seller's business or which if known as of the date hereof would have been required to be disclosed to MSAM. (b) Seller will, and will cause the Subsidiaries and Seller Partnerships to, furnish to MSAM as soon as available copies of all SEC Filings, and all material reports, renewals, filings, certificates, statements and other documents filed with any Governmental Entity. 5.3 CONDUCT OF BUSINESS. Except as set forth in Schedule 5.3 and as provided in Section 5.4, from the date of this Agreement until the Final Closing Date, Seller agrees with and for the benefit of Buyer that Seller shall not, and Seller shall cause Subsidiaries and Seller Partnerships not to, without the prior written consent of MSAM, which consent may not unreasonably be withheld: (a) conduct the business of Seller, Subsidiaries and Seller Partnerships in any manner except in the ordinary course consistent with past practices; or (b) purchase any real property without MSAM's consent if prior to the date of the Annual Meeting or if after such date, without the consent of the Investment Committee; or (c) declare, issue, make or pay any dividend or other distribution of assets, whether consisting of money, other tangible or intangible personal property, real property or other thing of value, to its shareholders, or split, combine, dividend, distribute or reclassify any Common Shares or any shares of its Capital Stock, as applicable, except for dividends the record date of which is after the First Closing Date; or (d) issue, sell, redeem or acquire for value, or agree to do so, any debt obligations (other than the Prudential Line of Credit), Common Shares or Capital Stock; or (e) incur or agree to incur any obligation or liability (absolute or contingent) that individually calls for payment by Seller, any Subsidiary or any Seller Partnership of more than -27- 33 $50,000 individually or in the aggregate except for (i) liabilities (other than indebtedness for borrowed money) incurred in the ordinary course of business consistent with past practices (including, but not limited to, tenant improvements and capital improvements to Properties), (ii) liabilities arising out of, incurred in connection with, or related to the consummation of the transactions contemplated by this Agreement, (iii) payments to Realco under the Realco Debt and (iv) purchases of real property in accordance with Section 5.3(b); or (f) merge (if Seller is not the surviving entity), sell substantially all of its assets or enter into any other contract involving any other form of business combination or liquidate, wind-up or dissolve (or suffer any liquidation or dissolution) or adopt any plan of liquidation or dissolution; or (g) change the number of Trust Managers or the Board of Directors of any of the Subsidiaries, or admit any additional partners to the Seller Partnerships; or (h) except as proposed at the Annual Meeting, amend the Charter Documents or the charter or organizational documents of the Subsidiaries or Seller Partnerships; or (i) sell, lease, transfer or otherwise dispose of, or mortgage, pledge or otherwise encumber, other than the lease of any Property or space therein in the ordinary course of business consistent with past practices, any of the Properties; or (j) cancel, satisfy or prepay any debt, obligation, liability or encumbrance, or waive any claim or right of value of Seller, Subsidiaries or Seller Partnerships except the extinguishment of debt under the Realco Debt through the conversion of the Realco Debt to Common Shares; or (k) (i) increase in any manner the compensation or fringe benefits (including, but not limited to, severance benefits) payable or to become payable by Seller, Subsidiaries, or Seller Partnerships to any officer, Trust Manager, director, partner, consultant or independent contractor as salary or wages or under any bonus, insurance, welfare, severance, deferred compensation, pension, retirement, profit sharing, share option (including, without limitation, the granting of any share option or share appreciation right or performance or restricted share award), share purchase or other employee benefit plan, (ii) except as approved by the Compensation Committee prior to the date of this Agreement or except as approved by the Compensation Committee and approved by a unanimous vote of the Seller's Board of Trust Managers, increase in any manner the compensation or fringe benefits (including, but not limited to, severance benefits) payable or to become payable by Seller, Subsidiaries or Seller Partnerships to any employee who is not an officer, Trust Manager, director or partner of Seller, Subsidiaries or Seller Partnerships as salary or wages or under any bonus, insurance, welfare, severance, deferred compensation, pension, retirement, profit sharing, share option (including, without limitation, the granting of any share option or share appreciation right or performance or restricted share award), share purchase or other employee benefit plan, except for such increase in salary, bonuses or severance benefits to such employees in the ordinary course of business consistent with past practices and provided that all such increases in salary, bonuses or severance benefits do not have a material adverse effect on the business, assets, financial condition or prospects -28- 34 of Seller, Subsidiaries or Seller Partnerships, or (iii) except as proposed at the Annual Meeting, enter into, adopt, amend in any material respect (except as required by law) or terminate any Seller Benefit Plan or any agreement, arrangement, plan or policy between Seller, Subsidiaries or Seller Partnerships, as applicable, and one or more of its Trust Managers, directors, partners, officers, employees or independent contractors; or (l) make any tax election other than in connection with maintaining Seller's qualification as a REIT or take any action that would cause Seller not to qualify as a REIT, or fail to take any reasonable action to preserve Seller's qualification as a REIT; or (m) make any change in any significant accounting principles or practices used by Seller, Subsidiaries or Seller Partnerships, except as required by the Commission; or (n) amend, modify or change the terms of any Material Contract other than in the ordinary course of business consistent with past practice and provided that such amendment, modification or change does not have a material adverse effect on the business, assets, financial condition or prospects of Seller, Subsidiaries or Seller Partnerships; or (o) except as provided in Section 5.3(b), acquire any Person (or interest therein) or any material amount of assets, or make any loans, advances or capital contributions to, or investments in, any Person; or (p) take any action that would, or fail to take any action which failure would, result in any of Seller's representations and warranties set forth in this Agreement not being true; or (q) agree to or make any commitment to take any action prohibited by this Section 5.3. 5.4 NOTIFICATION OF CERTAIN MATTERS. Seller shall give prompt notice to MSAM, and MSAM and MSRE shall give prompt notice to Seller, of (a) the occurrence, or failure to occur, of any event that causes any representation or warranty contained in this Agreement to be untrue or inaccurate at any time from the date of this Agreement to the Final Closing Date and (b) any failure of MSRE, MSAM or Seller, as the case may be, to comply with or satisfy, in any material respect, any covenant, condition or agreement to be complied with or satisfied by it under this Agreement. 5.5 ADJUSTMENT OF SHARE PRICE. The Share Price will be subject to adjustment from time to time prior to the Final Closing Date as follows: (a) If Seller shall at any time prior to the Final Closing Date (i) pay a dividend or make any other distribution payable in Common Shares to holders of any class of Capital Stock of Seller, (ii) subdivide or reclassify the outstanding Common Shares into a greater number of shares or (iii) combine or reclassify the outstanding Common Shares into a smaller number of shares, the Share Price in effect at the time of the record date for such dividend or distribution or the effective date of such subdivision, combination or reclassification will be proportionately adjusted so that each Buyer -29- 35 will be entitled to receive upon purchase after such time the number of Common Shares that such Buyer would have owned or been entitled to receive had such purchase occurred immediately prior to such time (subject to the Share Ownership Limitation). An adjustment made pursuant to this subsection (a) will become effective immediately after the record date in the case of a dividend or other distribution and will become effective immediately after the effective date of any such subdivision, combination, reclassification or change, provided that, if such dividend or distribution is not ultimately paid or made, the Share Price shall be readjusted to be equal to the Share Price in effect immediately prior to such record date. Such adjustment will be made successively whenever any event listed above occurs. (b) If Seller shall at any time prior to the Final Closing Date issue rights or warrants to all holders of Common Share entitling them (for a period commencing no earlier than the record date for the determination of holders of Common Shares entitled to receive such rights or warrants and expiring within 45 days after such record date) to subscribe for or purchase Common Shares at a price per share less than the Current Market Price (as defined in subsection (d) below) of Common Shares on such record date, the Share Price will be adjusted effective as of immediately after such record date so that it shall equal the price determined by multiplying the Share Price in effect immediately prior thereto by a fraction, the numerator of which is the number of Common Shares outstanding on such record date plus the number of Common Shares that the aggregate offering price of the Common Shares so offered for subscription or purchase or purchased would purchase at the Current Market Price per Common Share, and the denominator of which is the number of Common Shares outstanding on such record date plus the number of additional Common Shares which may be purchased upon the exercise of the rights or warrants issued, provided that, if such issuance is not ultimately made, the Share Price shall be readjusted to be equal to the Share Price in effect immediately prior to such record date. Common Shares owned by or held for the account of Seller shall not be deemed outstanding for the purpose of any such computation. Such adjustment will be made successively whenever such rights or warrants are issued. (c) If Seller shall at any time prior to the Final Closing Date distribute to all holders of Common Shares any shares of any class of Capital Stock other than Common Shares, evidences of indebtedness or other assets (other than cash dividends or distributions out of retained earnings), or shall distribute to holders of Common Shares rights or warrants to subscribe to securities (other than those referred to in subsection (b) above), then in each such case the Share Price will be adjusted so that it equals the price determined by multiplying the Share Price in effect immediately prior to the date of such distribution by a fraction, the numerator of which is the Current Market Price per Common Share on the record date mentioned below less the then fair market value (as determined by the Board of Trust Managers, whose determinations shall be conclusive evidences of such fair market value) of said shares, evidences of indebtedness, assets, rights or warrants or distributions applicable to one Common Share, and the denominator of which is such Current Market Price. Such adjustment will become effective immediately after the record date for the determination of the holders of Common Shares entitled to receive such distribution, provided that, if such issuance is not ultimately made, the Share Price shall be readjusted to be equal to the Share Price in effect -30- 36 immediately prior to such record date. Such adjustment will be made successively whenever such a distribution is made. (d) For the purpose of computation under subsections (b) and (c) above, the "Current Market Price" per Common Share at any date will be deemed to be the average of the daily closing price for the Common Shares on the New York Stock Exchange for 20 consecutive trading days commencing 30 trading days before such date. SECTION 6. ADDITIONAL CONTINUING COVENANTS AND AGREEMENTS 6.1 USE OF PROCEEDS. The proceeds from the sale of the Shares to Buyers, net of any costs (including any accounting, legal and fairness opinion costs and expenses) associated with the transactions contemplated by this Agreement, shall be applied by Seller to the purchase of real property in accordance with Section 2.2. 6.2 APPOINTMENT OF TRUST MANAGERS. (a) GENERAL. Effective immediately following the Annual Meeting, Seller shall increase the number of its Trust Managers from five to seven, and Seller shall appoint two individuals designated by MSAM to fill the vacancies caused by the increase in the number of Trust Managers under this Section 6.2(a). In addition, at the first annual meeting and all subsequent annual meetings of shareholders after the number of Trust Managers has been increased to seven under this Section 6.2(a), until Seller achieves the Minimum Equity Capitalization, Seller shall nominate, and use its best efforts to have such persons elected (which efforts shall include, without limitation, including MSAM's nominees in management's slate for nomination and election and solicitation of proxies on their behalf), two designees of MSAM (which may be different persons than the persons initially appointed as Trust Managers pursuant to the first sentence of this Section 6.2(a) if such initial designees shall have died, resigned, been removed or declined to be nominated) as Trust Managers. During such time as Seller shall have individuals designated by MSAM serving as Trust Managers pursuant to this Section 6.2(a), and except as otherwise provided in Section 6.2(b) hereof, the number of Trust Managers shall consist of not more than seven persons, including the designees of MSAM. Such designees of MSAM shall hold office until resignation, removal, death or expiration of the term for which he or she was appointed and any successive term for which such representative is duly elected as a Trust Manager by the shareholders of Seller. In the event of the death, resignation or removal from office of a designee of MSAM serving as a Trust Manager pursuant to the first sentence of this Section 6.2(a), Seller agrees to promptly appoint a replacement designee selected by MSAM as Trust Manager prior to the date Trust Managers are to be elected at the first annual meeting after the number of Trust Managers has been increased to seven pursuant to this Section 6.2(a). (b) OBSERVATION RIGHTS. In the event that the designees selected by MSAM to serve as Trust Managers are not, for any reason, elected by Seller's shareholders, MSAM shall have full observation rights with respect to Seller's Trust Managers, including the right to obtain full and timely notice of all meetings of the Trust Managers and of each of its committees, to obtain copies of all -31- 37 written and other materials disseminated to Trust Managers and to designate a person to attend in person or by telephone all meetings of the Trust Managers or their committees. If MSAM receives observation rights pursuant to the provisions of this paragraph, MSAM and its designees in respect of such rights shall each execute a confidentiality agreement in form and substance reasonably satisfactory to Seller. (c) RESIGNATIONS. At such time as Seller achieves Minimum Equity Capitalization, MSAM shall cause one of its designees to not seek re-election at the next annual meeting, or at Seller's option, to immediately resign. At such time as Seller achieves equity capitalization of $250 million (calculated in the same manner as Minimum Equity Capitalization), MSAM shall cause its remaining designee to not seek re-election at the next annual meeting, or at Seller's option, to immediately resign. (d) QUALIFICATIONS. Each of the representatives designated by MSAM in accordance with this Section 6.2 shall be a Person selected by MSAM in its sole discretion; provided, however, that any such person may not have been involved in any of the events described in Item 401(d)(1)-(4) of Regulation S-K promulgated under the Exchange Act. (e) COMMITTEES. At any time that MSAM shall have exercised its rights under this Section 6.2 to appoint a designee as Trust Manager, Seller shall appoint at least one of MSAM's designees on each committee of the Trust Managers, and each such committee shall contain no more than three members until expiration of the latest term of office of any designee of MSAM pursuant to Section 6.2(a) or 6.2(b). 6.3 ENVIRONMENTAL MATTERS. Seller will advise MSAM promptly (a) upon obtaining knowledge that a Release has occurred at or upon the Properties and/or (b) upon receipt of a Notification pertaining to the Properties. 6.4 STATUS FOR REIT OWNERSHIP AND INCOME TESTS. Following the First Closing Date, and at all subsequent times during which any Buyer owns any of the Shares, applying the stock ownership rules of Section 856(h) of the Code, the representation set forth in Section 4.8 will remain true and correct. 6.5 PROHIBITED TRANSACTIONS. Seller shall not effect any business transactions, or agree to effect any business transactions, with Affiliates, Trust Managers or employees of Seller except in the ordinary course of business and unless the consideration paid by Seller in any such business transaction is fair value at market rates, or approved by Seller's shareholders in accordance with applicable state law. 6.6 SELLER/BUYER REGISTRATION RIGHTS AGREEMENT. Contemporaneously with the First Closing Date, MSRE, MSAM on behalf of the MSAM Purchasers and Seller shall enter into a Registration Rights Agreement substantially in the form of Exhibit B. -32- 38 6.7 REIT QUALIFICATION. Seller shall take all actions necessary to maintain Seller's qualification as a REIT and, without the written consent of MSAM, shall take no action that would cause Seller not to qualify as a REIT or fail to take any action that would preserve Seller's qualification as a REIT. Seller covenants and agrees that (i) it will duly and promptly notify MSAM upon becoming aware that any "qualified trust" holds or is expected to hold, directly or indirectly, more than 10% of the interests in Seller, and (ii) it will provide MSAM such information and/or verification as MSAM shall reasonably request in order to verify whether Seller constitutes a "pension-held REIT" as defined under Section 856(h)(3)(C) of the Code. 6.8 PREEMPTIVE RIGHTS. In the event that Seller shall at any time subsequent to the date of this Agreement issue any Common Shares to any Person or Persons (other than (i) Common Shares issued to Realco in connection with the conversion of the Realco Debt to Common Shares, (ii) Common Shares issued pursuant to an employee share option, share purchase, share incentive or compensation plan or (iii) Common Shares issued to any partners in Affiliates of Realco in connection with the merger of such Affiliates with and into Seller) (each such issuance, a "Subsequent Offering")), Buyers shall have the right to purchase, on the same terms and conditions as the other purchasers in the Subsequent Offering, Common Shares in an amount not to exceed, in the aggregate, such number of Common Shares as is equal to the total number of Common Shares offered in the Subsequent Offering times a fraction, the numerator of which is the number of Common Shares then owned by Buyers in the aggregate and the denominator of which is the total number of Common Shares outstanding immediately prior to such Subsequent Offering, in such proportion with respect to each Buyer as specified on Exhibit A hereto (subject to the Share Ownership Limitation). Notwithstanding the foregoing, with respect to each Subsequent Offering by Seller in the amount of $10 million or more, the amount of shares Buyers may purchase in the aggregate pursuant to such Preemptive Rights shall be reduced by 5% of the total Common Shares outstanding (on a fully-diluted basis) after each such Subsequent Offering. The Buyers' Preemptive Rights will immediately terminate once Seller achieves a Minimum Equity Capitalization. 6.9 DEBT. Neither Seller, any Subsidiary or any Seller Partnership shall, without the prior written consent of MSAM (i) incur, create, assume, guarantee or in any way become liable for, or permit to exist, any Debt prior to such time as the Seller achieves a Minimum Equity Capitalization, except to the extent the proceeds of such Debt is to be used to acquire real property, and such acquisition occurs within 90 days of the date such Debt is incurred; or (ii) issue or have outstanding any Preferred Shares, or any warrants, options, conversion rights or other rights to subscribe for, purchase or acquire any Preferred Shares, prior to such time as the Seller achieves Minimum Equity Capitalization. 6.10 FURNISH DOCUMENTS. (a) Seller shall furnish or cause to be furnished to MSAM within five Business Days after Seller is required to file the same with the Commission , copies of the periodic information, documents and other reports which Seller is required to file with the Commission pursuant to Section 13(a) of the Exchange Act. If Seller ceases to be required to file information, documents and other reports pursuant to Section 13 of the Exchange Act, it shall remain obligated to furnish the same information, documents and reports otherwise required under Section -33- 39 13(a) of the Exchange Act to MSAM within five Business Days after Seller would have been required to file the same with the Commission; and (b) Seller shall furnish or cause to be furnished to MSAM, within five Business Days after the effective date thereof, copies of any amendment or modification to its Charter Documents. 6.11 TAXES. Seller shall, and shall cause each Subsidiary and Seller Partnership to, pay, when due, all taxes, assessments and governmental charges or levies imposed upon it and all claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and any other like person or entity which, if unpaid, might result in the creation of a lien upon the income of Seller or its assets; provided that items of the foregoing description need not be paid while being contested in good faith and by appropriate proceedings and adequate reserves with respect thereto have been provided on the books of Seller, such Subsidiary of such Seller Partnership, as the case may be. 6.12 ADDITIONAL INFORMATION Seller shall execute and deliver or cause to be executed and delivered to MSAM upon MSAM's reasonable request such other and further instruments or documents as in the reasonable judgment of MSAM and Seller are necessary to conform, create, evidence, preserve or maintain Buyers' rights in the Shares, and Seller shall do all such additional acts, give such assurances and execute such instruments as MSAM may reasonably require to vest more completely in and assure to Buyers their rights in the Shares. SECTION 7. GENERAL CONDITIONS OF PURCHASE The obligations of the parties to effect each Closing shall be subject to the following conditions unless waived in writing by all parties: 7.1 NO ORDERS. No Law or Order shall have been enacted, entered, issued, promulgated or enforced by any Governmental Entity which prohibits or restricts the transactions contemplated by this Agreement. No Governmental Entity shall have notified any party to this Agreement that consummation of the transactions contemplated by this Agreement would constitute a violation of any Law of any jurisdiction or that it intends to commence proceedings to restrain or prohibit such transactions or force divestiture or rescission, unless such Governmental Entity shall have withdrawn such notice and abandoned any such proceedings prior to the time which otherwise would have been the applicable Closing Date. 7.2 APPROVALS. To the extent required by applicable Law, all Permits and Approvals required to be obtained in connection with each Closing from any Governmental Entity or any consent from a third party material to Seller or its business shall have been received or obtained on or prior to the applicable Closing Date. -34- 40 7.3 ABSENCE OF LITIGATION. No Action before any Governmental Entity pertaining to the transactions contemplated by this Agreement shall have been instituted on or before the applicable Closing Date whether or not any of the parties hereto or its Affiliates is a party. 7.4 NEW YORK STOCK EXCHANGE. Assuming receipt of Shareholder Approval, the Shares shall have been approved for listing, upon official notice of issuance, on the New York Stock Exchange. Seller will use its best efforts to maintain the listing of its Common Shares on the New York Stock Exchange. 7.5 SHAREHOLDER APPROVAL. Seller shall have received Shareholder Approval. SECTION 8. CONDITIONS TO OBLIGATIONS OF BUYERS The obligations of Buyers to effect each Closing shall be subject to the following conditions except to the extent waived in writing by MSAM: 8.1 ACCURACY OF SELLER'S REPRESENTATIONS AND WARRANTIES. All representations and warranties of Seller set forth in this Agreement shall be true and correct in all material respects on the applicable Closing Date as if made on and as of such Closing Date. 8.2 PERFORMANCE BY SELLER. Seller shall have in all material respects performed, satisfied and complied with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by Seller on or before the applicable Closing Date, including the covenants set forth in Section 5. 8.3 NO MATERIAL ADVERSE CHANGE. During the period from December 31, 1996 to the applicable Closing Date, (i) there shall not have been any material adverse change or any development involving a material adverse change in the condition (financial or otherwise) of Seller, any Subsidiary or any Seller Partnership, taken as a whole, or in the earnings, business, prospects or operations of Seller, any Subsidiary or any Seller Partnership, taken as a whole, and (ii) there shall not have occurred any material adverse change in the financial markets in the United States, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, in each case the effect of which is such as to, in the judgment of MSAM, significantly impair the marketability or value of the Shares, (iii) the trading in any securities of Seller shall not have been suspended or limited by the Commission or the New York Stock Exchange, trading generally on the American Stock Exchange or the New York Stock Exchange or in the Nasdaq National Market shall not have been suspended or limited, minimum or maximum prices for trading shall not have been fixed, and maximum ranges for prices shall not have been required, by any of said exchanges or by such system or by order of the Commission, the National Association of Securities Dealers, Inc. or any other Governmental Entity, and (iv) a banking moratorium shall not have been declared by Federal, Texas or New York authorities. -35- 41 8.4 CERTIFICATION BY SELLER. MSAM shall have received a certificate, addressed to MSAM and each Buyer and dated as of the applicable Closing Date, signed by the President of Seller, certifying, in such detail as MSAM and its counsel reasonably may request, that all of the conditions specified in Section 8 have been fulfilled. 8.5 OPINION OF SELLER'S COUNSEL. MSAM shall have received from counsel for Seller an opinion, addressed to MSAM and each Buyer and dated as of the applicable Closing Date, in form and substance reasonably satisfactory to MSAM as to the matters set forth in Schedule 8.5. 8.6 SCHEDULES. Seller shall have delivered to MSAM updated Schedules, if any, to this Agreement. 8.7 REALCO CONSENT. Seller shall have received all necessary consents or waivers from Realco in connection with the matters contemplated by this Agreement. SECTION 9. CONDITIONS TO OBLIGATIONS OF SELLER The obligations of Seller to effect each Closing shall be subject to the following conditions, except to the extent waived in writing by Seller: 9.1 ACCURACY OF BUYERS' REPRESENTATIONS AND WARRANTIES. All representations and warranties of MSRE and MSAM set forth in this Agreement shall be true and correct in all material respects on the applicable Closing Date as if made on and as of such Closing Date. 9.2 BUYERS' PERFORMANCE. MSRE and MSAM shall have in all material respects performed, satisfied and complied with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by MSRE and MSAM on or before the applicable Closing Date. 9.3 CERTIFICATION. Seller shall have received a certificate, dated as of the applicable Closing Date, signed by the President or a Vice President of MSAM and MSRE, certifying, in such detail as Seller and its counsel reasonably may request, that the conditions specified in Section 9 have been fulfilled. 9.4 OPINION OF COUNSEL. Seller shall have received from counsel to MSRE and MSAM an opinion, dated as of the applicable Closing Date, in form and substance reasonably satisfactory to Seller as to the matters set forth in Schedule 9.4. 9.5 REIT STATUS. The purchase of Shares by the Buyers will not cause Seller to lose its status as a REIT under the Code. SECTION 10. TERMINATION OF OBLIGATIONS; SURVIVAL -36- 42 10.1 TERMINATION OF AGREEMENT. This Agreement and the transactions contemplated by this Agreement may be terminated at any time before the Final Closing Date, as follows and in no other manner: (a) MUTUAL CONSENT. By mutual consent in writing of MSAM and Seller. (b) MISREPRESENTATION OR MATERIAL BREACH. By MSAM or Seller with written notice to the other parties if there has been a misrepresentation or material breach on the part of Seller, MSRE or MSAM respectively, in their respective representations, warranties and covenants set forth herein, which, with respect to a breach of a covenant, if curable, has not been cured within 10 business days after receipt of notice from MSAM or Seller of the terminating party's intention to terminate. (c) ENVIRONMENTAL NONCOMPLIANCE. By MSAM in the event of the discovery of any Release or other matter prior to any Closing Date which, if known to Seller as of the date of this Agreement, would have constituted a breach of the representations and warranties contained in Section 3.17. 10.2 SHAREHOLDER APPROVAL. If Seller does not receive Shareholder Approval at the Annual Meeting, this Agreement shall terminate automatically without any further action by or on behalf of any of the parties hereto. 10.3 EFFECT OF TERMINATION. In the event that this Agreement shall be terminated pursuant to Section 10.1 or Section 10.2, all further obligations of the parties under this Agreement shall terminate; provided that the obligations of the parties contained in this Section 10.3, Section 11, and Section 12 (other than Sections 12.3 and 12.8) shall survive any such termination. A termination under Section 10.1 shall not relieve any party of any liability for a breach of, or for any misrepresentation under, this Agreement, or be deemed to constitute a waiver of any available remedy (including specific performance if available) for any such breach or misrepresentation. 10.4 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. (a) The representations and warranties contained in or made pursuant to this Agreement shall expire on the third anniversary of the Final Closing Date except that (a) the representations and warranties contained in Section 3.2 shall continue forever (subject to all defenses of Seller available under applicable Law, including the expiration of the applicable statute of limitations period), (b) the representations and warranties contained in Section 3.14 shall continue through the applicable statute of limitations, (c) representations and warranties which are intentionally misrepresented shall continue through the later of the first anniversary of the Final Closing Date and one year following the date of actual discovery of such intentional misrepresentation, and (d) if a claim or notice is given under Section 12 with respect to the breach of any representation or warranty prior to the applicable expiration date, such representation or warranty shall continue indefinitely until such claim is finally resolved. (b) All covenants and agreements of the parties hereto shall be continuing and shall survive each Closing Date pursuant to the terms thereof. -37- 43 (c) The provisions of Section 11.1 through Section 11.5 and Section 12.12 shall survive and remain in full force and effect with respect to MSAM notwithstanding any termination of MSAM's appointment as agent on behalf of any or all of the MSAM Purchasers hereunder. SECTION 11. INDEMNIFICATION 11.1 INDEMNIFICATION. In partial consideration of the commitment of the Buyers hereunder, Seller agrees to indemnify and hold harmless MSAM, each Buyer and any of their respective affiliates, directors, officers, agents and employees and each other person, if any, controlling MSAM or any Buyer or any of their respective affiliates (each a "Buyer Indemnified Person") from and against any losses, claims, damages or liabilities (or actions in respect thereof) to which such Buyer Indemnified Person may become subject in connection with the matters which are the subject of the commitment made hereunder (including any use or proposed use of the proceeds from the sale of the Common Shares) and will reimburse any Buyer Indemnified Person for all reasonable expenses (including the reasonable fees of counsel) as they are incurred by any such Buyer Indemnified Person in connection with investigating, preparing or defending any such action or claim pending or threatened, whether or not such Buyer Indemnified Person is a party hereto. Seller shall not be responsible for any losses, claims, damages, liabilities or expenses resulting from such Buyer Indemnified Person's gross negligence or willful misconduct. Seller also agrees that no Buyer Indemnified Person shall have any liability (whether direct or indirect, in contract or tort or otherwise) to Seller for or in connection with this Agreement except for losses, claims, damages, liabilities or expenses to the extent that a court of competent jurisdiction or arbitration panel shall have finally determined that such losses, claims, damages, liabilities or expenses resulted from such Buyer Indemnified Persons's gross negligence or willful misconduct. In the event that the foregoing indemnity is unavailable or insufficient to hold a Buyer Indemnified Person harmless, Seller shall contribute to amounts paid or payable by such Buyer Indemnified Person in respect of such losses, claims, damages, liabilities and expenses in such proportion as appropriately reflects the relative benefits received by, and fault of Seller, on the one hand, and the Buyers, on the other hand, in connection with the matters as to which such losses, claims, damages, liabilities or expenses relate. The agreement of Seller in this paragraph shall be in addition to any other liability that Seller may otherwise have. 11.2 OBLIGATIONS OF BUYERS. Each Buyer, severally and not jointly, agrees to indemnify, defend and hold harmless Seller and its Trust Managers, officers, employees, agents, directors and Affiliates (collectively, the "SELLER INDEMNIFIED PARTIES") from and against any and all Losses of the Seller Indemnified Parties as a result of, or based upon or arising out of, directly or indirectly, (a) any material inaccuracy in, or material breach or material nonperformance of, any of the representations, warranties, covenants or agreements made by such Buyer in, or pursuant to, this Agreement, or (b) any pending or threatened Action brought by such Buyer's shareholders or creditors relating to, or arising out of or in connection with, directly or indirectly, the transactions contemplated under this Agreement; provided, however, that such Buyer shall not be obligated to indemnify, defend or hold harmless any of the Seller Indemnified Parties for any claims based solely on actions taken by any of the Seller Indemnified Parties other than the performance of the covenants and agreements to be -38- 44 undertaken by Seller pursuant to the terms and conditions of this Agreement and any other action authorized in writing by such Buyer. As a condition to the rights of any of the Seller Indemnified Parties under this Section 11, such Buyer may require that any such Person provide a written undertaking that such Person will repay to such Buyer any amount expended by such Buyer to indemnify, defend or hold harmless such Person in the event and to the extent a court determines that such Buyer's indemnification or defense of such Person is prohibited by applicable Law. The agreement of each Buyer in this paragraph shall be in addition to any other liability that each Buyer may otherwise have. 11.3 PROCEDURE. (a) NOTICE. Any party seeking indemnification with respect to any Loss shall give notice to the party required to provide indemnity hereunder (the "INDEMNIFYING PARTY") on or before the date specified in Section 11.4. (b) DEFENSE OF CLAIM. If any claim, demand or liability is asserted by any third party against any Indemnified Party, the Indemnifying Party shall have the right, unless otherwise precluded by applicable law, to conduct and control the defense, compromise or settlement of any Action or threatened Action brought against the Indemnified Party in respect of matters embraced by the indemnity set forth in this Section 11. The Indemnified Party shall have the right to employ counsel separate from counsel employed by the Indemnifying Party in connection with any such Action or threatened Action and to participate in the defense thereof, but the fees and expenses of such counsel employed by the Indemnified Party shall be at the sole expense of the Indemnified Party unless (i) the Indemnifying Party shall have elected not, or, after reasonable written notice of any such Action or threatened Action, shall have failed, to assume or participate in the defense thereof, (ii) the employment thereof has been specifically authorized by the Indemnifying Party in writing, or (iii) the parties to any such Action or threatened Action (including any impleaded parties) include both the Indemnifying Party and the Indemnified Party and the Indemnified Party shall have been advised in writing by counsel for the Indemnified Party that there may be one or more defenses available to the Indemnified Party that are not available to the Indemnifying Party or legal conflicts of interest pursuant to applicable rules of professional conduct between the Indemnifying Party and the Indemnified Party (in any which case, the Indemnifying Party shall not have the right to assume the defense of such Action on behalf of the Indemnified Party), in either of which events referred to in clauses (i), (ii) and (iii) the fees and expenses of such counsel employed by the Indemnified Party shall be at the expense of the Indemnifying Party. The Indemnifying Party shall not, without the written consent of the Indemnified Party, settle or compromise any such Action or threatened Action or consent to the entry of any judgment which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the Indemnified Party a release from all liability in respect of such Action or threatened Action. Unless the Indemnifying Party shall have elected not, or shall have after reasonable written notice of any such Action or threatened Action failed, to assume or participate in the defense thereof, the Indemnified Party may not settle or compromise any Action or threatened Action without the written consent of the Indemnifying Party. If, after reasonable written notice of any such Action or threatened Action, the Indemnifying Party neglects to defend the -39- 45 Indemnified Party, a recovery against the latter suffered by it in good faith, is conclusive in its favor against the Indemnifying Party; provided, however, that no such conclusive presumption shall be made if the Indemnifying Party has not received reasonable written notice of the Action against the Indemnified Party. 11.4 SURVIVAL. The indemnity set forth in this Section 11 shall survive each Closing or any termination of this Agreement and shall remain in effect for a period of (a) with respect to a breach of a representation or warranty, for the period through which such representation or warranty shall continue pursuant to Section 10.4 (including such period of time through which such representation or warranty shall be extended until resolution of a claim with respect thereto) and (b) with respect to a breach of a covenant or agreement or an Action referred to in Sections 11.1 or 11.2(b), forever. 11.5 NOTICE BY SELLER. Seller, MSRE and MSAM agree to notify in writing the other parties of any liabilities, claims or misrepresentations, breaches or other matters covered by this Section 11 upon discovery or receipt of notice thereof (other than from such other parties), whether before or after any Closing Date. SECTION 12. GENERAL 12.1 AMENDMENTS; WAIVERS. This Agreement and any Schedule or Exhibit attached hereto or referenced herein may be amended only by agreement in writing of all parties. No waiver of any provision nor consent to any exception to the terms of this Agreement shall be effective unless in writing and signed by the party to be bound and then only to the specific purpose, extent and instance so provided. 12.2 SCHEDULES; EXHIBITS; INTEGRATION. Each Exhibit and Schedule delivered pursuant to the terms of this Agreement shall be in writing and shall constitute a part of the Agreement. This Agreement, together with such Exhibits and Schedules, constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior agreements and understandings of the parties in connection therewith. 12.3 BEST EFFORTS; FURTHER ASSURANCES. Each party will use its best efforts to cause all conditions to its obligations to be timely satisfied and to perform and fulfill all obligations on its part to be performed and fulfilled under this Agreement. The parties shall cooperate with each other in such actions and in securing requisite Approvals. Each party shall execute and deliver such further certificates, agreements and other documents and take such other actions as the other party may reasonably request to consummate or implement the transactions contemplated hereby or to evidence such events or matters, including the seeking of any necessary shareholder approvals. 12.4 GOVERNING LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF NEW -40- 46 YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION (WHETHER OF THE STATE OF TEXAS OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK. 12.5 NO ASSIGNMENT. Except as otherwise specifically provided herein, neither this Agreement nor any rights or obligations under it are assignable by any party, except that MSAM may assign the commitment of any MSAM Purchaser to purchase Shares hereunder, and the related rights and remedies of such MSAM Purchaser, to any other client on behalf of whom it or any of its Affiliates acts as investment advisor, whether or not such client is initially an MSAM Purchaser hereunder and (ii) any one or more MSAM Purchasers may at any time subsequent to the date hereof appoint a successor agent to act on their behalf in connection with the matters contemplated herein. 12.6 HEADINGS. The descriptive headings of the Sections and subsections of this Agreement are for convenience only and do not constitute a part of this Agreement. 12.7 COUNTERPARTS. This Agreement and any other agreement or document delivered pursuant hereto may be executed in one or more counterparts and by different parties in separate counterparts. All of such counterparts shall constitute one and the same agreement or other document and shall become effective when one or more counterparts of this Agreement have been signed by each party and delivered to the other parties. 12.8 PUBLICITY AND REPORTS. Seller and MSAM shall coordinate all publicity relating to the transactions contemplated by this Agreement and no party shall issue any press release, publicity statement or other public notice relating to this Agreement, or the transactions contemplated by this Agreement, without obtaining the prior consent of the other parties, except to the extent that independent legal counsel to Seller or MSAM, as the case may be, shall advise the other parties in writing that a particular action is required by applicable Law (in which event the party taking such action shall cooperate with the other party in connection with any disclosure or publicity resulting from such action). 12.9 CONFIDENTIALITY. All information disclosed by any party (or its representatives) to the other party whether before or after the date hereof, in connection with the transactions contemplated by, or the discussions and negotiations preceding, this Agreement to any other party (or its representatives) shall be kept confidential by such other party and its representatives and shall not be used by any such Persons other than as contemplated by this Agreement, except (a) to the extent that such information (i) was known by the recipient when received, (ii) is or hereafter becomes lawfully obtainable from other public sources or (iii) is necessary or appropriate to be disclosed to a Governmental Entity having jurisdiction over the parties, (b) as may otherwise be required by Law to be disclosed or (c) to the extent such duty as to confidentiality is waived in writing by the other parties. Notwithstanding the foregoing, MSAM shall be entitled to disclose information relating to this Agreement and the transactions contemplated hereby to any client on behalf of whom it or any of its Affiliates acts as investment advisor, in connection with a contemplated investment by such -41- 47 client in Seller as described herein. If this Agreement is terminated in accordance with its terms, each party shall use all reasonable efforts to return upon written request from the other parties all documents (and reproductions thereof) received by it or its representatives from such other parties (and, in the case of reproductions, all such reproductions made by the receiving party) that include information not within the exceptions contained in the first sentence of this Section 12.9, unless the recipients provide assurances reasonably satisfactory to the requesting party that such documents have been destroyed. 12.10 PARTIES IN INTEREST. This Agreement shall be binding upon and inure to the benefit of each party, and nothing in this Agreement, express or implied, is intended to confer upon any other Person any rights or remedies of any nature whatsoever under or by reason of this Agreement. Nothing in this Agreement is intended to relieve or discharge the obligation of any third Person to or to confer any right of subrogation or action over or against any party to this Agreement. 12.11 NOTICES. Any notice or other communication hereunder must be given in writing and (a) either delivered in person, (b) transmitted by telex, telefax or telecopy mechanism, (c) mailed by first class mail, return receipt requested, or (d) delivered by overnight mail or courier service, as follows: If to MSAM or any Buyer, addressed to: Morgan Stanley Asset Management 1221 Avenue of the Americas New York, New York 10020 Attention: Russell Platt, President Telecopy: (212) 762-7536 If to Seller, addressed to: American Industrial Properties REIT 6220 North Beltline Road, Suite 205 Irving, Texas 75063-2656 Attention: Mr. Charles W. Wolcott President and Chief Executive Officer Telecopy: (972) 550-6037 or to such other address or to such other person as any party shall have last designated by such notice to the other parties. Each such notice or other communication shall be effective (i) if given by telecommunication, when transmitted to the applicable number so specified in this Section 12.11 and an appropriate answer back is received, (ii) if given by mail, three days after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, when actually delivered at such address. -42- 48 12.12 EXPENSES. Except as set forth in the next sentence, each of the parties hereto shall pay its own respective expenses incident to the negotiation, preparation and performance of this Agreement and the transactions contemplated hereby, including but not limited to the fees, expenses and disbursements of its respective financial advisers, accountants and counsel. Seller shall reimburse MSAM for all legal fees incurred by MSAM relating to the transactions contemplated by this Agreement and the Registration Rights Agreement up to a maximum of $50,000. 12.13 REMEDIES; WAIVER. All rights and remedies existing under this Agreement and any related agreements or documents are cumulative to and not exclusive of any rights or remedies otherwise available under applicable Law. No failure on the part of any party to exercise or delay in exercising any right hereunder shall be deemed a waiver thereof, nor shall any single or partial exercise preclude any further or other exercise of such or any other right. Each of the parties hereto shall be entitled to seek any equitable remedy to the extent such remedy is available under applicable Law. 12.14 REPRESENTATION BY COUNSEL; INTERPRETATION. Each of the parties hereto acknowledges that each party to this Agreement has been represented by counsel in connection with this Agreement and the transactions contemplated by this Agreement. Accordingly, any rule of Law or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the party that drafted it has no application and is expressly waived. The provisions of this Agreement shall be interpreted in a reasonable manner to effect the intent of the parties hereto, and no rule of strict construction shall be applied against any party to this Agreement. 12.15 SEVERABILITY. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any current or future law, and if the rights or obligations of the parties under this Agreement would not be materially and adversely affected thereby, such provision shall be fully separable, and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part thereof, and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance therefrom. In lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as a part of this Agreement, a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible, and the parties hereto request the court or any arbitrator to whom disputes relating to this Agreement are submitted to reform the otherwise illegal, invalid or unenforceable provision in accordance with this Section 12.15. 12.16 ARBITRATION. In the event of a dispute hereunder which cannot be resolved by the parties, such dispute shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association and judgment on the award rendered by the arbitration panel may be entered in any court or tribunal of competent jurisdiction. Any arbitration occurring under this Section 12.16 shall be held in New York, New York in the first instance, in Dallas, Texas in the second instance, and continuing in that order with respect to each dispute occurring hereunder. -43- 49 12.17 AGENTS. (a) Seller acknowledges and agrees that MSAM is acting as agent on behalf of the MSAM Purchasers and that MSAM shall not have any liability to Seller, and shall not be obligated to purchase securities hereunder with respect to which any such MSAM Purchaser was obligated to but did not purchase. (b) In the event that MSAM shall no longer act as agent on behalf of any or all of the MSAM Purchasers in connection with the matters contemplated by this Agreement, then (i) any agent(s) appointed by such MSAM Purchasers as successor agent(s) to MSAM shall be entitled to, and to exercise on behalf of such MSAM Purchasers, all of the rights and remedies provided for herein with respect to MSAM and (ii) at any such time as no successor agent(s) shall have been appointed by any such MSAM Purchasers, such MSAM Purchasers shall be entitled to exercise all of the rights and remedies provided for herein in their individual capacity, including the right to obtain, upon request, copies of all documents and notices as specified herein. In the event that MSAM shall no longer act as agent on behalf of any of the MSAM Purchasers hereunder, all consents or waivers of MSAM necessary to effect any action hereunder shall be required to be given by any successor agent(s) appointed by such MSAM Purchasers or, if no successor(s) has been appointed, by such MSAM Purchasers, prior to the consummation of such action. (c) Until such time as Seller shall have received a written notice from any MSAM Purchaser that MSAM is no longer acting as such MSAM Purchaser's agent hereunder, Seller shall be entitled to rely on any instructions and any notices received from MSAM on behalf of such MSAM Purchaser as if received from such MSAM Purchaser directly. (d) Notwithstanding anything to the contrary provided herein, the parties hereto acknowledge and agree that MSRE shall be entitled to exercise any right or remedy provided for herein either through MSAM, if MSRE and MSAM shall so agree, or in its individual capacity, including the right to obtain, upon request, copies of all documents and notices as specified herein. In the event that MSAM shall no longer act as agent on behalf of any of the MSAM Purchasers hereunder, all consents or waivers of MSAM necessary to effect any action hereunder shall be required to be given by MSRE (as well as the MSAM Purchasers or any successor agent(s) as they shall have appointed) prior to the consummation of such action. "MSRE" MS REAL ESTATE SPECIAL SITUATIONS, INC. By: ----------------------------------- Name: --------------------------------- Title: ------------------------------- -44- 50 "BUYERS" MORGAN STANLEY ASSET MANAGEMENT, INC., as Agent and Attorney-in-fact for each of its clients listed on Exhibit A hereto By: ----------------------------------- Name: --------------------------------- Title: ------------------------------- "SELLER" AMERICAN INDUSTRIAL PROPERTIES REIT By: ----------------------------------- Charles W. Wolcott President and Chief Executive Officer -45- EX-10.6 7 REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 10.6 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "AGREEMENT") is made and entered into as of July 8, 1997, by and among American Industrial Properties REIT, a Texas real estate investment trust (the "COMPANY"), MS Real Estate Special Situations Inc., a Delaware corporation ("MSRE") and Morgan Stanley Asset Management Inc., a Delaware corporation ("MSAM"), acting as agent and attorney-in-fact on behalf of the clients listed on Schedule A hereto (the "MSAM PURCHASERS" and, together with MSRE, the "PURCHASERS"). WITNESSETH: WHEREAS, pursuant to that certain Common Share Purchase Agreement, dated as of June 20, 1997, among the Company, MSRE and MSAM, as agent for the MSAM Purchasers (the "PURCHASE AGREEMENT"), the Purchasers, severally and not jointly, agreed that they may purchase up to 8,163,265 Common Shares (the "SHARES") of the Company (subject to the Share Ownership Limitation described in the Purchase Agreement); and WHEREAS, pursuant to the terms of the Purchase Agreement, the Company, MSRE and MSAM agreed that the Company would grant certain registration rights to the Purchasers with respect to the Shares; NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Definitions. As used in this Agreement, the following capitalized terms shall have the following meanings: Closing Date: The closing date as defined in the Purchase Agreement. Common Shares: The common shares of beneficial interest, $.10 par value per share, of the Company. Exchange Act: The Securities Exchange Act of 1934, as amended from time to time. Participating Purchasers: With respect to any Registration Statement, any Purchasers holding any Registrable Securities covered by such Registration Statement. 2 Person: An individual, partnership corporation, limited liability company, trust or unincorporated organization, or a government or agency or political subdivision thereof. Preemptive Rights: See the Purchase Agreement. Prospectus: The prospectus included in any Registration Statement, as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement and by all other amendments and supplements to the prospectus, including post-effective amendments and all material incorporated by reference in such prospectus. Purchase Agreement: See the Recitals to this Agreement. Registrable Securities: (a) The Shares, (b) any securities issued or issuable with respect to the Shares by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise and (c) any additional Common Shares of the Company purchased by any Purchaser pursuant to the exercise of Preemptive Rights. Any Registrable Security will cease to be a Registrable Security when (i) a registration statement covering such Registrable Security has been declared effective by the SEC and the Registrable Security has been disposed of pursuant to such effective registration statement, (ii) the Registrable Security is sold under circumstances in which all of the applicable conditions of Rule l44 (or any similar provisions then in force) under the Securities Act are met, or (iii) the Registrable Security has been otherwise transferred, the Company has delivered a new certificate or other evidence of ownership for it not bearing a legend restricting further transfer, and it may be resold without subsequent registration under the Securities Act. Registration Expenses: See Section 5 hereof. Registration Statement: The Registration Statement of the Company that covers any of the Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus included therein, all amendments and supplements to such Registration Statement, including post-effective amendments, all exhibits and all material incorporated by reference in such Registration Statement. Requesting Purchasers: Any one or more Purchasers holding Registrable Securities representing in the aggregate not less than 25% of the aggregate Registrable Securities outstanding. SEC: The Securities and Exchange Commission or any successor entity. Securities Act: The Securities Act of 1933, as amended from time to time. Share Ownership Limitation: The limitation on ownership contained in Section 2.4 of the Purchase Agreement. 2 3 Shares: See the Recitals to this Agreement. Shelf Registration: See Section 2(a) hereof. Underwritten Registration or Underwritten Offering: A registration in which securities of the Company are sold to an underwriter for reoffering to the public. 2. Registration Rights. (a) Shelf Registration. Upon the written request of one or more Requesting Purchasers that the Company effect the registration under the Securities Act of such Requesting Purchasers' Registrable Securities pursuant to a "shelf" registration statement, the Company promptly will give written notice of such requested registration to all other Purchasers, and will thereafter file such a "shelf" registration statement on any appropriate form pursuant to Rule 415 (or similar rule that may be adopted by the SEC) under the Securities Act (a "SHELF REGISTRATION"), which Shelf Registration will cover (i) the Registrable Securities that the Company has been so requested to register by such Requesting Purchasers and (ii) all other Registrable Securities that the Company has been requested to register by any other Purchasers by written request given to the Company within 15 days after the Company's giving of written notice of the Requesting Purchasers' requested registration. The Company hereby agrees to file such registration statement as promptly as practicable following the request therefor, and in any event within 60 days following the date such request is received by the Company, and thereafter to use its commercially reasonable efforts to cause such Shelf Registration to become effective and thereafter to keep it continuously effective, and to prevent the happening of any event of the kind described in Section 4(c)(3), (4), (5) or (6) hereof that requires the Company to give notice pursuant to the last paragraph of Section 4 hereof, for a period terminating on the third year anniversary of the date on which the SEC declares the Shelf Registration effective, or such shorter period as shall terminate on the date on which all the Registrable Securities covered by the Shelf Registration have been sold pursuant to such Shelf Registration. The Company shall be obligated to file only one Shelf Registration and shall not be obligated to file a Shelf Registration if three Demand Registrations (hereinafter defined) have been effected under Section 2(b). The Company further agrees to promptly supplement or make amendments to the Shelf Registration, if required by the rules, regulations or instructions applicable to the registration form utilized by the Company or by the Securities Act or rules and regulations thereunder for shelf registration or if requested by Participating Purchasers holding in the aggregate in excess of 50% of the Registrable Securities covered by the Shelf Registration or any underwriter of the Registrable Securities. 3 4 If Participating Purchasers holding in the aggregate in excess of 50% of the Registrable Securities covered by the Shelf Registration so elect, the offering of Registrable Securities pursuant to such registration shall be in the form of an Underwritten Offering. (b) Demand Registration. At any time during the five year period following the Closing Date, one or more Requesting Purchasers may make a written request (the "DEMAND NOTICE") for registration under the Securities Act (a "DEMAND REGISTRATION") of the Registrable Securities held by such Requesting Purchasers. The Demand Notice will specify the number of shares of Registrable Securities proposed to be sold and will also specify the intended method of disposition thereof. Following receipt of a Demand Notice from such Requesting Purchasers, the Company promptly will give written notice of the requested registration to all other Purchasers, and will thereafter file a registration statement on any appropriate form which will cover (i) the Registrable Securities that the Company has been so requested to register by such Requesting Purchasers and (ii) all other Registrable Securities that the Company has been requested to register by any other Purchasers by written request given to the Company within 15 days after the Company's giving of written notice of the Requesting Purchasers' requested registration. Unless each Participating Purchaser shall consent in writing, no party (including the Company) other than any Purchaser, USAA Real Estate Company ("REALCO") or La Salle Advisory Limited Partnership ("LASALLE") shall be permitted to offer securities under any such Demand Registration. The Company shall not be required to effect more than three Demand Registrations under this Section 2(b). A registration requested pursuant to this Section 2(b) will not be deemed to have been effected (and it shall not count as one of the three Demand Registrations) unless the Registration Statement relating thereto has become effective under the Securities Act; provided, however that if, after such Registration Statement has become effective, the offering of the Registrable Securities pursuant to such registration is interfered with by any stop order, injunction or other order or requirement of the SEC or other governmental agency or court, such registration will be deemed not to have been effected (and it shall not count as one of the three Demand Registrations). Participating Purchasers holding in excess of 50% of the Registrable Securities covered by a Demand Registration may at any time prior to the effective date of the Registration Statement relating to such registration revoke a Demand Notice by providing a written notice to the Company (in which case such Demand Registration shall not count as one of the three Demand Registrations). If Participating Purchasers holding in the aggregate in excess of 50% of the Registrable Securities covered by the Demand Registration so elect, the offering of Registrable Securities pursuant to such registration shall be in the form of an Underwritten Offering. If the managing underwriter or underwriters of such offering advise the Company and the Participating Purchasers in writing that in their opinion the number of Registrable Securities and shares of Realco or LaSalle, if any, requested to be included in such offering is sufficiently large to materially and adversely affect the success of such offering, the Company will include in such registration the aggregate number of Registrable Securities and shares of Realco or LaSalle, if any, requested to be included which in the opinion of such managing underwriter or underwriters can be sold without any such material adverse effect; provided, however, that no Registrable Securities or shares of Realco or LaSalle, if any, may 4 5 be excluded before all shares proposed to be sold by any other parties, including the Company, have been excluded. If any Registrable Securities are excluded, such registration shall not count as one of the three Demand Registrations. If more than 5% of the amount of Registrable Securities proposed to be registered hereunder are required to be excluded pursuant to this paragraph, the number of Registrable Securities of each Participating Purchaser and the number of shares of Realco or LaSalle, if any, to be included in such registration shall be reduced pro rata (according to the total number of Registrable Securities or shares, as the case may be, beneficially owned by each such holder), to the extent necessary to reduce the total amount of securities to be included in the offering to the amount recommended by such managing underwriter or underwriters. No registration pursuant to a request or requests referred to in this subsection 2(b) shall be deemed to be a Shelf Registration. (c) Incidental Registration. If at any time during the five year period following the Closing Date, the Company proposes to file a registration statement under the Securities Act (other than in connection with the Shelf Registration, a Demand Registration or a Registration Statement on Form S-4 or S-8, or any form that is substituting therefor or is a successor thereto) with respect to an offering of any class of security by the Company for its own account or for the account of any of its security holders, then the Company shall give written notice of such proposed filing to all Purchasers as soon as practicable (but in no event less than thirty days before the anticipated filing date), and such notice shall (i) offer each Purchaser the opportunity to register such number of Registrable Securities as it may request and (ii) describe such securities and specifying the form and manner and other relevant facts involved in such proposed registration (including, without limitation, (x) whether or not such registration will be in connection with an Underwritten Offering and, if so, the identity of the managing underwriter and whether such Underwritten Offering will be pursuant to a "best efforts" or "firm commitment" underwriting and (y) the price (net of any underwriting commissions, discounts and the like) at which the Registrable Securities are reasonably expected to be sold, if such disclosure is acceptable to the managing underwriter). Each Purchaser shall advise the Company in writing within twenty (20) days after the date of receipt of such notice from the Company of the number of Registrable Securities for which registration is requested. The Company shall include in such Registration Statement all such Registrable Securities so requested to be included therein, and, if such registration is an Underwritten Registration, the Company shall use its commercially reasonable efforts to cause the managing underwriter or underwriters to permit the Registrable Securities requested to be included in the registration statement for such offering to be included (on the same terms and conditions as similar securities of the Company included therein to the extent appropriate); provided, however, that if the managing underwriter or underwriters of such offering deliver a written opinion to each Participating Purchaser that either because of (i) the kind of securities which such Purchasers, the Company, or any other Persons intend to include in such offering or (ii) the size of the offering which such Purchasers, the Company, or such other Persons intend to make, the success of the offering would be materially and adversely affected by inclusion of the Registrable Securities requested to be included, then (A) in the event that the size of the offering is the basis of such managing underwriter's opinion, the amount of securities to be offered for the account of each Participating Purchaser and other holders registering securities of the 5 6 Company pursuant to similar incidental registration rights shall be reduced pro rata (according to the Registrable Securities beneficially owned by each such holder) to the extent necessary to reduce the total amount of securities to be included in such offering to the amount recommended by such managing underwriter or underwriters; and (B) in the event that the combination of securities to be offered is the basis of such managing underwriter's opinion, (x) the Registrable Securities and other securities to be included in such offering shall be reduced as described in clause (A) above or, (y) if the actions described in clause (A) would, in the judgment of the managing underwriter, be insufficient to substantially eliminate the adverse effect that inclusion of the Registrable Securities requested to be included would have on such offering, such Registrable Securities will be excluded from such offering. No registration pursuant to a request or requests referred to in this subsection 2(c) shall be deemed to be a Shelf Registration. 3. Hold-Back Agreements. (a) Restrictions on Public Sale by Holder of Registrable Securities. Each Purchaser agrees, if reasonably requested by the managing underwriters in an Underwritten Offering, not to effect any public sale or distribution of securities of the Company of the same class as the securities included in the Registration Statement relating to such Underwritten Offering, including a sale pursuant to Rule 144 under the Securities Act (except as part of such Underwritten Offering), during the 10-day period prior to the filing of such Registration Statement, and during the 90-day period beginning on the closing date of each Underwritten Offering made pursuant to such Registration Statement, to the extent timely notified in writing by the Company or the managing underwriters. (b) Restrictions on Sale of Securities by the Company. The Company agrees not to effect, for its own account or for the account of any of its security holders, any public sale or distribution of any securities similar to those being registered, or any securities convertible into or exchangeable or exercisable for such securities (except pursuant to a registration statement on Form S-4 or S-8, or any substitute form that may be adopted by the SEC) during the ten days prior to the filing of a registration statement with respect to an Underwritten Offering, and during the 90-day period beginning on the effective date of such Registration Statement (except as part of such registration statement (x) where each Purchaser participating in such registration statement consents, (y) where any Purchasers are participating in such registration statement pursuant to Section 2(c) hereof, such registration statement was filed by the Company with respect to the sale of securities by the Company, and no Purchasers are simultaneously participating in a registration statement pursuant to Section 2(b) hereof, or (z) with respect to Realco or LaSalle, where such parties are participating in a Demand Registration pursuant to Section 2(b) hereof) or the commencement of a public distribution of Registrable Securities pursuant to such registr1ation statement. 4. Registration Procedures. In connection with the Company's registration obligations pursuant to Section 2 hereof, the Company will use its commercially reasonable efforts to effect such 6 7 registration to permit the sale of such Registrable Securities in accordance with the intended method or methods of distribution thereof, and pursuant thereto the Company will use commercially reasonable efforts to as expeditiously as possible: (a) prepare and file with the SEC, as soon as practicable, and in any event within 60 days from the date of request, a Registration Statement relating to the applicable registration on any appropriate form under the Securities Act, which forms shall be available for the sale of the Registrable Securities in accordance with the intended method or methods of distribution thereof and shall include all financial statements of the Company, and use its commercially reasonable efforts to cause such Registration Statement to become effective; provided that before filing a Registration Statement or Prospectus or any amendments or supplements thereto, including documents incorporated by reference after the initial filing of the Registration Statement, the Company will furnish each Participating Purchaser and the underwriters, if any, copies of all such documents proposed to be filed, which documents will be subject to the review of the Participating Purchasers and the underwriters, if any, and the Company will not file any Registration Statement or amendment thereto or any Prospectus or any supplement thereto (including such documents incorporated by reference) to which Participating Purchasers holding in the aggregate in excess of 50% of the Registrable Securities covered by such Registration Statement or the underwriters, if any, shall reasonably object (except in the case of a filing pursuant to Section 2(c) hereof); (b) prepare and file with the SEC such amendments and post-effective amendments to the Registration Statement as may be necessary to keep the Registration Statement effective for the applicable period, or such shorter period which will terminate when all Registrable Securities included in such Registration Statement have been sold; cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Securities Act; and comply with the provisions of all securities included in such Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the sellers thereof set forth in such Registration Statement or supplement to the Prospectus; the Company shall not be deemed to have used commercially reasonable efforts to keep a Registration Statement effective during the applicable period if it voluntarily takes any action that would result in any Participating Purchaser not being able to sell its Registrable Securities during that period unless such action is required under applicable law; provided that the foregoing shall not apply to actions taken by the Company in good faith and for valid business reasons, including without limitation the acquisition or divestiture of assets, so long as the Company promptly thereafter complies with the requirements of Section 4(1) hereof, if applicable; (c) notify each Participating Purchaser and the managing underwriters, if any, promptly, and (if requested by any such Person) confirm such advice in writing, (l) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to the Registration Statement or any post-effective amendment, when the same has become effective, (2) of any request by the SEC for amendments or supplements to the Registration Statement or the Prospectus or for additional information, (3) of the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings 7 8 for that purpose, (4) if at any time the representations and warranties of the Company contemplated by paragraph (n) below cease to be true and correct, (5) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose and (6) of the happening of any event which makes any statement made in the Registration Statement, the Prospectus or any document incorporated therein by reference untrue or which requires the making of any changes in the Registration Statement, the Prospectus or any document incorporated therein by reference in order to make the statements therein not misleading; (d) make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of the Registration Statement at the earliest possible moment; (e) if reasonably requested by the managing underwriter or underwriters or by Participating Purchasers holding in the aggregate in excess of 50% of the Registrable Securities covered by the Registration Statement, promptly incorporate in a Prospectus supplement or post-effective amendment such information as the managing underwriters and such Participating Purchasers agree should be included therein relating to the sale of the Registrable Securities, including, without limitation, information with respect to the number of Registrable Securities being sold to such underwriters, the purchase price being paid therefor by such underwriters and with respect to any other terms of the Underwritten (or best efforts underwritten) Offering of the Registrable Securities to be sold in such offering; and make all required filings of such Prospectus supplement or post-effective amendment as soon as notified of the matters to be incorporated in such Prospectus supplement or post-effective amendment; (f) furnish to each Participating Purchaser and each managing underwriter, if any, without charge, at least one signed copy of the Registration Statement and any post-effective amendment thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits (including those incorporated by reference); (g) deliver to each Participating Purchaser and the underwriters, if any, without charge, as many copies of the Prospectus (including each preliminary prospectus) and any amendment or supplement thereto as such Persons may reasonably request; the Company consents to the use of the Prospectus or any amendment or supplement thereto by any such Purchasers and the underwriters, if any, in connection with the offering and sale of the Registrable Securities covered by the Prospectus or any amendment or supplement thereto; (h) prior to any public offering of Registrable Securities, register or qualify or cooperate with each Participating Purchaser, the underwriters, if any, and their respective counsel in connection with the registration or qualification of such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions as any Participating Purchaser or any underwriter reasonably requests in writing and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by the Registration Statement; 8 9 (i) cooperate with the Participating Purchasers and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends; and enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriters may request at least two business days prior to any sale of Registrable Securities to the underwriters; (j) cause the Registrable Securities covered by the applicable Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable each Participating Purchaser or the underwriters, if any, to consummate the disposition of such Registrable Securities; (k) upon the occurrence of any event contemplated by Section 4(c)(6) above, prepare a supplement or post-effective amendment to the Registration Statement or the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading; (l) cause all Registrable Securities covered by the Registration Statement to be listed on each securities exchange on which similar securities issued by the Company are then listed; (m) enter into such agreements (including an underwriting agreement) and take all such other actions in connection therewith in order to expedite or facilitate the disposition of such Registrable Securities and in connection therewith, whether or not an underwriting agreement is entered into and whether or not the registration is an Underwritten Registration, (1) make such representations and warranties to each Participating Purchaser and the underwriters, if any, in form, substance and scope as are customarily made by issuers to underwriters in primary underwritten offerings; (2) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to each Participating Purchaser and the managing underwriters, if any, covering the matters customarily covered in opinions requested in Underwritten Offerings and such other matters as may be reasonably requested by any Participating Purchaser and the underwriters, if any; (3) obtain "cold comfort" letters and updates thereof from the Company's independent certified public accountants addressed to each Participating Purchaser and the underwriters, if any, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters by underwriters in connection with primary Underwritten Offerings; (4) if an underwriting agreement is entered into, the same shall set forth in full the indemnification provisions and procedures of Section 6 hereof with respect to all parties to be indemnified pursuant to said Section; and (5) deliver such documents and certificates as may be reasonably requested by any Participating Purchaser and the managing underwriters, if any, to evidence compliance with clause (1) above and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company. The above shall be done at each closing under such underwriting or similar agreement or as and to the extent required thereunder; 9 10 (n) make available for inspection by a representative of any Participating Purchaser, any underwriter participating in any disposition pursuant to such registration, and any attorney or accountant retained by any Participating Purchaser or any underwriter, all financial and other records, pertinent corporate documents and properties of the Company and cause the Company's officers, trust managers and employees to supply all information reasonably requested by any such representative, underwriter, attorney or accountant in connection with such registration; provided that any records, information or documents that the Company designates in writing as confidential shall be kept confidential by such Persons unless disclosure of such records, information or documents is required by court or administrative order; (o) otherwise use its commercially reasonable efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering a period of 12 months, beginning within three months after the effective date of the registration statement, which earnings statement shall satisfy the provisions of section 11(a) of the Securities Act; and (p) cooperate with the Participating Purchasers and each underwriter participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc. (the "NASD"). The Company may require each Purchaser to furnish to the Company such information regarding the distribution of Registrable Securities as the Company may from time to time reasonably request in writing. Each Purchaser agrees by acquisition of the Registrable Securities that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 4(1) hereof, such Purchaser will forthwith discontinue disposition of Registrable Securities until such Purchaser's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 4(1) hereof, or until it is advised in writing (the "ADVICE") by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in the Prospectus, and, if so directed by the Company, such Purchaser will deliver to the Company (at the Company's expense), all copies, other than permanent file copies then in such Purchaser's possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice. In the event the Company shall give any such notice, the time periods regarding the effectiveness of Registration Statements set forth in Section 2 hereof and Section 4(b) hereof shall be extended by the number of days during the period from and including the date of the giving of such notice pursuant to Section 4(c)(6) hereof to the date when such Purchaser shall receive copies of the supplemented or amended prospectus contemplated by Section 4(1) hereof or the Advice. 5. Registration Expenses. All expenses incident to the Company's performance of or compliance with this Agreement, including without limitation: all registration and filing fees; fees with respect to filings required to be made with the NASD; fees and expenses of compliance with 10 11 securities or blue sky laws (including reasonable fees and disbursements of counsel for the underwriters or the Purchasers in connection with blue sky qualifications of the Registrable Securities and determination of their eligibility for investment under the laws of such jurisdictions as the managing underwriters and the Purchasers may designate); printing expenses, messenger, telephone and delivery expenses; fees and disbursements of counsel for the Company and fees and expenses for independent certified public accountants retained by the Company (including the expenses of any comfort letters or costs associated with the delivery by independent certified public accountants of a comfort letter or comfort letters requested pursuant to Section 4(n) hereof); securities acts liability insurance, if the Company so desires; all internal expenses of the Company (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties); the expense of any annual audit; the fees and expenses incurred in connection with the listing of the securities to be registered on each securities exchange on which similar securities issued by the Company are then listed; and the fees and expenses of any Person, including special experts, retained by the Company (all such expenses being herein called "REGISTRATION EXPENSES") will be borne by the Company regardless of whether the Registration Statement becomes effective. The Company shall also reimburse MSAM for the fees and expenses of counsel incurred in connection with the transactions contemplated in the Purchase Agreement and the preparation of this Agreement, up to a maximum aggregate amount of $50,000. The Company shall not have any obligation to pay any underwriting fees, discounts or commissions attributable to the sale of Registrable Securities, or any legal fees and expenses of counsel to MSAM or any of the Purchasers, except as expressly provided herein. 6. Indemnification: Contribution. (a) Indemnification by Company. The Company agrees to indemnify and hold harmless MSAM and each Purchaser and their respective partners, officers, directors, employees and agents, and each Person who controls any such Persons (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) against all losses claims, damages, liabilities and expenses arising out of or based upon any untrue or alleged untrue statement of a material fact contained in any Registration Statement, Prospectus or preliminary prospectus or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same are caused by or contained in any information furnished in writing to the Company by MSAM or such Purchaser, as the case may be, expressly for use therein. The Company will also indemnify underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, their officers and trust managers and each Person who controls such Persons (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) to the same extent as provided above with respect to the indemnification of MSAM and each Purchaser, if requested. (b) Indemnification By Holder of Registrable Securities. Each Purchaser, severally and not jointly, agrees to indemnify and hold harmless the Company and its trust managers, officers, employees and agents, and each Person who controls the Company (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) against any losses, claims, damages, 11 12 liabilities and expenses resulting from any untrue statement of a material fact or any omission of a material fact required to be stated in the Registration Statement or Prospectus or preliminary prospectus or necessary to make the statements therein not misleading, to the extent, but only to the extent, that such untrue statement or omission is contained in any information or affidavit so furnished in writing by such Purchaser to the Company specifically for inclusion in such Registration Statement or Prospectus. In no event shall the liability of any Purchaser hereunder be greater in amount than the dollar amount of the proceeds received by such Purchaser upon the sale of the Registrable Securities giving rise to such indemnification obligation. The Company shall be entitled to receive indemnities from underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, to the same extent as provided above with respect to information so furnished in writing by such Persons specifically for inclusion in any Prospectus or Registration Statement. (c) Conduct of Indemnification Proceedings. Any Person entitled to indemnification hereunder will (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided, however that any Person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such Person unless (a) the indemnifying party has agreed to pay such fees or expenses, (b) the indemnifying party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory to such Person or (c) based upon written advice of counsel to such Person, there shall be one or more defenses available to such Person that are not available to the indemnifying party or there shall exist conflicts of interest pursuant to applicable rules of professional conduct between such Person and the indemnifying party (in which case, if the Person notifies the indemnifying party in writing that such Person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such claim on behalf of such Person), in each of which events the fees and expenses of such counsel shall be at the expense of the indemnifying party. The indemnifying party will not be subject to any liability for any settlement made without its consent (but such consent will not be unreasonably withheld), but if settled with its written consent, or if there be a final judgment for the plaintiff in any such action or proceeding, the indemnifying party shall indemnify and hold harmless the indemnified parties from and against any loss or liability (to the extent stated above) by reason of such settlement or judgment. No indemnified party will be required to consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. (d) Contribution. If for any reason the indemnification provided for in the preceding clauses (a) and (b) is unavailable to an indemnified party or insufficient to hold it harmless as contemplated by the preceding clauses (a) and (b), then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect not only the relative benefits received by the indemnified party and the indemnifying party, but also the relative fault of the indemnified party and 12 13 the indemnifying party, as well as any other relevant equitable considerations, provided, that no Purchaser shall be required to contribute an amount greater than the dollar amount of the proceeds received by such Purchaser with respect to the sale of the Registrable Securities giving rise to such indemnification obligation. The relative fault of the Company on the one hand and of the Purchasers on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such party, and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 10(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentations. 7. Rule 144. The Company hereby agrees that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder (or, if the Company is not required to file such reports, it will, upon the request of any Purchaser, make publicly available other information so long as necessary to permit sales pursuant to Rule 144 under the Securities Act), and it will take such further action as any Purchaser may reasonably request, all to the extent required from time to time to enable each Purchaser to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the SEC. Upon the request of any Purchaser, the Company will deliver to such Purchaser a written statement as to whether it has complied with such information and requirements. 8. Participation in Underwritten Registrations. (a) If any of the Registrable Securities covered by the Shelf Registration are to be sold in an Underwritten Offering (excluding under Section 2(c)), the investment banker or investment bankers and manager or managers that will administer the offering will be selected by Participating Purchasers holding in the aggregate in excess of 50% of the Registrable Securities covered thereby; provided that such investment bankers and managers must be reasonably satisfactory to the Company. (b) No Person may participate in any Underwritten Registration hereunder unless such Person (i) agrees to sell such Person's securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. Nothing in this Section 8 shall be construed to create any additional rights regarding the registration of Registrable Securities in any Person otherwise than as set forth herein. 9. Miscellaneous. (a) Remedies. Each party hereto, in addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, will be entitled to specific 13 14 performance of its rights under this Agreement to the extent available under applicable law. Each party hereto agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. (b) Third Party Registration Rights. The Company will not on or after the date of this Agreement, enter into any agreement granting registration rights to any other Person with respect to the securities of the Company that are not junior or subordinate to the rights granted to the Purchasers hereunder without the written consent of MSAM, other than registration rights granted on the same terms as herein with respect to the shares purchased, or to be purchased, by LaSalle pursuant to authority granted to the Company by its shareholders at the Annual Meeting. The Company has not previously entered into any agreement with respect to its securities granting any registration rights to any Person, other than the Registration Rights Agreement, dated as of December 19, 1996, between the Company and Realco. The Company hereby represents and warrants to each Purchaser that it has obtained all necessary consents or waivers of Realco in connection with the execution of this Agreement and the consummation of the transactions contemplated hereby. (c) MSAM as Agent. (i) The Company, MSRE, MSAM and each of the MSAM Purchasers acknowledge and agree that each of the MSAM Purchasers has initially appointed MSAM to act as its agent and attorney-in-fact in connection with the matters contemplated by this Agreement. Until such time as the Company shall have received a written notice from any MSAM Purchaser that MSAM is no longer acting as such Purchaser's agent hereunder, the Company shall be entitled to rely on any instructions and notices received from MSAM on behalf of such Purchaser as if received from such Purchaser directly. The parties hereto further acknowledge and agree that MSAM shall act solely as agent on behalf of the MSAM Purchasers in connection with the matters set forth in this Agreement, and that MSAM shall not, under any circumstances, have any liability to the Company in its individual capacity arising out of or in connection with this Agreement or the transactions contemplated hereby. (ii) The Company agrees that for so long as MSAM shall act as agent on behalf of any of the MSAM Purchasers hereunder, it shall deliver to MSAM copies of all documents and notices required to be delivered to the Participating Purchasers pursuant to Section 4 of this Agreement. (iii) In the event that any MSAM Purchaser shall at anytime subsequent to the date hereof appoint a successor agent to MSAM in connection with the matters set forth in this Agreement, such successor shall be entitled to, and to exercise on behalf of such MSAM Purchaser, all of the rights and remedies provided for herein with respect to MSAM or such MSAM Purchaser, as the case may be, and the rights and remedies of such MSAM Purchaser hereunder shall not in any way be modified, limited, delayed or impaired as a consequence of such appointment. 14 15 (iv) The provisions of Sections 5, 6 and of this Section 9(c) shall remain in full force and effect with respect to MSAM notwithstanding any termination of MSAM's appointment as agent on behalf of any or all of the MSAM Purchasers hereunder. (d) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given without the written consent of the Company, each Purchaser and, for so long as MSAM shall act as agent on behalf of any of the MSAM Purchasers, MSAM; provided, that the provisions of Sections 5, 6, and 9(c) may not, under any circumstances and notwithstanding any termination of MSAM's appointment as agent on behalf of any or all of the MSAM Purchasers hereunder, be amended, modified, supplemented or waived without the written consent of MSAM. (e) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, telecopier, or air courier guaranteeing overnight delivery: (i) if to MSAM, MSRE or any of the MSAM Purchasers, initially at 1221 Avenue of the Americas, 21st Floor, New York, New York 10020, Attention: Russell Platt, and thereafter at such other address as may be designated from time to time by notice given in accordance with the provisions of this Section 9(e). (ii) if to the Company, initially at 6220 Beltline Road, Suite 205 Irving, Texas 75063-2656, Attention: Charles W. Wolcott, President and Chief Executive Officer, and thereafter at such other address as may be designated from time to time by notice given in accordance with the provisions of this Section 9(e). (f) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent holders of Registrable Securities, provided further, that the Company cannot assign its rights hereunder except pursuant to a merger. (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) Governing Law. THIS AGREEMENT, AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO, SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL SUBSTANTIVE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAWS. 15 16 (j) Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any current or future law, and if the rights or obligations of the parties under this Agreement would not be materially and adversely affected thereby, such provision shall be fully separable, and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part thereof, and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance therefrom. In lieu of such illegal, invalid or unenforceable provision, there shall be added simultaneously as a part of this Agreement, a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible, and the parties hereto request the court or any arbitrator to whom disputes relating to this Agreement are submitted to reform the otherwise illegal, invalid or unenforceable provision in accordance with this Section 9(j). (k) Arbitration. In the event of a dispute hereunder which cannot be resolved by the parties, such dispute shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association and judgment on the award rendered by the arbitration panel may be entered in any court or tribunal of competent jurisdiction. Any arbitration occurring under this Section 9(k) shall be held in New York, New York in the first instance, in Dallas, Texas in the second instance, and continuing in that order with respect to each dispute occurring hereunder. (l) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. In any proceeding brought to enforce any provision of this Agreement the successful party shall be entitled to recover reasonable attorneys' fees in addition to its costs and expenses and any other available remedy. IN WITNESS WHEREOF, the parties hereto have executed this Registration Rights Agreement as of the date first written above. "COMPANY" AMERICAN INDUSTRIAL PROPERTIES REIT By: /s/ Charles W. Wolcott -------------------------------------- Charles W. Wolcott President and Chief Executive Officer 16 17 "MSRE" MS REAL ESTATE SPECIAL SITUATIONS INC. By: /s/ Russell C. Platt -------------------------------------- Russell C. Platt President "MSAM" MORGAN STANLEY ASSET MANAGEMENT INC., as agent and attorney-in-fact on behalf of the MSAM Purchasers By: /s/ Russell C. Platt -------------------------------------- Russell C. Platt Managing Director 17 18 SCHEDULE A MSAM Purchasers Stichting Pensioenfonds ABP Stichting Bedrijfspensioenfonds voor de Metaalnijverheid Morgan Stanley Real Estate Special Situations Fund II, L.P. Morgan Stanley Real Estate Special Situations Fund I, L.P. EX-10.7 8 COMMON SHARE PURCHASE AGREEMENT 1 EXHIBIT 10.7 COMMON SHARE PURCHASE AGREEMENT dated as of July 3, 1997 Between AMERICAN INDUSTRIAL PROPERTIES REIT and ABKB/LASALLE SECURITIES LIMITED PARTNERSHIP as Agent for and for the benefit of a particular client 2 TABLE OF CONTENTS SECTION 1. DEFINITIONS AND RULES OF CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1- 1.1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1- 1.2 RULES OF CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10- SECTION 2. PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11- 2.1 PURCHASE AND SALE OF THE COMMON SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11- 2.2 USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11- 2.3 CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11- SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11- 3.1 ORGANIZATION AND RELATED MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11- 3.2 CAPITAL STOCK; TITLE TO SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12- 3.3 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13- 3.4 SEC REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14- 3.5 AUTHORIZATION; NO CONFLICTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14- 3.6 LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15- 3.7 COMPLIANCE WITH LAW AND PERMITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16- 3.8 DIVIDENDS AND OTHER DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16- 3.9 CERTAIN INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16- 3.10 NO BROKERS OR FINDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17- 3.11 EMPLOYEE BENEFIT PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17- 3.12 LABOR MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18- 3.13 PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18- 3.14 TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20- 3.15 MATERIAL CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22- 3.16 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22- 3.17 ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22- 3.18 TRUST RECORDS; ACCOUNTING RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23- 3.19 NEW YORK STOCK EXCHANGE LISTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23- 3.20 DISCLOSURE OF FACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23- 3.21 PENSION-HELD REIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24- 3.22 SHAREHOLDER APPROVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24- SECTION 4. REPRESENTATIONS AND WARRANTIES OF INVESTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24- 4.1 ORGANIZATION AND RELATED MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24- 4.2 AUTHORIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24- 4.3 NO CONFLICTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24- 4.4 NO BROKERS OR FINDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24- 4.5 LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -25- 4.6 INVESTMENT REPRESENTATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -25- 4.7 LEGENDS; STOP-TRANSFER ORDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -25-
-i- 3 4.8 STATUS FOR REIT OWNERSHIP AND INCOME TESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26- 4.9 AUTHORITY OF THE INVESTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26- SECTION 5. COVENANTS WITH RESPECT TO CONDUCT OF SELLER PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . . -26- 5.1 ACCESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26- 5.2 MATERIAL ADVERSE CHANGES; SEC FILINGS; REPORTS; FINANCIAL STATEMENTS . . . . . . . . . . . . . . . -27- 5.3 CONDUCT OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27- 5.4 NOTIFICATION OF CERTAIN MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29- 5.5 ADJUSTMENT OF SHARE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29- SECTION 6. ADDITIONAL CONTINUING COVENANTS AND AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . -30- 6.1 USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30- 6.2 APPOINTMENT OF TRUST MANAGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -31- 6.3 ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32- 6.4 STATUS FOR REIT OWNERSHIP AND INCOME TESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32- 6.5 PROHIBITED TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32- 6.6 SELLER/BUYER REGISTRATION RIGHTS AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32- 6.7 REIT QUALIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32- 6.8 PREEMPTIVE RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32- 6.9 DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33- 6.10 FURNISH DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33- 6.11 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33- 6.12 ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34- 6.13 MSRE AND MSAM CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34- SECTION 7. GENERAL CONDITIONS OF PURCHASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34- 7.1 NO ORDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34- 7.2 APPROVALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34- 7.3 ABSENCE OF LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34- 7.4 NEW YORK STOCK EXCHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -35- 7.5 SHAREHOLDER APPROVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -35- SECTION 8. CONDITIONS TO OBLIGATIONS OF THE INVESTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . -35- 8.1 ACCURACY OF SELLER'S REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . -35- 8.2 PERFORMANCE BY SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -35- 8.3 NO MATERIAL ADVERSE CHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -35- 8.4 CERTIFICATION BY SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -35- 8.5 OPINION OF SELLER'S COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36- 8.6 SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36- 8.7 REALCO, MSRE AND MSAM CONSENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36- 8.8 ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36- 8.9 CLOSING OF MSRE AND MSAM PURCHASE TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . -36-
-ii- 4 SECTION 9. CONDITIONS TO OBLIGATIONS OF SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36- 9.1 ACCURACY OF THE INVESTOR'S REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . -36- 9.2 BUYERS' PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36- 9.3 CERTIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36- 9.4 OPINION OF COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37- 9.5 REIT STATUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37- SECTION 10. TERMINATION OF OBLIGATIONS; SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37- 10.1 TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37- 10.2 EFFECT OF TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37- 10.3 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS . . . . . . . . . . . . . . . . . . . . . . -37- SECTION 11. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -38- 11.1 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -38- 11.2 OBLIGATIONS OF THE INVESTOR AND THE PECUNIARY OWNER. . . . . . . . . . . . . . . . . . . . . . . -39- 11.3 PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39- 11.4 SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -40- 11.5 NOTICE BY SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -40- SECTION 12. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -40- 12.1 AMENDMENTS; WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -40- 12.2 SCHEDULES; EXHIBITS; INTEGRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -41- 12.3 BEST EFFORTS; FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -41- 12.4 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -41- 12.5 NO ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -41- 12.6 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -41- 12.7 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -41- 12.8 PUBLICITY AND REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -41- 12.9 CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -42- 12.10 PARTIES IN INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -42- 12.11 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -42- 12.12 EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -43- 12.13 REMEDIES; WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -43- 12.14 REPRESENTATION BY COUNSEL; INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . -43- 12.15 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -44- 12.16 ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -44- 12.17 AGENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -44-
-iii- 5 EXHIBITS EXHIBIT A Registration Rights Agreement SCHEDULES SCHEDULE 3.1 Jurisdictions; Officers and Trust Managers SCHEDULE 3.2 Capital Stock; Title to Shares SCHEDULE 3.3 Additional Liabilities or Contingencies SCHEDULE 3.5 Permits and Approvals SCHEDULE 3.6 Litigation SCHEDULE 3.7 Compliance with Law and Permits SCHEDULE 3.8 Dividends and Other Distributions SCHEDULE 3.9 Certain Interests SCHEDULE 3.11 Seller Benefit Plans SCHEDULE 3.13 Properties and Encumbrances SCHEDULE 3.14 Taxes SCHEDULE 3.15 Material Contracts SCHEDULE 3.16 Insurance SCHEDULE 3.17 Environmental Compliance SCHEDULE 3.18 Trust Records SCHEDULE 5.3 Conduct of Business SCHEDULE 8.5 List of Opinions of Seller's Counsel SCHEDULE 9.4 List of Opinions of Investor's Counsel -iv- 6 COMMON SHARE PURCHASE AGREEMENT THIS COMMON SHARE PURCHASE AGREEMENT (this "AGREEMENT") is made and entered into as of July 3, 1997, by and among AMERICAN INDUSTRIAL PROPERTIES REIT, a Texas real estate investment trust ("SELLER"), and ABKB/LASALLE SECURITIES LIMITED PARTNERSHIP, a registered investment advisor (the "Investor"), as agent for and for the benefit of a particular client. R E C I T A L S A. Seller qualifies and operates as a real estate investment trust for federal income tax purposes. B. Seller desires to sell to Investor, and Investor desires to purchase from Seller, the number of Common Shares having an aggregate purchase price as specified herein (the "Shares") upon the terms and subject to the conditions set forth in this Agreement. C. The proceeds from the sale of the Shares are to be used for the purposes set forth in this Agreement. A G R E E M E N T NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: SECTION 1. DEFINITIONS AND RULES OF CONSTRUCTION a. DEFINITIONS. The capitalized terms used in this Agreement, the Exhibits and the Schedules attached hereto shall have the meanings set forth below: "ACTION" means any action, complaint, investigation, suit or other proceeding, whether civil or criminal, in law or in equity, or before any mediator, arbitrator or Governmental Entity. "AFFILIATE" means a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, a specified Person. "AGREEMENT" means this Common Share Purchase Agreement, by and between Seller and the Investor, as agent for and for the benefit of a particular client, as amended from time to time pursuant to the terms of this Agreement, together with all Exhibits and all Schedules attached hereto. -1- 7 "ANNUAL MEETING" shall mean the Seller's annual meeting that was held on June 30, 1997. "APPROVAL" means any approval, authorization, consent, qualification or registration, or any waiver of the foregoing, or any notice, statement or other communication required to be filed with or delivered to any Governmental Entity or any other Person. "ASSOCIATE" of a Person means (i) a corporation or organization (other than Seller or a party to this Agreement) of which such Person is an officer or partner or is, directly or indirectly, the beneficial owner of 10% or more of any class of equity securities; (ii) any trust or other estate in which such Person has a substantial beneficial interest or as to which such Person serves as trustee or in a similar capacity; and (iii) any relative or spouse of such Person who has the same residence as such Person. "AUDITED FINANCIAL STATEMENTS" has the meaning set forth in Section 3.3(a) of this Agreement. "AUDITORS" means Ernst & Young, LLP, independent public accountants to Seller. "BANKRUPTCY CODE" means Title 11 of the United States Code entitled "Bankruptcy," as now and hereafter in effect, and any successor statute, as well as any existing or future law of any jurisdiction, foreign or domestic, relating to bankruptcy, insolvency, reorganization, conservatorship or relief of debtors. "BUSINESS DAY" means a day other than a Saturday, a Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. "CAPITALIZED LEASE" means any lease of property, real or personal, the obligations of the lessee in respect of which are required in accordance with GAAP to be capitalized on a balance sheet of the lessee. "CAPITALIZED LEASE OBLIGATION" means, as to any Person, the obligation of such Person to pay rent or other amounts under a Capitalized Lease and, for purposes of this Agreement, the amount of such obligation shall be the capitalized amount thereof, determined in accordance with GAAP. "CAPITAL STOCK" means any capital stock, beneficial interest or other equity interest, or any securities convertible into or exchangeable or exercisable for capital stock, beneficial interests -2- 8 or other equity interests, or any other rights, warrants or options to acquire any of the foregoing securities. "CHARTER DOCUMENTS" means Seller's Third Amended and Restated Declaration of Trust and Fourth Amended and Restated Bylaws as in effect as of the date of this Agreement. "CLOSING" has the meaning set forth in Section 2.3(a) of this Agreement. "CLOSING AGREEMENT" shall mean a written and legally binding agreement with a taxing authority relating to Taxes. "CLOSING DATE" means each date specified in Section 2.3(a) of this Agreement. "CODE" means the Internal Revenue Code of 1986, as amended, and, as applicable, the regulations promulgated thereunder. "COMMISSION" means the United States Securities and Exchange Commission or any successor entity. "COMMON SHARES" means common shares of beneficial interest, par value $.10 per share, of Seller. "CONTRACT" means any agreement, arrangement, bond, commitment, franchise, indemnity, indenture, instrument, lease, license or understanding, whether or not in writing. "CURRENTLY OUTSTANDING SHARES" has the meaning set forth in Section 2.4 of this Agreement. "DEBT" means, with respect to any Person, without duplication, and without regard to whether it is contingent or direct, (a) all indebtedness of such Person for borrowed money, (b) any obligation incurred for all or any part of the purchase price of property or services, other than accounts payable and accrued expenses included in current liabilities in accordance with GAAP and incurred in respect of property or services purchased in the ordinary course of business, (c) indebtedness or obligations evidenced by bonds, notes or similar written instruments, (d) all reimbursement obligations of such Person (whether contingent or otherwise) in respect of letters of credit, banker's acceptances, surety or other bonds and similar instruments, (e) any obligation (whether or not such Person has assumed or becomes liable for the payment of such obligation) secured by a lien on any property of such Person, (f) all Capitalized Lease Obligations of such Person and (g) all Guarantees by such Person of obligations of any other Person of the types referred to in the foregoing clauses (a) through (f), inclusive, excluding, (i) the payment of commissions to Prudential Securities Incorporated in connection with the transactions contemplated herein and approved at the Annual Meeting, and (ii) a $25 million line of credit from Prudential Securities Incorporated or its Affiliates (the "Prudential Line of Credit"). -3- 9 "ENCUMBRANCE" means any claim, charge, easement, encumbrance, lease, covenant, security interest, lien, option, pledge, rights of others, preferential right, right of first refusal or restriction (whether on voting, sale, transfer, disposition or otherwise), whether imposed by agreement, understanding, law, equity or otherwise, except that "Encumbrance" does not include any such item that (i) is reflected in the Audited Financial Statements or (ii) constitutes a statutory lien arising in the ordinary course of business. "ENVIRONMENTAL CLAIMS" means any of the following to the extent they relate to, or arise out of, directly or indirectly, Environmental Noncompliance with respect to the Properties or actual or alleged Environmental Conditions or any Notification which may lead to: (i) claims, demands, suits, causes of action for personal injury, death or property damage; (ii) claims for actual or threatened damages to natural resources; (iii) claims for the recovery of response costs, or administrative or judicial orders directing the performance of investigations, response or remedial actions under any Environmental Law; (iv) a requirement to implement "corrective action" pursuant to any restitution, contribution or equitable indemnity to third parties or any Governmental Entity; (v) fines, penalties, liens against the Properties; (vi) claims for injunctive relief or other orders or notices of violation from any Governmental Entity; or (vii) with regard to any present or former employees, tenants or guests, exposure to or injury from Environmental Conditions. "ENVIRONMENTAL CONDITIONS" means conditions of the environment, including the ocean, natural resources (including flora and fauna), soil, surface water, ground water, any actual or potential drinking or water supply, subsurface strata, or air, including ambient air, relating to or arising out of the use, handling, storage, treatment, recycling, generation, transportation, release, spilling, leaking, pumping, pouring, emptying, discharging, injecting, escaping, leaching, disposal, dumping or threatened release of Hazardous Materials from, in, on, or onto the Properties. "ENVIRONMENTAL NONCOMPLIANCE" means any of the following to the extent they are applicable to the Properties or alleged to be applicable to the Properties or to Seller, Subsidiaries or a Seller Partnership: (i) the Release of any Hazardous Material into the environment, any storm drain, sewer, septic system or publicly-owned treatment works, in violation of any effluent or emission limitations, standards or other criteria or guidelines established by any Environmental Law; (ii) any noncompliance of physical structure, equipment, process or premises with the requirements of building or fire codes, zoning or land use regulations or ordinances or conditional use permits; (iii) any noncompliance with federal, state or local requirements governing occupational safety and health; (iv) any operations, procedures and designs at or on the Properties which do not conform to the statutory or regulatory requirements of any Law (including land use regulations and ordinances) intended to protect public health, welfare and the environment; (v) the failure to have obtained permits, licenses, variances or other governmental authorizations necessary for the legal use and/or operation of any equipment, process or any activity at the Properties; or (vi) the operation and/or use of any process or equipment in violation of any permit condition, schedule of compliance, administrative or court order. -4- 10 "ENVIRONMENTAL PERMITS" has the meaning set forth in Section 3.17(a) of this Agreement. "EQUITABLE REMEDIES" has the meaning set forth in Section 3.5 of this Agreement. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "GAAP" means generally accepted accounting principles as in effect from time to time. "GOVERNMENTAL ENTITY" means any agency, bureau, commission, court, department, official, political subdivision, tribunal or other instrumentality of any government, whether federal, state or local, domestic or foreign. "GUARANTEE" means, with respect to any Person, any guarantee or other contingent liability (other than any endorsement for collection or deposit in the ordinary course of business and performance bonds, indemnities and similar obligations not guaranteeing or otherwise insuring payment of any Debt or other financial obligation), direct or indirect, of such Person with respect to any Debt or other obligation of another Person (including obligations under leases), through an agreement or otherwise, including (a) any other endorsement or discount with recourse or undertaking substantially equivalent to or having economic effect similar to a guarantee in respect of any such Debt or other obligations and (b) any agreement (i) to purchase, or to advance or supply funds for the payment or purchase of, any such obligations, (ii) to purchase, sell or lease property, products, materials or supplies, or transportation or services, in respect of enabling such other Person to pay any such obligation or to assure the owner thereof against loss regardless of the delivery or nondelivery of the property, products, materials or supplies or transportation or services or (iii) to make any loan, advance or capital contribution to or other investment in, or to otherwise provide funds to or for, such other Person in respect of enabling such Person to satisfy any obligation (including any liability for a dividend, stock liquidation payment or expense) or to assure a minimum equity, working capital or other balance sheet condition in respect of any such obligation. The amount of any Guarantee shall be equal to the outstanding amount of the obligations of such other Person directly or indirectly guaranteed. "HAZARDOUS MATERIALS" means any substance, matter, material, waste, solid, liquid, gas, or pollutant, the generation, storage, disposal, handling, recycling, Release (or threatened Release) or treatment of which is regulated, prohibited, or limited under: (1) the Resource Conservation and Recovery Act, as amended by the Hazardous and Solid Waste Amendments of 1984, as now or hereafter amended ("RCRA") (42 U.S.C. Sections 6901 et seq.); (ii) the Comprehensive Environmental Response, Compensation and Liability Act, as amended by the Superfund Amendments and Reauthorization Act of 1986, as now or hereafter amended ("CERCLA") (42 U.S.C. Sections 9601 et seq.); (iii) the Clean Water Act, as now or hereafter -5- 11 amended ("CWA") (33 U.S.C. Sections 1251 et seq.); (iv) the Toxic Substances Control Act, as now or hereafter amended ("TSCA") (15 U.S.C. Sections 2601 et seq.); (v) the Clean Air Act, as now or hereafter amended ("CAA") (42 U.S.C. Sections 7401 et seq.) (RCRA, CERCLA, CWA, TSCA and CAA are collectively referred to herein as the "FEDERAL ENVIRONMENTAL LAWS"); (vi) any local, state or foreign law, statute, regulation, or ordinance analogous to any of the Federal Environmental Laws; or (vii) any other federal, state, local, or foreign law (including any common law), statute, regulation, or ordinance regulating, prohibiting, or otherwise restricting the placement, Release, threatened Release, generation, treatment, or disposal upon or into any environmental media of any substance, pollutant, or waste which is now or hereafter classified or considered to be hazardous or toxic to human health or the environment. All of the laws, statutes, regulations and ordinances referred to in subsections (vi) and (vii) above, together with the Federal Environmental Laws, are collectively referred to herein as "ENVIRONMENTAL LAWS." The term "HAZARDOUS MATERIALS" shall also include: (a) gasoline, diesel fuel, fuel oil, motor oil, waste oil, and any other petroleum hydrocarbons, including any additives or other by-products associated therewith; (b) "friable" asbestos (as the term "friable" is defined under 40 C.F.R. Section 61.141) and friable asbestos-containing materials in any form; (c) polychlorinated biphenyls; or (d) any substance the presence of which on the Properties, (x) requires reporting or remediation under any Environmental Law, (y) causes or threatens to cause a nuisance on the Properties or poses or threatens to pose a hazard to the health or safety of persons on the Properties, or (z) which, if it emanated or migrated from the Properties, could constitute a trespass, nuisance or health or safety hazard to persons on adjacent property. "INDEMNIFIABLE CLAIM" means any Loss for or against which any Person is entitled to indemnification under this Agreement. "INDEMNIFIED PERSON" shall mean each Investor Indemnified Person and each Seller Indemnified Party. "INDEMNIFYING PARTY" has the meaning set forth in Section 11.3(a) of this Agreement. "INITIAL REIT YEAR" has the meaning set forth in Section 3.14(c) of this Agreement. "INVESTMENT COMMITTEE" means the investment committee of the Seller's Board of Trust Managers which after the Annual Meeting shall consist of one Trust Manager designee of Investor, one Trust Manager designee of Realco, one Trust Manager designee of MSAM and one independent Trust Manager. "INVESTOR" means ABKB/LaSalle Securities Limited Partnership, a registered investment advisor. "INVESTOR INDEMNIFIED PERSON" has the meaning set forth in Section 11.1 of this Agreement. -6- 12 "LAW" means any constitutional provision, statute or other law, rule, regulation or interpretation of any thereof and any Order of any Governmental Entity (including Environmental Laws, including, without limitation, the Americans with Disabilities Act). "LOSS" means any claim, amount paid in settlement, cost, damage (including, without limitation, consequential damage), disbursement, expense (including legal fees and expenses), liability, loss, deficiency, diminution in value or obligation. "MATERIAL CONTRACT" means any Contract to which Seller, any Subsidiary or any Seller Partnership is a party or by which any such Person or any of their respective Properties are bound that currently is in effect and (a) after December 31, 1996 obligates Seller, any Subsidiary or any Seller Partnership to pay an amount equal to $100,000 or more, (b) is one of the group of Tenant Leases that is anticipated by Seller to produce 66 2/3% of Seller's gross income during the fiscal year ending December 31, 1997, such group of Tenant Leases calculated beginning with the Tenant Lease that is anticipated to produce the most gross income during such period and thereafter in descending order of magnitude of gross income anticipated to be earned during such period under each other Tenant Lease until such percentage of gross income is reached, (c) is a Tenant Lease involving the lease of space in excess of 10,000 square feet for any Property, (d) other than any Tenant Lease, has an unexpired term as of December 31, 1996 in excess of five (5) years, (e) other than any Tenant Lease, contains a covenant not to compete or otherwise significantly restricts business activities of Seller, any Subsidiary or any Seller Partnership, (f) provides for the extension of credit by Seller, any Subsidiary or any Seller Partnership or a line of credit to Seller, any Subsidiary or any Seller Partnership in excess of $50,000, (g) provides for a guaranty or indemnity by Seller, any Subsidiary or any Seller Partnership, (h) grants a power of attorney, agency or similar authority to another Person, (i) contains an option to purchase or a right of first refusal relating to any of the Properties, (j) relates to the sale or issuance of any equity securities of Seller or securities exercisable for or convertible into any equity securities of Seller, or (k) any other Contract that is not within the general descriptions of clauses (a) through (j) (i.e., is not a Tenant Lease or within any of the other general categories listed above) but is material to the business, financial condition, assets, results of operations or prospects of Seller, Subsidiaries or Seller Partnerships. "MINIMUM EQUITY CAPITALIZATION" means $150 million as calculated using the average closing price of the Common Shares on the New York Stock Exchange for the 10 trading days immediately preceding the applicable date of determination multiplied by the current number of issued and outstanding Common Shares and Common Share equivalents; provided, however, it shall not in any event include operating partnership units in excess of $50 million. "MSAM" means Morgan Stanley Asset Management, Inc., a Delaware corporation. "MSAM PURCHASE AGREEMENT" means that certain Common Share Purchase Agreement dated as of June 20, 1997, by and among Seller, MSRE and MSAM pursuant to which MSRE and MSAM, as agent and attorney-in-fact on behalf of certain clients, have agreed to -7- 13 purchase up to $20 million of Common Shares of Seller on terms and conditions substantially similar to the terms and conditions contained herein. "MSAM PURCHASERS" means the clients of MSAM listed on Exhibit A to the MSAM Purchase Agreement. "MSRE" means MS Real Estate Special Situations Inc., a Delaware corporation. "NOTIFICATION" means any summons, citation, directive, order, claim, litigation, pleading, investigation, proceeding, judgment, letter or any other written or oral communication from any Governmental Entity, any entity or any individual, concerning any intentional or unintentional act or omission which has resulted in or which may result in any Environmental Noncompliance or Environmental Claim. "ORDER" means any decree, injunction, judgment, order, ruling, assessment or writ. "OTHER PECUNIARY OWNERS" means the other pecuniary owners for whom the Investor is acting as agent for and on behalf of in connection with the purchase of Common Shares of the Seller pursuant to Common Share Purchase Agreements dated the date hereof similar to this Agreement and who, along with the Pecuniary Owner, are purchasing Common Shares having an aggregate purchase price of up to $15 million. "PECUNIARY OWNER" means the client of Investor for whom Investor is acting as Agent for and for the benefit of, in connection with the purchase of the Common Shares pursuant to the Agreement. "PERMIT" means any license, permit, franchise, certificate of authority or order, or any waiver of the foregoing, required to be issued by any Governmental Entity. "PERSON" means an individual, corporation, partnership, limited liability company, joint venture, an unincorporated organization, government or any department or agency thereof, estate, trust, association, or private foundation within the meaning of Section 509(a) of the Code, or joint stock company. "PREEMPTIVE RIGHTS" has the meaning set forth in Section 6.8 of this Agreement. "PREFERRED SHARES" means any class of capital stock of a Person which is entitled to a preference or priority over any other class of capital stock of such Person with respect to any distribution of such Person's assets, whether with respect to dividends, or upon liquidation or dissolution, or both. "PROPERTIES" means the real property owned or leased by Seller, Subsidiaries and Seller Partnerships listed on Schedule 3.13 hereto. -8- 14 "PURCHASE PRICE" means, with respect to the Closing Date, the aggregate price paid for the Common Shares purchased by Investor on the Closing Date. "REALCO" means USAA Real Estate Company, a Delaware corporation. "REALCO DEBT" has the meaning set forth in Section 3.2 of this Agreement. "REGISTRATION RIGHTS AGREEMENT" means the registration rights agreement among Seller, and Investor, as agent for and on behalf of the Pecuniary Owner and certain Other Pecuniary Owners, to be executed contemporaneously with the execution of this Agreement. "REIT" has the meaning set forth in Section 3.14(b) of this Agreement. "RELEASE" means releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, ejecting, escaping, leaching, disposing, seeping, infiltrating, draining or dumping of any Hazardous Material. This term shall be interpreted to include both the present and past tense, as appropriate. "SCHEDULE" means any schedule attached to this Agreement. "SEC FILINGS" has the meaning set forth in Section 3.4 of this Agreement. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SELLER" means American Industrial Properties REIT, a Texas real estate investment trust. "SELLER BENEFIT PLANS" has the meaning set forth in Section 3.11 of this Agreement. "SELLER INDEMNIFIED PARTIES" has the meaning set forth in Section 11.2 of this Agreement. "SELLER PARTNERSHIPS" has the meaning set forth in Section 3.1 of this Agreement. "SELLER PERMITS" has the meaning set forth in Section 3.7(b) of this Agreement. "SHARE PRICE" has the meaning set forth in Section 2.1 of this Agreement. "SHAREHOLDER APPROVAL" means the approval by Seller's shareholders at the Annual Meeting of the proposal to approve the sale to Investor of Common Shares having an aggregate -9- 15 purchase price of up to $15 million, and the authorization of the issuance of a sufficient number of Common Shares to allow such sale to occur. "SHARES" has the meaning set forth in Section 2.1 of this Agreement. "SUBSIDIARIES" has the meaning set forth in Section 3.1 of this Agreement. "TAXES" has the meaning set forth in Section 3.14(a) of this Agreement. "TAX RETURN" has the meaning set forth in Section 3.14(b) of this Agreement. "TENANT LEASES" has the meaning set forth in Section 3.13(b) of this Agreement. "TRUST MANAGERS" means the Trust Managers of Seller. "THRESHOLD EQUITY CAPITALIZATION" means equity capitalization of $250 million, calculated in the same manner as Minimum Equity Capitalization. "UNAUDITED FINANCIAL STATEMENTS" has the meaning set forth in Section 3.3(b) of this Agreement. b. RULES OF CONSTRUCTION. This Agreement shall be construed in accordance with the following rules of construction: (a) the terms defined in this Agreement include the plural as well as the singular; (b) all accounting terms not otherwise defined herein have the meanings given such terms under GAAP; (c) all references in the Agreement to designated "Sections" and other subdivisions are to the designated Sections and other subdivisions of the body of this Agreement; (d) pronouns of either gender or neuter shall include, as appropriate, the other pronoun forms; (e) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Section or other subdivision; (f) the words "includes" and "including" are not limiting; and (g) knowledge of any Subsidiary or any Seller Partnership shall be deemed to be knowledge of Seller. -10- 16 SECTION 2. PURCHASE AND SALE a. PURCHASE AND SALE OF THE COMMON SHARES. Subject to the terms and conditions set forth herein, Seller shall sell and issue to Investor, and Investor shall purchase from Seller, up to an aggregate of 1,956,122 Common Shares (the "Shares") at a price of $2.45 per Common Share, subject to adjustment as set forth in Section 5.5 (the "Share Price"). b. USE OF PROCEEDS. The proceeds of the purchase of Shares hereunder shall be used by the Seller to purchase real property as approved by the Investment Committee. c. CLOSING. i. The Closing shall occur on or before July 11, 1997, (the "CLOSING DATE"), and the Investor shall purchase the number of Shares specified in Section 2.1. ii. At the Closing, Seller shall deliver to the Investor the certificates evidencing the Shares purchased by the Investor on the applicable Closing Date, registered in the name of the Investor or its nominee. In addition, all other actions shall be taken and all other documents shall be delivered which are necessary to consummate the purchase and sale of the Shares purchased by the Investor on the applicable Closing Date. iii. At the Closing, the Investor shall pay and deliver to Seller the Purchase Price for the Shares being purchased by the Investor at the Closing. SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLER Seller represents and warrants to, and agrees with, the Investor and the Pecuniary Owner as follows: a. ORGANIZATION AND RELATED MATTERS. Seller is duly organized, validly existing and in good standing under the laws of the State of Texas. Seller has all necessary power and authority to execute, deliver and perform this Agreement. Schedule 3.1 lists all Subsidiaries (the "SUBSIDIARIES") and all Partnerships of Seller (the "SELLER PARTNERSHIPS") and correctly sets forth Seller's ownership interest therein, the jurisdiction in which each Subsidiary and each Seller Partnership is organized and each jurisdiction in which Seller, each Subsidiary and each Seller Partnership is and is required to be qualified or licensed to do business as a foreign Person. Each Subsidiary and each Seller Partnership is duly organized, validly existing and, with -11- 17 respect to each Subsidiary, in good standing under the laws of the jurisdiction of its incorporation or organization. Seller, Subsidiaries and Seller Partnerships have all necessary power (whether corporate, partnership or other power, as applicable) and authority to own their respective properties and assets and to carry on their respective businesses as now conducted. Seller, Subsidiaries and Seller Partnerships are duly qualified or licensed to do business as foreign Persons in good standing in all jurisdictions in which the character or the location of the assets owned or leased by any of them or the nature of the business conducted by any of them requires licensing or qualification, except where the failure to be so qualified or licensed is not and will not be material to their respective businesses, financial condition, assets, results of operations or prospects. Schedule 3.1 correctly lists the current Trust Managers, directors, general partners and executive officers of Seller, Subsidiaries and Seller Partnerships. True, correct and complete copies of the Charter Documents and the charter or organizational documents of Subsidiaries and Seller Partnerships (including the declaration of trust, articles or certificate of incorporation, bylaws and partnership agreements, as applicable) as in effect on the date hereof have been delivered to the Investor. Seller is registered and is a reporting company under the Exchange Act. Neither any Subsidiary nor any Seller Partnership is registered or is a reporting company under the Exchange Act. Except as listed on Schedule 3.1, Seller does not directly or indirectly own or control any equity interest in any Person. b. CAPITAL STOCK; TITLE TO SHARES. The authorized Capital Stock of Seller consists of 500,000,000 Common Shares, 10,000,000 of which are issued and outstanding and 10,000,000 Preferred Shares, none of which are issued and outstanding. Seller owns all of the outstanding Capital Stock of Subsidiaries free and clear of any Encumbrances, equities and claims except as specified in Schedule 3.2. Seller owns the equity interest in each Seller Partnership free and clear of any Encumbrances, equities and claims except as specified in Schedule 3.2. No Common Shares or Capital Stock of any Subsidiary are held in treasury. Except as set forth in Schedule 3.2 or as contemplated in this Agreement, there are no outstanding Contracts or other rights to subscribe for or purchase, or Contracts or other obligations to issue or grant any rights to acquire, any Common Shares, any Capital Stock of any Subsidiary or any Seller Partnership or to restructure or recapitalize Seller, any Subsidiary or any Seller Partnership. Except as set forth in Schedule 3.2, there are no outstanding Contracts of Seller, any Subsidiary or any Seller Partnership to repurchase, redeem or otherwise acquire any of their respective Common Shares or Capital Stock, as applicable. No bonds, debentures, notes or other indebtedness having general voting rights (or convertible into securities having general voting rights) of Seller, any -12- 18 Subsidiary or any Seller Partnership are issued or outstanding other than the Seller's note in the aggregate principal amount of $5,449,618 (the "REALCO DEBT") held by Realco. There are no voting trusts or other agreements or understandings to which Seller, any Subsidiary or any Seller Partnership is a party or is bound, or to the knowledge of Seller, to which any other Person is a party or is bound, with respect to the voting of the Common Shares or the Capital Stock of any Subsidiary or any Seller Partnership. All issued and outstanding Common Shares and Capital Stock of all Subsidiaries and Seller Partnerships were duly authorized and validly issued at the time of issuance and are fully paid and nonassessable. Except as contemplated by this Agreement, there are no preemptive rights in respect of any Common Shares or Capital Stock of any Subsidiary or any Seller Partnership. Upon any issuance of Shares to the Investor, such Shares will have been duly authorized, validly issued and be validly outstanding, fully paid and nonassessable, and the issuance of such Shares will not be subject to preemptive rights of any other shareholder of Seller and such Shares will be issued in compliance with all applicable federal and state laws and stock trading requirements. Each Buyer shall receive good and marketable title to all Shares acquired by such Buyer pursuant to this Agreement, free and clear of all Encumbrances created by Seller, except for restrictions on the transferability of the Shares set forth in the Charter Documents or generally imposed on securities under federal and state securities laws. Such Shares will rank equally with all other Common Shares of Seller with respect to priority in payment of dividends and the distribution of assets upon any liquidation of Seller, and except for a class of preferred shares of beneficial interest which the shareholders approved at the Annual Meeting, none of which shall be issued and outstanding as of the First Closing Date, there are no shares of any class of Capital Stock of Seller having any priority in respect thereof. All of the outstanding securities of Seller were issued in compliance with all applicable federal and state securities laws. c. FINANCIAL STATEMENTS. i. AUDITED FINANCIAL STATEMENTS. Seller has delivered to the Investor the consolidated balance sheets of Seller (which reflect the financial position of all Subsidiaries and Seller Partnerships), as of December 31, 1994, 1995 and 1996, and the respective related consolidated statements of operations, cash flows and shareholders' equity for the periods then ended (collectively, the "AUDITED FINANCIAL STATEMENTS"). The Audited Financial Statements have been examined by the Auditors whose report thereon is attached to such financial statements. All Audited Financial Statements have been prepared in conformity with GAAP applied on a consistent basis (except for changes, if any, disclosed therein). The Audited Financial Statements -13- 19 present fairly, in all material respects, the consolidated financial condition and results of operations of Seller, Subsidiaries and Seller Partnerships as of their respective dates and periods. Since December 31, 1996, there has been no change in the significant accounting policies or procedures of Seller, any Subsidiary or any Seller Partnership. Seller has not received any annual management letters from the Auditors since March 5, 1997. ii. UNAUDITED FINANCIAL STATEMENTS. Seller has delivered to the Investor the consolidated balance sheets of Seller (which reflect the financial position of all Subsidiaries and Seller Partnerships), as of March 31, 1997 and the related consolidated statements of operations, cash flows and shareholders' equity for the period then ended (the "UNAUDITED FINANCIAL STATEMENTS"). The Unaudited Financial Statements have been prepared in conformity with GAAP applied on a consistent basis (except for changes, if any, disclosed therein). The Unaudited Financial Statements present fairly, in all material respects, the consolidated financial condition and results of operations of Seller, Subsidiaries and Seller Partnerships as of March 31, 1997. iii. NO MATERIAL ADVERSE CHANGES. Since March 31, 1997, except as set forth in Schedule 3.3, or specifically disclosed in any SEC Filings filed since March 31, 1997 and prior to the date of this Agreement (copies of which have been provided to the Investor), Seller, Subsidiaries and Seller Partnerships have conducted their respective businesses only in the ordinary course and in a manner consistent with past practice and, whether or not in the ordinary course of business, there has not been, occurred or arisen: (1) any change in or event affecting the business of Seller, Subsidiaries and Seller Partnerships that has had a material adverse effect on such business or any materially adverse change or trend in the business, financial condition, assets, results of operations or prospects of Seller, Subsidiaries or Seller Partnerships, or (2) any condition or action which would be proscribed by (or require consent under) Section 5.3 had it existed, occurred or arisen after the date of this Agreement, or (3) any casualty, loss, damage or destruction of any real property of Seller, any Subsidiary or any Seller Partnership that has involved or may involve a Loss (whether or not covered by insurance) to Seller, any Subsidiary or any Seller Partnership of more than $100,000 individually, or $300,000 in the aggregate. -14- 20 iv. NO OTHER LIABILITIES OR CONTINGENCIES. Neither Seller nor any Subsidiary nor any Seller Partnership has any material liability of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due, probable of assertion or not, except liabilities that (i) were incurred after March 31, 1997 in the ordinary course of business in a manner consistent with past practice and are not material in amount, or (ii) are set forth in Schedule 3.3 hereto. d. SEC REPORTS. Seller has filed with the Commission all forms, reports, statements, including registration statements, and other material documents, together with any amendments required to be made with respect thereto, that were required to be filed with the Commission since December 31, 1994. Such forms, reports, statements, including registration statements, and other material documents required to be filed with the Commission by Seller since December 31, 1994 are collectively referred to in this Agreement as the "SEC FILINGS." Seller has made available to the Investor all SEC Filings. As of their respective dates, (x) each of the SEC Filings, including the financial statements contained therein, was true and complete in all material respects, (y) each of the SEC Filings, including the financial statements contained therein, complied in all material respects with the Securities Act and Exchange Act, as applicable, and the rules and regulations promulgated thereunder, and (z) none contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. e. AUTHORIZATION; NO CONFLICTS. Seller has the requisite power and authority to enter into this Agreement and the Registration Rights Agreement and to carry out its obligations hereunder and thereunder. Except for the share ownership limitation contained therein, the Charter Documents do not in any way prevent or restrict the transactions contemplated hereby or preclude the Investor acting as agent on behalf of the Pecuniary Owner, or the Pecuniary Owner from owning or holding the amount, value or class of Common Shares to be purchased hereby. The execution, delivery and performance of this Agreement by Seller has been duly and validly authorized by the Trust Managers and by all other necessary action on the part of Seller, and no other proceedings on the part of Seller (including Trust Manager and shareholder approval) are necessary to authorize this Agreement or to consummate the transactions contemplated hereby except the shareholder consent needed to increase the number of authorized Common Shares to allow the issuance and sale of Shares on any Closing Date to occur. This Agreement has been duly -15- 21 executed and delivered by Seller and constitutes the legally valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws and equitable principles relating to or limiting creditors' rights generally (collectively, "EQUITABLE REMEDIES"). Except as set forth in Schedule 3.5, the execution, delivery and performance of this Agreement by Seller and the consummation by Seller of the transactions contemplated hereby will not (i) conflict with or result in the breach or violation of any provisions of, or trigger any preferential rights under, the Charter Documents or the charter or organizational documents of Subsidiaries or Seller Partnerships, (ii) result in a breach or violation of, a default under, or the triggering of any payment or other material obligations pursuant to, or accelerate vesting under, any Seller Benefit Plans or any grant or award thereunder or any employment or consulting agreement or arrangement of Seller, any Subsidiary or any Seller Partnership, (iii) violate, conflict with, result in a breach of any provision of, constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, result in the termination or in a right of termination or cancellation of, accelerate the performance required by, result in the creation of any Encumbrance upon any Properties under, result in the triggering of any rights under, or result in being declared void, voidable or without further binding effect, any of the terms or provisions of any Material Contract of Seller, any Subsidiary or any Seller Partnership or (iv) violate any Law. Schedule 3.5 lists all Permits and Approvals required to be obtained by Seller, Subsidiaries and Seller Partnerships to consummate the transactions contemplated hereby. Except for matters identified in Schedule 3.5 as requiring that certain actions be taken by or with respect to a third party or Governmental Entity, the execution and delivery of this Agreement by Seller and the consummation of the transactions contemplated hereby will not require the consent, authorization or approval or filing or registration with, or the issuance of any Permit by, any other third party or Governmental Entity under the terms of any applicable Laws or Material Contracts of Seller, Subsidiaries or Seller Partnerships. f. LEGAL PROCEEDINGS. Except as set forth in Schedule 3.6, there is no Order or Action pending, or to the knowledge of Seller threatened, against or affecting Seller, any Subsidiary, any Seller Partnership, any Trust Manager in his capacity as a Trust Manager of Seller or any of the Properties which (i) questions the validity of this Agreement, the Registration Rights Agreement or any action taken or to be taken pursuant hereto or thereto, (ii) may adversely affect the right, title or interest of the Investor to the Shares or (iii) individually or when aggregated with one or -16- 22 more other Orders or Actions has, or if determined adversely will have, a material adverse effect on the business, financial condition, assets, results of operations or prospects of Seller, any Subsidiary or any Seller Partnership or on Seller's ability to perform this Agreement. To Seller's knowledge, Schedule 3.6 lists each Order and each Action that (i) involves a claim or potential claim of aggregate liability in excess of $50,000 against Seller, any Subsidiary or any Seller Partnership that is not covered by insurance, (ii) involves a claim or potential claim of aggregate liability brought by Seller, any Subsidiary or any Seller Partnership against a tenant under any Tenant Lease which Tenant Lease obligates such tenant to pay rent to Seller, any Subsidiary or any Seller Partnership during the year ending December 31, 1997 in an amount equal to or in excess of $150,000, or (iii) that enjoins or seeks to enjoin any activity by Seller, any Subsidiary or any Seller Partnership. There is no matter as to which Seller, any Subsidiary or any Seller Partnership has received any notice, claim or assertion in connection with which any such Person has or may reasonably be expected to have any right to be indemnified by Seller, any Subsidiary or any Seller Partnership. g. COMPLIANCE WITH LAW AND PERMITS. i. Seller, Subsidiaries and Seller Partnerships are organized and have conducted their respective businesses in accordance with applicable Laws, neither Seller nor any Subsidiaries or Seller Partnerships has received any notice of violation of any Laws which remains uncorrected, and the respective forms, procedures and practices of Seller, Subsidiaries and Seller Partnerships are in compliance with all such Laws, to the extent applicable, the violation of which would have a material adverse effect on the respective businesses, financial condition, assets, results of operations or prospects of Seller, Subsidiaries and Seller Partnerships. ii. Except as set forth in Schedule 3.7, Seller, Subsidiaries and Seller Partnerships hold all permits, licenses, variances, exemptions, authorizations, orders and approvals of all Governmental Entities necessary for the lawful conduct of their respective businesses (the "SELLER PERMITS") and Seller, Subsidiaries and Seller Partnerships are in compliance with the terms of the Seller Permits relating to each such Person, except where the failure to hold such Seller Permits or be in compliance therewith would not, individually or in the aggregate, have a material adverse effect on the business, financial condition, assets, results of operations or prospects of Seller, Subsidiaries or Seller Partnerships. Seller has made available to the Investor correct and complete copies of all Seller Permits. Except as set forth in Schedule 3.7, to the knowledge of the Seller, no investigation or review by any Governmental Entity with respect to the Seller Permits is pending or threatened. -17- 23 h. DIVIDENDS AND OTHER DISTRIBUTIONS. Except as set forth in Schedule 3.8, there has been no dividend or other distribution of assets or securities by Seller or Seller Partnerships (other than Seller Partnerships in which Seller owns 100% beneficial interest) whether consisting of money, property or any other thing of value, declared, issued or paid to or for the benefit of Seller subsequent to December 31, 1996. i. CERTAIN INTERESTS. Except as set forth in Schedule 3.1 and Schedule 3.9, no Affiliate of Seller, any Subsidiary or any Seller Partnership, nor any of their respective officers, Trust Managers, directors or partners, nor any Associate of any such individual, has any material interest in any property used in or pertaining to the respective businesses of Seller, any Subsidiary or any Seller Partnership. Except as set forth in Schedule 3.1 and Schedule 3.9, no such Person is indebted or otherwise obligated to Seller, any Subsidiary or any Seller Partnership. Except as set forth in Schedule 3.9, Seller, Subsidiaries and Seller Partnerships are not indebted or otherwise obligated to any such Person, except for amounts due under normal arrangements applicable to all employees generally as to salary or reimbursement of ordinary business expenses not unusual in amount or significance. Except as set forth in Schedule 3.1 and Schedule 3.9, there are no material transactions between Seller, any Subsidiary or any Seller Partnership and any Affiliate of Seller, any Subsidiary or any Seller Partnership or any Associate of any such Affiliate that have continuing obligations of any party thereunder. Except as set forth in Schedule 3.9, the consummation of the transactions contemplated by this Agreement will not (either alone, or upon the occurrence of any act or event, or with the lapse of time, or both) result in any compensation or severance or other payment or benefit arising or becoming due from Seller, any Subsidiary or any Seller Partnership or any of its assigns to any Person. j. NO BROKERS OR FINDERS. No agent, broker, finder, or investment or commercial banker, or other Person or firm engaged by or acting on behalf of Seller or any of its Affiliates in connection with the negotiation, execution or performance of this Agreement or the transactions contemplated by this Agreement, is or will be entitled to any brokerage or finder's or similar fee or other commission as a result of this Agreement or such transactions except for a fee payable to Prudential Securities Incorporated. -18- 24 k. EMPLOYEE BENEFIT PLANS. Schedule 3.11 lists all employee benefit plans and collective bargaining, labor and employment agreements or other similar benefit arrangements to which either Seller, any Subsidiary, or any Seller Partnership is a party or by which either Seller, any Subsidiary, or any Seller Partnership is bound (collectively, the "SELLER BENEFIT PLANS"), including (i) any profit-sharing, deferred compensation, bonus, stock option, stock purchase, pension, retainer, consulting, retirement, severance, welfare or incentive plan, agreement or arrangement, (ii) any plan, agreement or arrangement providing for "fringe benefits" or perquisites to employees, officers, directors, trust managers or agents, including benefits relating to automobiles, clubs, vacation, child care, parenting, sabbatical, sick leave, medical, dental, hospitalization, life insurance and other types of insurance, (iii) any employment agreement not terminable on 30 days (or less) written notice or (iv) any other "employee benefit plan" within the meaning of Section 3(3) of ERISA. True and complete copies of the Seller Benefit Plans, current descriptive booklets and summary plan descriptions of the Seller Benefit Plans, any relevant trust agreements or insurance policies or contracts and, if applicable, the most recent annual return on Form 5500 (or equivalent form) have been made available to the Investor. To the extent applicable, the Seller Benefit Plans comply, in all material respects, with the requirements of ERISA and the Code. Except as set forth in Schedule 3.11, no Seller Benefit Plan is or is intended to be a stock bonus, pension or profit-sharing plan within the meaning of Section 401(a) of the Code. Neither any Seller Benefit Plan nor Seller, any Subsidiary, or any Seller Partnership has incurred any liability or penalty under Section 4975 of the Code or Section 502(i) of ERISA. Each Seller Benefit Plan has been maintained and administered in all material respects in compliance with its terms and with ERISA and the Code to the extent applicable thereto. Except as set forth in Schedule 3.11, there are no pending, or to the knowledge of Seller threatened, claims (other than pursuant to the terms of any such plan) against or otherwise involving any of the Seller Benefit Plans and no Action has been brought against or with respect to any Seller Benefit Plan, and neither Seller nor any Subsidiary nor any Seller Partnership has incurred any liability to any party with respect to any Seller Benefit Plan. All contributions required to be made to the Seller Benefit Plans have been made or provided for. Except as set forth in Schedule 3.11, neither Seller nor any Subsidiary nor any Seller Partnership maintains or contributes to any plan or arrangement which provides or has any liability to provide life insurance or medical or other employee welfare benefits to any employee or former employee upon his retirement or termination of employment and neither Seller nor any Subsidiary nor any Seller Partnership has represented, promised or contracted (whether in oral or written form) to any employee or former -19- 25 employee that such benefits would be provided. Except as set forth in Schedule 3.11, the execution of, and performance of the transactions contemplated by, this Agreement will not (either alone or upon the occurrence of any additional or subsequent event) constitute an event under any Seller Benefit Plan or other policy, arrangement or any trust or loan that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any employee. No Seller Benefit Plan is subject to Title IV of ERISA and neither Seller nor any Subsidiary nor any Seller Partnership has, within six years prior to the date of this Agreement, contributed to or had any obligation to contribute to any employee benefit plan subject to Title IV of ERISA. For purposes of this Section 3.11, (i) the term "Seller" includes any entity required to be aggregated with the Seller pursuant to Code Section 414(b), (c), (m) or (o) and (ii) provisions of ERISA or the Code include regulations prescribed under such provisions. l. LABOR MATTERS. Neither Seller nor any Subsidiary nor any Seller Partnership is a party to or bound by any collective bargaining or other labor union contracts. There is no pending or, to the knowledge of Seller, threatened labor dispute, strike or work stoppage against Seller, any Subsidiary, or any Seller Partnership. Neither Seller nor any Subsidiary nor any Seller Partnership, nor their respective representatives or employees, has committed any unfair labor practices in connection with the operation of the respective businesses of Seller, each Subsidiary, and each Seller Partnership, and there is no pending or, to the knowledge of Seller, threatened charge or complaint against Seller, any Subsidiary, or any Seller Partnership by the National Labor Relations Board or any comparable state agency. Seller, Subsidiaries, and Seller Partnerships are in compliance with all applicable Laws respecting employment, consulting, employment practices, wages, hours, and terms and conditions of employment. m. PROPERTIES. i. Schedule 3.13 contains a complete and correct list of all real property owned or leased by Seller, each Subsidiary and each Seller Partnership (collectively, the "PROPERTIES") as of the date hereof. Except as set forth in Schedule 3.13, Seller, Subsidiary or Seller Partnership, as applicable, owns good, marketable and indefeasible title to each Property, including the land and all improvements, all personalty and the Tenant Leases (as hereinafter defined). Except as set forth in Schedule 3.13, the Properties are free and clear of all Encumbrances of any nature, except for (i) liens for real property taxes or similar assessments not yet due and -20- 26 payable, (ii) easements for utilities servicing the Properties and (iii) such Encumbrances as do not materially detract from or interfere with the present use of the Properties subject thereto or affected thereby, or otherwise materially impair the use or value of such Properties. ii. Seller has delivered to the Investor a true, correct and complete copy of a rent roll with respect to each Property as of the date hereof setting forth, among other matters, the term (commencement or renewal date and expiration date) of each lease with respect to the Properties (collectively, the "TENANT LEASES"), the square feet for each of the Tenant Leases, the monthly base rental rates for each of the Tenant Leases and the security deposits for each of the Tenant Leases. Other than the Tenant Leases, no party has been granted any license, lease or other material right relating to the use or possession of the Properties which is material to the use or value of the Properties. Except as set forth in Schedule 3.13, all of the Tenant Leases are valid and subsisting and in full force and effect with respect to Seller, Subsidiaries and Seller Partnerships and, to Seller's knowledge, with respect to any other party thereto, and no tenant of the Properties is more than 30 days delinquent on its rental as of April 30, 1997 except as set forth in Schedule 3.13. To Seller's knowledge, no tenant of the Properties has initiated or threatened bankruptcy since January 1, 1997. No tenant of the Properties is an Affiliate or Associate of Seller, any Subsidiary or any Seller Partnership. Except as set forth in Schedule 3.13, there are no contracts or other material obligations outstanding for the sale, exchange or transfer of the Properties or any portion thereof. There are no attachments, executions, assignments for the benefit of creditors, receiverships, conservatorship or voluntary or involuntary proceedings in bankruptcy or pursuant to any other debtor relief laws filed by, or pending against, Seller, Subsidiaries, Seller Partnerships or the Properties. Except as set forth in Schedule 3.13, since January 1, 1997, no tenants have terminated their leases prior to expiration and, to Seller's knowledge, have no intent to do so. (c) Except as set forth in Schedule 3.13, there is no pending condemnation or similar proceeding affecting the land, the improvements or the personalty situated at the Properties or any portion thereof, and neither Seller nor any Subsidiary nor any Seller Partnership has received any written notice and has no knowledge that any such proceeding is contemplated. (d) The continued ownership, operation, use and occupancy of the land or the improvements thereon do not violate any zoning, building, administrative or other law, ordinance, order or regulation or any restrictive covenant applicable to the Properties, the violation of which would have a material adverse effect on the business, financial condition, assets, results of operations or prospects of Seller, Subsidiaries or Seller Partnerships, as applicable, and no written notice of any such violation has been received by Seller, any Subsidiary or any Seller Partnership from any Governmental Entity. -21- 27 (e) Seller, Subsidiaries or Seller Partnerships, as applicable, currently has in place title, liability, casualty and other insurance coverage with respect to the Properties in such amounts as are reasonable and customary for properties similar to the Properties. Each of such policies is in full force and effect, and all premiums due and payable thereunder have been, and on any Closing Date will be, fully paid when due. No notice of cancellation has been received, or to the knowledge of Seller threatened, with respect thereto. (f) Except as set forth in Schedule 3.13, there is no Action pending, or to the knowledge of Seller contemplated, by any Governmental Entity or third party to levy any special assessments against the Properties that, if successful, would have a material adverse effect on the business, financial condition, assets, results of operations or prospects of Seller, any Subsidiary or any Seller Partnership. (g) To Seller's knowledge, each unsatisfied brokerage obligation that is in excess of $25,000 with respect to the Properties is set forth on Schedule 3.13. (h) To Seller's knowledge and except as set forth on Schedule 3.13, no capital expenditures are contemplated by Seller to be incurred by Seller, any Subsidiary or any Seller Partnership within twelve months after the date of this Agreement in excess of $50,000 per Property with respect to any Property. (i) Except as set forth in Schedule 3.13, all management contracts with respect to the Properties are terminable by Seller on 30 days notice. (j) To Seller's knowledge, except for customary easements for access to building systems or utilities and except as set forth in Schedule 3.13, each Property is an independent unit which does not now rely on any facilities (other than facilities of municipalities or public utilities) located on any property that is not part of the Property for the furnishing to the Property of any essential building systems or utilities (including drainage facilities, catch basins and retention ponds) that if the owner of the Property could not avail the use of which, would materially detract from the value of the Property or materially interfere with the use of the Property. 3.14 TAX MATTERS. (a) For purposes of this Agreement, "TAXES" means any federal (including, without limitation, tax on its undistributed taxable income, alternative minimum tax, tax on certain sale proceeds or other nonqualifying income from foreclosure property or on income from prohibited transactions, and any taxes imposed upon Seller, Subsidiaries or Seller Partnerships under Section 857 or Section 4981 of the Code), state, county, local or foreign taxes, charges, fees, levies, or other assessments, including, without limitation, all net income, gross income, sales and use, ad valorem, -22- 28 transfer, gains, profits, excise, franchise, real and personal property, gross receipt, capital stock, business and occupation, disability, employment, payroll, license, estimated, or withholding taxes or charges imposed by any Governmental Entity, and includes any interest and penalties (civil or criminal) on or additions to any such taxes. (b) For purposes of this Agreement, "TAX RETURN" means a report, return or other information required to be filed with or supplied to a Governmental Entity with respect to Taxes including, without limitation, any notices or information reports or returns required to be filed by Seller, Subsidiaries or Seller Partnerships with respect to their respective operations, income, assets and shareholders or partners in order to maintain Seller's status as a real estate investment trust ("REIT") under the Code. (c) Seller elected to be taxed as a REIT under Sections 856 through 860 of the Code effective for its taxable year ended December 31, 1985 (the "INITIAL REIT YEAR"). Seller, since the Initial REIT Year through the end of the immediately preceding taxable year, has always qualified as a REIT under the Code. At all times from and after the Initial REIT Year to the date hereof, Seller has complied with, and through the Closing Date will comply with, all applicable Code and regulatory requirements necessary to maintain its qualification as a REIT under the Code and has otherwise operated, and through the Closing Date will have otherwise operated, in the manner necessary to maintain its qualification as a REIT under the Code. No dividend will be required to be distributed before December 31, 1997 in order for Seller to maintain its qualification as a REIT under the Code. (d) Except as disclosed in Schedule 3.14, Seller, Subsidiaries and Seller Partnerships have (i) filed all Tax Returns required to be filed by applicable Law since December 31, 1990, and all such Tax Returns were in all material respects (and, as to Tax Returns not filed as of the date hereof but filed on or before the Closing Date, will be in all material respects) true, complete and correct and filed on a timely basis and (ii) within the time and in the manner prescribed by law, paid (and until the Closing Date will pay within the time and in the manner prescribed by law) all material Taxes that were or are due and payable. (e) Except as set forth in Schedule 3.14, Seller, Subsidiaries and Seller Partnerships have established (and until the Closing Date will maintain) on their respective books and records reserves adequate to pay all Taxes of Seller, Subsidiaries and Seller Partnerships not yet due and payable in accordance with GAAP which are reflected in the Audited Financial Statements and Unaudited Financial Statements to the extent required by GAAP. (f) Except as disclosed in Schedule 3.14, as of the date hereof, there are no, and, as of any Closing Date, there will be no, material Tax liens upon the assets of Seller, Subsidiaries and Seller Partnerships, except liens for Taxes not yet due. (g) Except as disclosed in Schedule 3.14, Seller, Subsidiaries and Seller Partnerships have complied (and until the Closing Date will comply) in all material respects with the provisions -23- 29 of the Code relating to the payment and withholding of Taxes, including the withholding and reporting requirements under Code Sections 1441 through 1464, 3401 through 3406, and 6041 through 6049, as well as similar provisions under any other laws, and have, within the time and in the manner prescribed by law, withheld from employee wages and paid over to the proper governmental authorities all material amounts required by applicable Law. (h) Except as disclosed in Schedule 3.14, Seller, Subsidiaries and Seller Partnerships have not executed any outstanding waivers or comparable consents regarding the application of the statute of limitations with respect to any Taxes or Tax Returns. (i) No notice of any material deficiency for any Taxes has been received by Seller, any Subsidiary or any Seller Partnership that has not been resolved and paid in full or otherwise settled, no audits or other administrative proceedings or court proceedings are presently pending or, to Seller's knowledge, threatened with regard to any Taxes or Tax Returns of Seller, Subsidiaries or Seller Partnerships, and no notice of any material claim has been received by Seller, any Subsidiary or any Seller Partnership from any authority in a jurisdiction where Seller, Subsidiaries or Seller Partnerships do not file Tax Returns that Seller, any Subsidiary or any Seller Partnership is or may be subject to Tax in that jurisdiction. (j) Seller, Subsidiaries and Seller Partnerships have not received a Tax Ruling or entered into a Closing Agreement with the Internal Revenue Service that would have any continuing effect after the First Closing Date. (k) Seller has made available (or, with respect to all Tax Returns filed after the date hereof, will make available) to the Investor complete and accurate copies of all Tax Returns, and amendments thereto, filed by Seller, any Subsidiary or any Seller Partnership for all taxable periods or years ending on or prior to the First Closing Date. (l) Neither Seller nor any Subsidiary nor any Seller Partnership is required to include in income any adjustment pursuant to Code Section 481(a) by reason of a voluntary change in federal income tax accounting method (other than a change of federal income tax accounting method required as a result of a change in law) initiated by Seller, and the Internal Revenue Service has not proposed any such adjustment or change in accounting method. (m) Seller has made available to the Investor all relevant information with respect to the federal income tax net operating loss carryovers of Seller as of December 31, 1996, based on the federal income Tax Returns filed by Seller as of such date. (n) For all taxable years from and including its Initial REIT Year through the First Closing Date, (i) Seller has maintained permanent records containing the information required to be maintained by Code Section 857(a)(2) and Treasury Regulation Sections 1.857-(8)(a), 1.857-8(c) and 1.857-8(e) and (ii) Seller has demanded the written statements from its shareholders required by Treasury Regulation Section 1.857-8(d) in accordance with Treasury Regulation Section 1.857-8(e). -24- 30 3.15 MATERIAL CONTRACTS. Schedule 3.15 sets forth an accurate list of all Material Contracts of Seller, Subsidiaries and Seller Partnerships. Seller has made available to the Investor complete and correct copies of all Material Contracts. All Material Contracts are in full force and effect. Except as set forth in Schedule 3.15, Seller, Subsidiaries and Seller Partnerships are not in violation of or default in any material respect (nor is there any waiver in effect of any event that would constitute a default but for such waiver) under, and no event has occurred that (with notice or the lapse of time or both) would constitute a violation of or default under, any Material Contract. Except as set forth in Schedule 3.15, to the knowledge of Seller, no other party to any Material Contract is in breach of the terms, provisions and conditions of such Material Contract and no other party to any Material Contract has notified Seller, any Subsidiary or any Seller Partnership that it intends to terminate or modify a Material Contract. 3.16 INSURANCE. Schedule 3.16 sets forth a complete and correct list of all insurance policies, except for title insurance policies, currently in force insuring against risks of Seller, Subsidiaries and Seller Partnerships. Seller, Subsidiaries and Seller Partnerships are in compliance with the terms of such policies applicable to them and there are no claims by Seller, any Subsidiary or any Seller Partnership under any such policy as to which any insurance company is denying liability or defending under a reservation of rights clause. 3.17 ENVIRONMENTAL MATTERS. (a) Except as set forth in the documentation provided to Seller pursuant to Section 3.17(b) and in Schedule 3.17, there is no material Environmental Noncompliance with respect to any Property and there are no material Environmental Claims with respect to any Property or the Seller, any Subsidiary or any Seller Partnership or, to the knowledge of Seller, any tenants under any of the Tenant Leases. All material permits, consents, licenses, certificates, approvals, registrations, and authorizations in connection with environmental matters (collectively, "ENVIRONMENTAL PERMITS") which are required by any Law have been obtained and are valid. The Properties (and all uses thereof and operations conducted thereon) comply in all material respects with all Environmental Permits. All operations on or at the Properties conducted by Seller are and have been conducted in all material respects in compliance with applicable Environmental Laws. Except as set forth in the documentation provided to Seller pursuant to Section 3.17(b) and in Schedule 3.17, Seller has not received any Notification from any Governmental Entity seeking any information or alleging any violation of any Law regarding Environmental Conditions. Except as set forth in the documentation provided to Seller pursuant to Section 3.17(b) and in Schedule 3.17, Seller has not caused or given its verbal or written authorization to cause, and has no knowledge of, any Release of any Hazardous Materials on-site or off-site of the Properties in violation of any Environmental Law. (b) Seller has made available to Investor true, correct, and complete copies of all written reports of any environmental assessment, compliance or regulatory audit, inspection, or investigation -25- 31 of the Properties in its possession, and Seller has not received any other written report containing any evidence of Environmental Noncompliance. (c) Except as set forth in the documentation provided to Seller pursuant to Section 3.17(b) and in Schedule 3.17, there is not now, nor has there been in the past, any "friable" asbestos (as the term "friable" is defined under 40 C.F.R. Section 61.141) or friable asbestos containing materials located on, incorporated in, or otherwise contained in the Properties or any portion thereof, and there are not now, and have not in the past been, any underground storage tanks located on the Properties or any portion thereof. (d) Except as set forth in the documentation provided to Seller pursuant to Section 3.17(b), and in Schedule 3.17, none of the tenants under any Tenant Lease handle or store any Hazardous Material as a principal or primary business. 3.18 TRUST RECORDS; ACCOUNTING RECORDS. The minute books of Seller accurately reflect in all material respects all actions taken to the date of this Agreement by the holders of Common Shares, the Trust Managers and committees of the Trust Managers, except for those matters set forth in Schedule 3.18 for which minutes of such actions have not yet been prepared or approved. The share certificate books and records of Seller accurately reflect the ownership of the Common Shares. Seller maintains accounting records which fairly reflect, in all material respects, Seller's transactions. 3.19 NEW YORK STOCK EXCHANGE LISTING. The outstanding Common Shares are listed on the New York Stock Exchange. The issuance or sale and delivery of any Shares to the Investor pursuant to this Agreement will not violate any listing requirements of the New York Stock Exchange for the listing of Common Shares, including the Shares. 3.20 DISCLOSURE OF FACTS. There are no facts peculiar to Seller, Subsidiaries or the Seller Partnerships that Seller has not disclosed to the Investor that materially adversely affect, or insofar as Seller can reasonably foresee, will materially adversely affect, the business, financial condition, assets, results of operations or prospects of Seller, Subsidiaries or Seller Partnerships. 3.21 PENSION-HELD REIT. For purposes of Section 856(h)(3) of the Code, Seller hereby represents that at any time during the shorter of (i) the two-year period ending immediately prior to the First Closing Date or (ii) the period during which Seller was in existence, to the best of Seller's knowledge, no "qualified trust" has held, directly or indirectly, more than 10% of the interests in Seller. 3.22 SHAREHOLDER APPROVAL. The Seller's shareholders approved at the Annual Meeting all of the proposals set forth in the Notice of Annual Meeting of Shareholders and accompanying proxy statement dated May 12, 1997. -26- 32 SECTION 4. REPRESENTATIONS AND WARRANTIES OF INVESTOR The Investor represents and warrants with respect to itself (except as indicated) to, and agrees with, Seller as follows: a. ORGANIZATION AND RELATED MATTERS. It is a limited partnership duly organized and validly existing under the laws of the state of its organization. It has all necessary partnership power and partnership authority to carry on its business as now being conducted. It has all necessary partnership power and partnership authority to execute, deliver and perform this Agreement and the transactions contemplated hereby. b. AUTHORIZATION. This Agreement has been duly executed and delivered by it and constitutes the legally valid and binding obligation of the Investor and the Pecuniary Owner, enforceable in accordance with its terms, except as such enforceability may be limited by Equitable Remedies. The execution and delivery of this Agreement by it and the consummation of the transactions contemplated hereby will not require filing or registration with, or the issuance of any Permit by, any other third party or Governmental Entity under the terms of any applicable Law or its material Contracts, other than any filing required under the Exchange Act. c. NO CONFLICTS. The execution, delivery and performance of this Agreement by it will not violate the provisions of, or constitute a breach or default (whether upon lapse of time and/or the occurrence of any act or event or otherwise) under, (a) its organizational documents, pursuant to which it was organized and by which it is governed, (b) any Law to which it is subject or (c) any Contract to which it is a party that is material to the financial condition, results of operations or conduct of its business. d. NO BROKERS OR FINDERS. No agent, broker, finder or investment or commercial banker, or other Person or firms engaged by or acting on its behalf or on behalf of any of its Affiliates in connection with the negotiation, execution or performance of this Agreement or the transactions contemplated by this Agreement, is or will be entitled to any broker's or finder's or similar fees or other commissions as a result of this Agreement or such transactions. e. LEGAL PROCEEDINGS. There is no Order or Action pending against or, to its knowledge, affecting it that individually or when aggregated with one or more other Actions has, or if determined adversely would have, a material adverse effect on its business, properties, or financial condition or on its ability to perform this Agreement. -27- 33 f. INVESTMENT REPRESENTATION. This Agreement is made with the Investor in reliance upon such Investor's representation to Seller, which by such Investor's execution of this Agreement such Investor hereby confirms that the Shares will be acquired by the Investor as agent for and on behalf of the Pecuniary Owner, for the Pecuniary Owner's own account, not as nominee or agent for any other party, for investment purposes only and not with a view to or for sale in connection with the distribution thereof. It agrees to execute any further certificate or other document representing such investment intent or as to any other matter reasonably requested by Seller to assure compliance with applicable securities laws. g. LEGENDS; STOP-TRANSFER ORDERS. i. The certificates for Shares will bear legends in substantially the following form: THE SHARES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE AND, ACCORDINGLY, MAY BE OFFERED, SOLD, TRANSFERRED OR PLEDGED ONLY IN A TRANSACTION WHICH IS REGISTERED UNDER SUCH ACT AND UNDER SUCH LAWS OR IS EXEMPTED FROM SUCH REGISTRATION REQUIREMENTS. The foregoing legend shall be removed from any such certificate at the request of the holder thereof at such time as the shares represented thereby are registered under the Securities Act or become eligible for resale under Rule 144 promulgated under the Securities Act. ii. The certificates for Shares may also bear any legend required by any applicable state blue sky law. iii. Any certificates for Shares will also bear a legend relating to restrictions on transfer imposed pursuant to the percentage ownership limitation contained in the Charter Documents. iv. Seller may impose appropriate stop-transfer instructions relating to the restrictions set forth herein. h. STATUS FOR REIT OWNERSHIP AND INCOME TESTS. At the Closing, to the best of Investor's knowledge, the purchase of the Common -28- 34 Shares by the Pecuniary Owner will not result in a "qualified trust" as defined in Code Section 856(h)(3) holding more than 25% in value of the Seller's outstanding Capital Stock. The Pecuniary Owner is not purchasing the Common Shares, and will not hold any or all of the Common Shares so purchased, through any arrangement or entity that would be deemed, for federal income tax purposes, to be a partnership between the Pecuniary Owner and any or all of the Other Pecuniary Owners. The Common Shares that each Pecuniary Owner owns will not be considered to be owned by any individual (or entity treated as an individual under Section 856(h) of the Code), who after application of the stock ownership rules of Section 856(h) of the Code would own more than 9.8% of the lesser of the number or value of any outstanding class of Capital Stock. i. AUTHORITY OF THE INVESTOR. The Investor is duly authorized to enter into this Agreement and to consummate the transactions contemplated hereby as agent for and on behalf of the Pecuniary Owner. SECTION 5. COVENANTS WITH RESPECT TO CONDUCT OF SELLER PRIOR TO CLOSING From the date of this Agreement up to and including the Closing Date, Seller covenants and agrees to take such actions, or refrain from taking such actions, as are set forth in this Section 5. a. ACCESS. Seller shall, and shall cause the Subsidiaries and Seller Partnerships to, authorize and permit the Investor and its representatives (which term shall be deemed to include its independent accountants and counsel) to have reasonable access during normal business hours, upon reasonable notice and in such manner as will not unreasonably interfere with the conduct of business, to all of the Properties, books, records, operating instructions and procedures, Tax Returns and all other information with respect to the businesses of Seller, Subsidiaries and Seller Partnerships as the Investor may from time to time reasonably request, and to make copies of such books, records and other documents and to discuss the business of Seller, Subsidiaries and Seller Partnerships with the Investor and its partners and their respective officers, employees, accountants and counsel, as the Investor considers necessary or appropriate for the purposes of familiarizing itself with the business of Seller, obtaining any necessary Approvals of, or Permits for, the transactions contemplated by this Agreement and conducting an evaluation of the organization and business of Seller. From the date of this Agreement up to and including the Closing Date, Seller will permit, and cause Subsidiaries and Seller Partnerships to permit, the Investor and its officers, directors, agents, attorneys, accountants, and representatives, to audit such books and records, to meet -29- 35 with tenants of the Properties, and to conduct such investigations, tests, or inspections of the Properties as Seller shall approve in Seller's sole discretion, including intrusive sampling studies to ascertain whether or not there are any Hazardous Materials on, in, or under the Properties. b. MATERIAL ADVERSE CHANGES; SEC FILINGS; REPORTS; FINANCIAL STATEMENTS. i. Seller shall promptly notify the Investor of any event of which Seller obtains knowledge which has had or might reasonably be expected to have a material adverse effect on Seller's business or which if known as of the date hereof would have been required to be disclosed to the Investor. ii. Seller will, and will cause the Subsidiaries and Seller Partnerships to, furnish to the Investor as soon as available copies of all SEC Filings, and all material reports, renewals, filings, certificates, statements and other documents filed with any Governmental Entity. c. CONDUCT OF BUSINESS. Except as set forth in Schedule 5.3 and as provided in Section 5.4, from the date of this Agreement until the Closing Date, Seller agrees with and for the benefit of Buyer that Seller shall not, and Seller shall cause Subsidiaries and Seller Partnerships not to, without the prior written consent of the Investor, which consent may not unreasonably be withheld: i. conduct the business of Seller, Subsidiaries and Seller Partnerships in any manner except in the ordinary course consistent with past practices; or ii. purchase any real property without the consent of the Investment Committee; or iii. declare, issue, make or pay any dividend or other distribution of assets, whether consisting of money, other tangible or intangible personal property, real property or other thing of value, to its shareholders, or split, combine, dividend, distribute or reclassify any Common Shares or any shares of its Capital Stock, as applicable, except for dividends the record date of which is after the First Closing Date; or iv. issue, sell, redeem or acquire for value, or agree to do so, any debt obligations (other than the Prudential Line of Credit), Common Shares or Capital Stock; or -30- 36 v. incur or agree to incur any obligation or liability (absolute or contingent) that individually calls for payment by Seller, any Subsidiary or any Seller Partnership of more than $50,000 individually or in the aggregate except for (i) liabilities (other than indebtedness for borrowed money) incurred in the ordinary course of business consistent with past practices (including, but not limited to, tenant improvements and capital improvements to Properties), (ii) liabilities arising out of, incurred in connection with, or related to the consummation of the transactions contemplated by this Agreement, (iii) payments to Realco under the Realco Debt and (iv) purchases of real property in accordance with Section 5.3(b); or vi. merge (if Seller is not the surviving entity), sell substantially all of its assets or enter into any other contract involving any other form of business combination or liquidate, wind-up or dissolve (or suffer any liquidation or dissolution) or adopt any plan of liquidation or dissolution; or vii. change the number of Trust Managers or the Board of Directors of any of the Subsidiaries, or admit any additional partners to the Seller Partnerships; or viii. amend the Charter Documents or the charter or organizational documents of the Subsidiaries or Seller Partnerships; or ix. sell, lease, transfer or otherwise dispose of, or mortgage, pledge or otherwise encumber, other than the lease of any Property or space therein in the ordinary course of business consistent with past practices, any of the Properties; or x. cancel, satisfy or prepay any debt, obligation, liability or encumbrance, or waive any claim or right of value of Seller, Subsidiaries or Seller Partnerships except the extinguishment of debt under the Realco Debt through the conversion of the Realco Debt to Common Shares; or xi. (i) increase in any manner the compensation or fringe benefits (including, but not limited to, severance benefits) payable or to become payable by Seller, Subsidiaries, or Seller Partnerships to any officer, Trust Manager, director, partner, consultant or independent contractor as salary or wages or under any bonus, insurance, welfare, severance, deferred compensation, pension, retirement, profit sharing, share option (including, without limitation, the granting of any share option or share appreciation right or performance or restricted share award), share purchase or other -31- 37 employee benefit plan, (ii) except as approved by the Compensation Committee prior to the date of this Agreement or except as approved by the Compensation Committee and approved by a unanimous vote of the Seller's Board of Trust Managers, increase in any manner the compensation or fringe benefits (including, but not limited to, severance benefits) payable or to become payable by Seller, Subsidiaries or Seller Partnerships to any employee who is not an officer, Trust Manager, director or partner of Seller, Subsidiaries or Seller Partnerships as salary or wages or under any bonus, insurance, welfare, severance, deferred compensation, pension, retirement, profit sharing, share option (including, without limitation, the granting of any share option or share appreciation right or performance or restricted share award), share purchase or other employee benefit plan, except for such increase in salary, bonuses or severance benefits to such employees in the ordinary course of business consistent with past practices and provided that all such increases in salary, bonuses or severance benefits do not have a material adverse effect on the business, assets, financial condition or prospects of Seller, Subsidiaries or Seller Partnerships, or (iii) enter into, adopt, amend in any material respect (except as required by law) or terminate any Seller Benefit Plan or any agreement, arrangement, plan or policy between Seller, Subsidiaries or Seller Partnerships, as applicable, and one or more of its Trust Managers, directors, partners, officers, employees or independent contractors; or xii. make any tax election other than in connection with maintaining Seller's qualification as a REIT or take any action that would cause Seller not to qualify as a REIT, or fail to take any reasonable action to preserve Seller's qualification as a REIT; or xiii. make any change in any significant accounting principles or practices used by Seller, Subsidiaries or Seller Partnerships, except as required by the Commission; or xiv. amend, modify or change the terms of any Material Contract other than in the ordinary course of business consistent with past practice and provided that such amendment, modification or change does not have a material adverse effect on the business, assets, financial condition or prospects of Seller, Subsidiaries or Seller Partnerships; or xv. except as provided in Section 5.3(b), acquire any Person (or interest therein) or any material amount of assets, or make any loans, advances or capital contributions to, or investments in, any Person; or -32- 38 xvi. take any action that would, or fail to take any action which failure would, result in any of Seller's representations and warranties set forth in this Agreement not being true; or xvii. agree to or make any commitment to take any action prohibited by this Section 5.3. d. NOTIFICATION OF CERTAIN MATTERS. Seller shall give prompt notice to the Investor, and the Investor shall give prompt notice to Seller, of (a) the occurrence, or failure to occur, of any event that causes any representation or warranty contained in this Agreement to be untrue or inaccurate at any time from the date of this Agreement to the Closing Date and (b) any failure of the Investor or Seller, as the case may be, to comply with or satisfy, in any material respect, any covenant, condition or agreement to be complied with or satisfied by it under this Agreement. e. ADJUSTMENT OF SHARE PRICE. The Share Price will be subject to adjustment from time to time prior to the Closing Date as follows: (a) If Seller shall at any time prior to the Closing Date (i) pay a dividend or make any other distribution payable in Common Shares to holders of any class of Capital Stock of Seller, (ii) subdivide or reclassify the outstanding Common Shares into a greater number of shares or (iii) combine or reclassify the outstanding Common Shares into a smaller number of shares, the Share Price in effect at the time of the record date for such dividend or distribution or the effective date of such subdivision, combination or reclassification will be proportionately adjusted so that the Investor will be entitled to receive upon purchase after such time the number of Common Shares that the Investor would have owned or been entitled to receive had such purchase occurred immediately prior to such time. An adjustment made pursuant to this subsection (a) will become effective immediately after the record date in the case of a dividend or other distribution and will become effective immediately after the effective date of any such subdivision, combination, reclassification or change, provided that, if such dividend or distribution is not ultimately paid or made, the Share Price shall be readjusted to be equal to the Share Price in effect immediately prior to such record date. Such adjustment will be made successively whenever any event listed above occurs. (b) If Seller shall at any time prior to the Closing Date issue rights or warrants to all holders of Common Share entitling them (for a period commencing no earlier than the record date for the determination of holders of Common Shares entitled to receive such rights or warrants and expiring within 45 days after such record date) to subscribe for or purchase Common Shares at a price per share less than the Current Market Price (as defined in subsection (d) below) of Common Shares on such record date, the Share Price will be adjusted effective as of immediately after such record date so that it shall equal the price determined by multiplying the Share Price in effect immediately prior thereto by a fraction, the numerator of which is the number of Common Shares -33- 39 outstanding on such record date plus the number of Common Shares that the aggregate offering price of the Common Shares so offered for subscription or purchase or purchased would purchase at the Current Market Price per Common Share, and the denominator of which is the number of Common Shares outstanding on such record date plus the number of additional Common Shares which may be purchased upon the exercise of the rights or warrants issued, provided that, if such issuance is not ultimately made, the Share Price shall be readjusted to be equal to the Share Price in effect immediately prior to such record date. Common Shares owned by or held for the account of Seller shall not be deemed outstanding for the purpose of any such computation. Such adjustment will be made successively whenever such rights or warrants are issued. (c) If Seller shall at any time prior to the Closing Date distribute to all holders of Common Shares any shares of any class of Capital Stock other than Common Shares, evidences of indebtedness or other assets (other than cash dividends or distributions out of retained earnings), or shall distribute to holders of Common Shares rights or warrants to subscribe to securities (other than those referred to in subsection (b) above), then in each such case the Share Price will be adjusted so that it equals the price determined by multiplying the Share Price in effect immediately prior to the date of such distribution by a fraction, the numerator of which is the Current Market Price per Common Share on the record date mentioned below less the then fair market value (as determined by the Board of Trust Managers, whose determinations shall be conclusive evidences of such fair market value) of said shares, evidences of indebtedness, assets, rights or warrants or distributions applicable to one Common Share, and the denominator of which is such Current Market Price. Such adjustment will become effective immediately after the record date for the determination of the holders of Common Shares entitled to receive such distribution, provided that, if such issuance is not ultimately made, the Share Price shall be readjusted to be equal to the Share Price in effect immediately prior to such record date. Such adjustment will be made successively whenever such a distribution is made. (d) For the purpose of computation under subsections (b) and (c) above, the "Current Market Price" per Common Share at any date will be deemed to be the average of the daily closing price for the Common Shares on the New York Stock Exchange for 20 consecutive trading days commencing 30 trading days before such date. SECTION 6. ADDITIONAL CONTINUING COVENANTS AND AGREEMENTS a. USE OF PROCEEDS. The proceeds from the sale of the Shares to the Investor, net of any costs (including any accounting, legal and fairness opinion costs and expenses) associated with the transactions contemplated by this Agreement, shall be applied by Seller to the purchase of real property as approved by the Investment Committee in accordance with Section 2.2. -34- 40 b. APPOINTMENT OF TRUST MANAGER. i. GENERAL. Effective immediately following the Closing, Seller shall increase the number of its Trust Managers from seven to eight, and Seller shall appoint one individual designated by the Investor as Agent for and on behalf of the Pecuniary Owner and the Other Pecuniary Owners collectively to fill the vacancy caused by the increase in the number of Trust Managers under this Section 6.2(a). Simultaneously with the designee of the Investor becoming a Trust Manager of Seller, Seller and such designee shall enter into an indemnification agreement providing for indemnification of such designee identical in form to the indemnification agreements entered into between Seller and other Trust Managers. In addition, at the first annual meeting and all subsequent annual meetings of shareholders after the number of Trust Managers has been increased to eight under this Section 6.2(a), until Seller achieves the Threshold Equity Capitalization, Seller shall nominate, and use its best efforts to have such person elected (which efforts shall include, without limitation, including the Investor's nominee in management's slate for nomination and election and solicitation of proxies on their behalf), one designee of the Investor (which may be a different person than the person initially appointed as Trust Manager pursuant to the first sentence of this Section 6.2(a) if such initial designee shall have died, resigned, been removed or declined to be nominated) as Trust Manager. During such time as Seller shall have an individual designated by the Investor serving as Trust Manager pursuant to this Section 6.2(a), and except as otherwise provided in Section 6.2(b) hereof, the number of Trust Managers shall consist of not more than eight persons, including the designee of the Investor. Such designee of the Investor shall hold office until resignation, removal, death or expiration of the term for which he or she was appointed and any successive term for which such representative is duly elected as a Trust Manager by the shareholders of Seller. In the event of the death, resignation or removal from office of the designee of the Investor serving as a Trust Manager pursuant to the first sentence of this Section 6.2(a), Seller agrees to promptly appoint a replacement designee selected by the Investor as Trust Manager prior to the date Trust Managers are to be elected at the first annual meeting after the number of Trust Managers has been increased to eight pursuant to this Section 6.2(a). ii. OBSERVATION RIGHTS. In the event that the designee selected by the Investor to serve as Trust Manager is not, for any reason, elected by Seller's shareholders, the Investor shall have full observation rights with respect to Seller's Trust Managers, including the right to obtain full and timely notice of all meetings of the Trust Managers and of each of its -35- 41 committees, to obtain copies of all written and other materials disseminated to Trust Managers and to designate a person to attend in person or by telephone all meetings of the Trust Managers or their committees. If the Investor receives observation rights pursuant to the provisions of this paragraph, the Investor and its designees in respect of such rights shall each execute a confidentiality agreement in form and substance reasonably satisfactory to Seller. iii. RESIGNATIONS. At such time as Seller achieves Threshold Equity Capitalization, the Investor shall cause its designee to not seek re-election at the next annual meeting, or at Seller's option, to immediately resign. iv. QUALIFICATIONS. Each of the representatives designated by the Investor in accordance with this Section 6.2 shall be a Person selected by the Investor in its sole discretion; provided, however, that any such person may not have been involved in any of the events described in Item 401(f)(1)-(4) of Regulation S-K promulgated under the Exchange Act. v. COMMITTEES. At any time that the Investor shall have exercised its rights under this Section 6.2 to appoint a designee as Trust Manager, Seller shall appoint the Investor's designee on each committee of the Trust Managers, and each such committee shall contain no more than four members until expiration of the latest term of office of any designee of the Investor pursuant to Section 6.2(a) or 6.2(b). c. ENVIRONMENTAL MATTERS. Seller will advise the Investor promptly (a) upon obtaining knowledge that a Release has occurred at or upon the Properties and/or (b) upon receipt of a Notification pertaining to the Properties. d. STATUS FOR REIT OWNERSHIP AND INCOME TESTS. Following the Closing Date, and at all subsequent times during which the Investor or the Pecuniary Owner owns any of the Shares, applying the stock ownership rules of Section 856(h) of the Code, the representation set forth in Section 4.8 will remain true and correct. e. PROHIBITED TRANSACTIONS. Seller shall not effect any business transactions, or agree to effect any business transactions, with Affiliates, Trust Managers or employees of Seller except in the ordinary course of business and unless the consideration paid by Seller in any such business transaction is fair value at market rates, or approved by Seller's shareholders in accordance with applicable state law. -36- 42 f. SELLER/BUYER REGISTRATION RIGHTS AGREEMENT. On the Closing Date, the Investor, as agent for and on behalf of the Pecuniary Owner and certain Other Pecuniary Owners, and Seller shall enter into a Registration Rights Agreement substantially in the form of Exhibit A. g. REIT QUALIFICATION. Seller shall take all actions necessary to maintain Seller's qualification as a REIT and, without the written consent of the Investor shall take no action that would cause Seller not to qualify as a REIT or fail to take any action that would preserve Seller's qualification as a REIT. Seller covenants and agrees that (i) it will duly and promptly notify the Investor upon becoming aware that any "qualified trust" holds or is expected to hold, directly or indirectly, more than 10% of the interests in Seller, and (ii) it will provide the Investor such information and/or verification as the Investor shall reasonably request in order to verify whether Seller constitutes a "pension-held REIT" as defined under Section 856(h)(3)(C) of the Code. h. PREEMPTIVE RIGHTS. In the event that Seller shall at any time subsequent to the date of this Agreement issue any Common Shares to any Person or Persons (other than (i) Common Shares issued to Realco in connection with the conversion of the Realco Debt to Common Shares, (ii) Common Shares issued pursuant to an employee share option, share purchase, share incentive or compensation plan or (iii) Common Shares issued to any partners in Affiliates of Realco in connection with the merger of such Affiliates with and into Seller) (each such issuance, a "Subsequent Offering")), the Investor shall have the right to purchase, on the same terms and conditions as the other purchasers in the Subsequent Offering, Common Shares in an amount not to exceed, in the aggregate, such number of Common Shares as is equal to the total number of Common Shares offered in the Subsequent Offering times a fraction, the numerator of which is the number of Common Shares then owned by the Investor in the aggregate and the denominator of which is the total number of Common Shares outstanding immediately prior to such Subsequent Offering. Notwithstanding the foregoing, with respect to each Subsequent Offering by Seller in the amount of $10 million or more, the amount of shares the Investor may purchase in the aggregate pursuant to such Preemptive Rights shall be reduced by 5% of the total Common Shares outstanding (on a fully-diluted basis) after each such Subsequent Offering. The Investor's Preemptive Rights will immediately terminate once Seller achieves a Minimum Equity Capitalization. The Investor or the Pecuniary Owner, as applicable, shall have the right to assign the preemptive right to buy additional Common Shares pursuant to this Section 6.8 to any of the Other Pecuniary Owners or to any other client of the Investor who can make the representation to Seller set forth in Section 4.8. -37- 43 i. DEBT. Neither Seller, any Subsidiary or any Seller Partnership shall, without the prior written consent of the Investor (i) incur, create, assume, guarantee or in any way become liable for, or permit to exist, any Debt prior to such time as the Seller achieves a Minimum Equity Capitalization, except to the extent the proceeds of such Debt is to be used to acquire real property, and such acquisition occurs within 90 days of the date such Debt is incurred; or (ii) issue or have outstanding any Preferred Shares, or any warrants, options, conversion rights or other rights to subscribe for, purchase or acquire any Preferred Shares, prior to such time as the Seller achieves Minimum Equity Capitalization. j. FURNISH DOCUMENTS. Seller shall furnish or cause to be furnished to the Investor within five Business Days after Seller is required to file the same with the Commission , copies of the periodic information, documents and other reports which Seller is required to file with the Commission pursuant to Section 13(a) of the Exchange Act. If Seller ceases to be required to file information, documents and other reports pursuant to Section 13 of the Exchange Act, it shall remain obligated to furnish the same information, documents and reports otherwise required under Section 13(a) of the Exchange Act to the Investor within five Business Days after Seller would have been required to file the same with the Commission; and i. Seller shall furnish or cause to be furnished to the Investor, within five Business Days after the effective date thereof, copies of any amendment or modification to its Charter Documents. k. TAXES. Seller shall, and shall cause each Subsidiary and Seller Partnership to, pay, when due, all taxes, assessments and governmental charges or levies imposed upon it and all claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and any other like person or entity which, if unpaid, might result in the creation of a lien upon the income of Seller or its assets; provided that items of the foregoing description need not be paid while being contested in good faith and by appropriate proceedings and adequate reserves with respect thereto have been provided on the books of Seller, such Subsidiary of such Seller Partnership, as the case may be. -38- 44 l. ADDITIONAL INFORMATION Seller shall execute and deliver or cause to be executed and delivered to the Investor upon the Investor's reasonable request such other and further instruments or documents as in the reasonable judgment of the Investor and Seller are necessary to conform, create, evidence, preserve or maintain the Pecuniary Owner's rights in the Shares, and Seller shall do all such additional acts, give such assurances and execute such instruments as the Investor may reasonably require to vest more completely in and assure to the Pecuniary Owner its rights in the Shares. m. MSRE AND MSAM CLOSING. If MSRE and MSAM, as agent and attorney-in-fact on behalf of certain clients, do not purchase additional Common Shares of Seller for an aggregate purchase price of at least $4,500,000 within seven days of the Closing Date, Seller shall rescind the sale of Shares hereunder and promptly repay to the Investor the full purchase price for the Shares purchased hereby. SECTION 7. GENERAL CONDITIONS OF PURCHASE The obligations of the parties to effect each Closing shall be subject to the following conditions unless waived in writing by all parties: a. NO ORDERS. No Law or Order shall have been enacted, entered, issued, promulgated or enforced by any Governmental Entity which prohibits or restricts the transactions contemplated by this Agreement. No Governmental Entity shall have notified any party to this Agreement that consummation of the transactions contemplated by this Agreement would constitute a violation of any Law of any jurisdiction or that it intends to commence proceedings to restrain or prohibit such transactions or force divestiture or rescission, unless such Governmental Entity shall have withdrawn such notice and abandoned any such proceedings prior to the time which otherwise would have been the applicable Closing Date. b. APPROVALS. To the extent required by applicable Law, all Permits and Approvals required to be obtained in connection with each Closing from any Governmental Entity or any consent from a third party material to Seller or its business shall have been received or obtained on or prior to the applicable Closing Date. c. ABSENCE OF LITIGATION. No Action before any Governmental Entity pertaining to the transactions contemplated by this Agreement shall have been instituted on or before the applicable Closing Date whether or not any of the parties hereto or its Affiliates is a party. -39- 45 d. NEW YORK STOCK EXCHANGE. The Shares shall have been approved for listing, upon official notice of issuance, on the New York Stock Exchange. Seller will use its best efforts to maintain the listing of its Common Shares on the New York Stock Exchange. e. SHAREHOLDER APPROVAL. Seller shall have received Shareholder Approval. SECTION 8. CONDITIONS TO OBLIGATIONS OF THE INVESTOR The obligations of the Investor, as agent for and on behalf of the Pecuniary Owner, to effect the Closing shall be subject to the following conditions except to the extent waived in writing by the Investor: a. ACCURACY OF SELLER'S REPRESENTATIONS AND WARRANTIES. All representations and warranties of Seller set forth in this Agreement shall be true and correct in all material respects on the applicable Closing Date as if made on and as of such Closing Date. b. PERFORMANCE BY SELLER. Seller shall have in all material respects performed, satisfied and complied with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by Seller on or before the applicable Closing Date, including the covenants set forth in Section 5. c. NO MATERIAL ADVERSE CHANGE. During the period from December 31, 1996 to the applicable Closing Date, (i) there shall not have been any material adverse change or any development involving a material adverse change in the condition (financial or otherwise) of Seller, any Subsidiary or any Seller Partnership, taken as a whole, or in the earnings, business, prospects or operations of Seller, any Subsidiary or any Seller Partnership, taken as a whole, and (ii) there shall not have occurred any material adverse change in the financial markets in the United States, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, in each case the effect of which is such as to, in the judgment of the Investor, significantly impair the marketability or value of the Shares, (iii) the trading in any securities of Seller shall not have been suspended or limited by the Commission or the New York Stock Exchange, trading generally on the American Stock Exchange or the New York Stock Exchange or in the -40- 46 Nasdaq National Market shall not have been suspended or limited, minimum or maximum prices for trading shall not have been fixed, and maximum ranges for prices shall not have been required, by any of said exchanges or by such system or by order of the Commission, the National Association of Securities Dealers, Inc. or any other Governmental Entity, and (iv) a banking moratorium shall not have been declared by Federal, Texas or New York authorities. d. CERTIFICATION BY SELLER. The Investor shall have received a certificate, addressed to the Investor and dated as of the applicable Closing Date, signed by the President of Seller, certifying, in such detail as the Investor and its counsel reasonably may request, that all of the conditions specified in Section 8 have been fulfilled. e. OPINION OF SELLER'S COUNSEL. The Investor shall have received from counsel for Seller an opinion, addressed to the Investor and dated as of the applicable Closing Date, in form and substance reasonably satisfactory to the Investor as to the matters set forth in Schedule 8.5. f. SCHEDULES. Seller shall have delivered to the Investor updated Schedules, if any, to this Agreement. g. REALCO, MSRE AND MSAM CONSENT. Seller shall have received all necessary consents or waivers from Realco, MSRE and MSAM in connection with the matters contemplated by this Agreement. h. ADDITIONAL INFORMATION. Seller's Fourth Amended and Restated Bylaws shall have been amended to provide for a maximum of eight (8) Trust Managers. i. CLOSING OF MSRE AND MSAM PURCHASE TRANSACTIONS. Seller shall have closed on the sale of the Common Shares to MSRE and MSAM, as agent and attorney-in-fact on behalf of the MSAM Purchasers, pursuant o the MSAM Purchase Agreement whereby Seller shall have received an aggregate purchase price of at least $12,500,00 from such purchasers from the issuance and sale of its Common Shares. SECTION 9. CONDITIONS TO OBLIGATIONS OF SELLER The obligations of Seller to effect each Closing shall be subject to the following conditions, except to the extent waived in writing by Seller: -41- 47 a. ACCURACY OF THE INVESTOR'S REPRESENTATIONS AND WARRANTIES. All representations and warranties of the Investor set forth in this Agreement shall be true and correct in all material respects on the applicable Closing Date as if made on and as of such Closing Date. b. BUYERS' PERFORMANCE. The Investor shall have in all material respects performed, satisfied and complied with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Investor on or before the applicable Closing Date. c. CERTIFICATION. Seller shall have received a certificate, dated as of the applicable Closing Date, signed by a Managing Director of the Investor, certifying, in such detail as Seller and its counsel reasonably may request, that the conditions specified in Section 9 have been fulfilled. d. OPINION OF COUNSEL. Seller shall have received from counsel to the Investors an opinion, dated as of the applicable Closing Date, in form and substance reasonably satisfactory to Seller as to the matters set forth in Schedule 9.4. e. REIT STATUS. The purchase of Shares by the Investor, as agent for and on behalf of the Pecuniary Owner, will not cause Seller to lose its status as a REIT under the Code. SECTION 10. TERMINATION OF OBLIGATIONS; SURVIVAL a. TERMINATION OF AGREEMENT. This Agreement and the transactions contemplated by this Agreement may be terminated at any time before the Closing Date, as follows and in no other manner: i. MUTUAL CONSENT. By mutual consent in writing of the Investor and Seller. ii. MISREPRESENTATION OR MATERIAL BREACH. By the Investor or Seller with written notice to the other parties if there has been a misrepresentation or material breach on the part of Seller or the Investor, in their respective representations, warranties and covenants set forth herein, which, with respect to a breach of a covenant, if curable, has not been cured within 10 business days after receipt of notice from the Investor or Seller of the terminating party's intention to terminate. iii. ENVIRONMENTAL NONCOMPLIANCE. By the Investor in the event of the discovery of any Release or other matter prior to any Closing Date -42- 48 which, if known to Seller as of the date of this Agreement, would have constituted a breach of the representations and warranties contained in Section 3.17. iv. CLOSING. This Agreement shall terminate if the Closing does not occur on or before July 11, 1997. b. EFFECT OF TERMINATION. In the event that this Agreement shall be terminated pursuant to Section 10.1 all further obligations of the parties under this Agreement shall terminate; provided that the obligations of the parties contained in this Section 10.2, Section 11, and Section 12 (other than Sections 12.3 and 12.8) shall survive any such termination. A termination under Section 10.1 shall not relieve any party of any liability for a breach of, or for any misrepresentation under, this Agreement, or be deemed to constitute a waiver of any available remedy (including specific performance if available) for any such breach or misrepresentation. c. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. (a) The representations and warranties contained in or made pursuant to this Agreement shall expire on the third anniversary of the Closing Date except that (a) the representations and warranties contained in Section 3.2 shall continue forever (subject to all defenses of Seller available under applicable Law, including the expiration of the applicable statute of limitations period), (b) the representations and warranties contained in Section 3.14 shall continue through the applicable statute of limitations, (c) representations and warranties which are intentionally misrepresented shall continue through the later of the first anniversary of the Closing Date and one year following the date of actual discovery of such intentional misrepresentation, and (d) if a claim or notice is given under Section 12 with respect to the breach of any representation or warranty prior to the applicable expiration date, such representation or warranty shall continue indefinitely until such claim is finally resolved. (b) All covenants and agreements of the parties hereto shall be continuing and shall survive each Closing Date pursuant to the terms thereof. (c) The provisions of Section 11.1 through Section 11.5 and Section 12.12 shall survive and remain in full force and effect with respect to the Investor notwithstanding any termination of the Investor's appointment as agent on behalf of the Pecuniary Owner. -43- 49 SECTION 11. INDEMNIFICATION a. INDEMNIFICATION. In partial consideration of the commitment of the Investors as agent for and on behalf of the Pecuniary Owner hereunder, Seller agrees to indemnify and hold harmless the Investor and the Pecuniary Owner and any of their respective affiliates, directors, officers, agents and employees and each other person, if any, controlling the Investor or the Pecuniary Owner or any of their respective affiliates (each an "Investor Indemnified Person") from and against any Losses (or actions in respect thereof) to which such Investor Indemnified Person may become subject in connection with the matters which are the subject of the commitment made hereunder (including any use or proposed use of the proceeds from the sale of the Common Shares) including without limitation any and all Losses of the Investor Indemnified Person as a result of, or based upon or arising out of, directly or indirectly any inaccuracy in, breach or nonperformance of, any of the representations, warranties, covenants or agreements made by Seller in, or pursuant to this Agreement, and will reimburse any Investor Indemnified Person for all reasonable expenses (including the reasonable fees of counsel) as they are incurred by any such Investor Indemnified Person in connection with investigating, preparing or defending any such action or claim pending or threatened, whether or not such Investor Indemnified Person is a party hereto. Seller shall not be responsible for any losses, claims, damages, liabilities or expenses resulting from such Investor Indemnified Person's gross negligence or willful misconduct. Seller also agrees that no Investor Indemnified Person shall have any liability (whether direct or indirect, in contract or tort or otherwise) to Seller for or in connection with this Agreement except for losses, claims, damages, liabilities or expenses to the extent that a court of competent jurisdiction or arbitration panel shall have finally determined that such losses, claims, damages, liabilities or expenses resulted from such Investor Indemnified Persons's gross negligence or willful misconduct. In the event that the foregoing indemnity is unavailable or insufficient to hold Investor Indemnified Person harmless, Seller shall contribute to amounts paid or payable by such Investor Indemnified Person in respect of such losses, claims, damages, liabilities and expenses in such proportion as appropriately reflects the relative benefits received by, and fault of Seller, on the one hand, and the Investor and the Pecuniary Owner on the other hand, in connection with the matters as to which such losses, claims, damages, liabilities or expenses relate. The agreement of Seller in this paragraph shall be in addition to any other liability that Seller may otherwise have. -44- 50 b. OBLIGATIONS OF THE INVESTOR AND THE PECUNIARY OWNER. The Investor and the Pecuniary Owner, severally and not jointly, agree to indemnify, defend and hold harmless Seller and its Trust Managers, officers, employees, agents, directors and Affiliates (collectively, the "SELLER INDEMNIFIED PARTIES") from and against any and all Losses of the Seller Indemnified Parties as a result of, or based upon or arising out of, directly or indirectly, (a) any material inaccuracy in, or material breach or material nonperformance of, any of the representations, warranties, covenants or agreements made by the Investor as agent for and on behalf of the Pecuniary Owner in, or pursuant to, this Agreement, or (b) any pending or threatened Action brought by the Investor's or the Pecuniary Owner's shareholders or creditors relating to, or arising out of or in connection with, directly or indirectly, the transactions contemplated under this Agreement; provided, however, that the Investor or the Pecuniary Owner, as applicable, shall not be obligated to indemnify, defend or hold harmless any of the Seller Indemnified Parties for any claims based solely on actions taken by any of the Seller Indemnified Parties other than the performance of the covenants and agreements to be undertaken by Seller pursuant to the terms and conditions of this Agreement and any other action authorized in writing by the Investor or the Pecuniary Owner, as applicable. As a condition to the rights of any of the Seller Indemnified Parties under this Section 11, the Investor may require that any such Person provide a written undertaking that such Person will repay to the Investor or the Pecuniary Owner, as applicable, any amount expended by the Investor or the Pecuniary Owner, as applicable, to indemnify, defend or hold harmless such Person in the event and to the extent a court determines that such Investor's or Pecuniary Owner's indemnification or defense of such Person is prohibited by applicable Law. The agreement of the Investor and the Pecuniary Owner in this paragraph shall be in addition to any other liability that the Investor and the Pecuniary Owner may otherwise have. c. PROCEDURE. i. NOTICE. Any party seeking indemnification with respect to any Loss shall give notice to the party required to provide indemnity hereunder (the "INDEMNIFYING PARTY") on or before the date specified in Section 11.4. ii. DEFENSE OF CLAIM. If any claim, demand or liability is asserted by any third party against any Indemnified Party, the Indemnifying Party shall have the right, unless otherwise precluded by applicable law, to conduct and control the defense, compromise or settlement of any Action or threatened Action brought against the Indemnified Party in respect of matters embraced by the indemnity set forth in this Section 11. The -45- 51 Indemnified Party shall have the right to employ counsel separate from counsel employed by the Indemnifying Party in connection with any such Action or threatened Action and to participate in the defense thereof, but the fees and expenses of such counsel employed by the Indemnified Party shall be at the sole expense of the Indemnified Party unless (i) the Indemnifying Party shall have elected not, or, after reasonable written notice of any such Action or threatened Action, shall have failed, to assume or participate in the defense thereof, (ii) the employment thereof has been specifically authorized by the Indemnifying Party in writing, or (iii) the parties to any such Action or threatened Action (including any impleaded parties) include both the Indemnifying Party and the Indemnified Party and the Indemnified Party shall have been advised in writing by counsel for the Indemnified Party that there may be one or more defenses available to the Indemnified Party that are not available to the Indemnifying Party or legal conflicts of interest pursuant to applicable rules of professional conduct between the Indemnifying Party and the Indemnified Party (in any which case, the Indemnifying Party shall not have the right to assume the defense of such Action on behalf of the Indemnified Party), in either of which events referred to in clauses (i), (ii) and (iii) the fees and expenses of such counsel employed by the Indemnified Party shall be at the expense of the Indemnifying Party. The Indemnifying Party shall not, without the written consent of the Indemnified Party, settle or compromise any such Action or threatened Action or consent to the entry of any judgment which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the Indemnified Party a release from all liability in respect of such Action or threatened Action. Unless the Indemnifying Party shall have elected not, or shall have after reasonable written notice of any such Action or threatened Action failed, to assume or participate in the defense thereof, the Indemnified Party may not settle or compromise any Action or threatened Action without the written consent of the Indemnifying Party. If, after reasonable written notice of any such Action or threatened Action, the Indemnifying Party neglects to defend the Indemnified Party, a recovery against the latter suffered by it in good faith, is conclusive in its favor against the Indemnifying Party; provided, however, that no such conclusive presumption shall be made if the Indemnifying Party has not received reasonable written notice of the Action against the Indemnified Party. d. SURVIVAL. The indemnity set forth in this Section 11 shall survive each Closing or any termination of this Agreement and shall remain in effect for a period of (a) with respect to a breach of a representation or warranty, for the period through which such representation or warranty shall continue pursuant to Section 10.3 (including such period of time through which such representation or warranty shall be extended until resolution of a claim with respect thereto) and (b) with respect to a breach of a covenant or agreement or an Action referred to in Sections 11.1 or 11.2(b), forever. -46- 52 e. NOTICE BY SELLER. Seller and the Investor agree to notify in writing the other parties of any liabilities, claims or misrepresentations, breaches or other matters covered by this Section 11 upon discovery or receipt of notice thereof (other than from such other parties), whether before or after any Closing Date. SECTION 12. GENERAL a. AMENDMENTS; WAIVERS. This Agreement and any Schedule or Exhibit attached hereto or referenced herein may be amended only by agreement in writing of all parties. No waiver of any provision nor consent to any exception to the terms of this Agreement shall be effective unless in writing and signed by the party to be bound and then only to the specific purpose, extent and instance so provided. b. SCHEDULES; EXHIBITS; INTEGRATION. Each Exhibit and Schedule delivered pursuant to the terms of this Agreement shall be in writing and shall constitute a part of the Agreement. This Agreement, together with such Exhibits and Schedules, constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior agreements and understandings of the parties in connection therewith. c. BEST EFFORTS; FURTHER ASSURANCES. Each party will use its best efforts to cause all conditions to its obligations to be timely satisfied and to perform and fulfill all obligations on its part to be performed and fulfilled under this Agreement. The parties shall cooperate with each other in such actions and in securing requisite Approvals. Each party shall execute and deliver such further certificates, agreements and other documents and take such other actions as the other party may reasonably request to consummate or implement the transactions contemplated hereby or to evidence such events or matters, including the seeking of any necessary shareholder approvals. d. GOVERNING LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF MARYLAND, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION (WHETHER OF THE STATE OF MARYLAND OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK. -47- 53 e. NO ASSIGNMENT. Except as otherwise specifically provided herein, neither this Agreement nor any rights or obligations under it are assignable by any party, except that the Investor may assign the commitment of any Pecuniary Owner to purchase Shares hereunder, and the related rights and remedies of such Pecuniary Owner, to any other client on behalf of whom it or any of its Affiliates acts as investment advisor, whether or not such client is initially the Pecuniary Owner hereunder and (ii) the Pecuniary Owner may at any time subsequent to the date hereof appoint a successor agent to act on its behalf in connection with the matters contemplated herein. f. HEADINGS. The descriptive headings of the Sections and subsections of this Agreement are for convenience only and do not constitute a part of this Agreement. g. COUNTERPARTS. This Agreement and any other agreement or document delivered pursuant hereto may be executed in one or more counterparts and by different parties in separate counterparts. All of such counterparts shall constitute one and the same agreement or other document and shall become effective when one or more counterparts of this Agreement have been signed by each party and delivered to the other parties. h. PUBLICITY AND REPORTS. Seller and the Investor shall coordinate all publicity relating to the transactions contemplated by this Agreement and no party shall issue any press release, publicity statement or other public notice relating to this Agreement, or the transactions contemplated by this Agreement, without obtaining the prior consent of the other parties, except to the extent that independent legal counsel to Seller or the Investor, as the case may be, shall advise the other parties in writing that a particular action is required by applicable Law (in which event the party taking such action shall cooperate with the other party in connection with any disclosure or publicity resulting from such action). i. CONFIDENTIALITY. All information disclosed by any party (or its representatives) to the other party whether before or after the date hereof, in connection with the transactions contemplated by, or the discussions and negotiations preceding, this Agreement to any other party (or its representatives) shall be kept confidential by such other party and its representatives and shall not be used by any such Persons other than as contemplated by this Agreement, except (a) to the extent that such information (i) was known by the recipient when received, (ii) is or hereafter becomes lawfully obtainable from other public sources or (iii) is necessary or appropriate to be disclosed to a Governmental Entity having jurisdiction over the parties, (b) as may otherwise be required by Law to be -48- 54 disclosed or (c) to the extent such duty as to confidentiality is waived in writing by the other parties. Notwithstanding the foregoing, the Investor shall be entitled to disclose information relating to this Agreement and the transactions contemplated hereby to any client on behalf of whom it or any of its Affiliates acts as investment advisor, in connection with a contemplated investment by such client in Seller as described herein. If this Agreement is terminated in accordance with its terms, each party shall use all reasonable efforts to return upon written request from the other parties all documents (and reproductions thereof) received by it or its representatives from such other parties (and, in the case of reproductions, all such reproductions made by the receiving party) that include information not within the exceptions contained in the first sentence of this Section 12.9, unless the recipients provide assurances reasonably satisfactory to the requesting party that such documents have been destroyed. j. PARTIES IN INTEREST. This Agreement shall be binding upon and inure to the benefit of each party, and nothing in this Agreement, express or implied, is intended to confer upon any other Person any rights or remedies of any nature whatsoever under or by reason of this Agreement. Nothing in this Agreement is intended to relieve or discharge the obligation of any third Person to or to confer any right of subrogation or action over or against any party to this Agreement. k. NOTICES. Any notice or other communication hereunder must be given in writing and (a) either delivered in person, (b) transmitted by telex, telefax or telecopy mechanism, (c) mailed by first class mail, return receipt requested, or (d) delivered by overnight mail or courier service, as follows: If to the Investor, addressed to: ABKB/LaSalle Securities Limited Partnership 100 East Pratt Street Baltimore, Maryland 21202 Attention: Stanley J. Kraska, Jr. Telecopy: (410) 347-0612 With a copy to: Elizabeth Grieb, Esquire Piper & Marbury L.L.P. 36 S. Charles Street Baltimore, Maryland 21201 Telecopy: (410) 576-1710 -49- 55 If to Seller, addressed to: American Industrial Properties REIT 6220 North Beltline Road, Suite 205 Irving, Texas 75063-2656 Attention: Mr. Charles W. Wolcott President and Chief Executive Officer Telecopy: (972) 550-6037 or to such other address or to such other person as any party shall have last designated by such notice to the other parties. Each such notice or other communication shall be effective (i) if given by telecommunication, when transmitted to the applicable number so specified in this Section 12.11 and an appropriate answer back is received, (ii) if given by mail, three days after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, when actually delivered at such address. l. EXPENSES. Except as set forth in the next sentence, each of the parties hereto shall pay its own respective expenses incident to the negotiation, preparation and performance of this Agreement and the transactions contemplated hereby, including but not limited to the fees, expenses and disbursements of its respective financial advisers, accountants and counsel. Seller shall reimburse the Investors for all legal fees incurred by the Investor relating to the transactions contemplated by this Agreement and the Registration Rights Agreement up to a maximum of $25,000. m. REMEDIES; WAIVER. All rights and remedies existing under this Agreement and any related agreements or documents are cumulative to and not exclusive of any rights or remedies otherwise available under applicable Law. No failure on the part of any party to exercise or delay in exercising any right hereunder shall be deemed a waiver thereof, nor shall any single or partial exercise preclude any further or other exercise of such or any other right. Each of the parties hereto shall be entitled to seek any equitable remedy to the extent such remedy is available under applicable Law. n. REPRESENTATION BY COUNSEL; INTERPRETATION. Each of the parties hereto acknowledges that each party to this Agreement has been represented by counsel in connection with this Agreement and the transactions contemplated by this Agreement. Accordingly, any rule of Law or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the party that drafted it has no application and is expressly waived. The provisions of this Agreement shall be interpreted in a reasonable manner to effect the intent of the parties hereto, and no rule of strict construction shall be applied against any party to this Agreement. -50- 56 o. SEVERABILITY. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any current or future law, and if the rights or obligations of the parties under this Agreement would not be materially and adversely affected thereby, such provision shall be fully separable, and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part thereof, and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance therefrom. In lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as a part of this Agreement, a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible, and the parties hereto request the court or any arbitrator to whom disputes relating to this Agreement are submitted to reform the otherwise illegal, invalid or unenforceable provision in accordance with this Section 12.15. p. ARBITRATION. In the event of a dispute hereunder which cannot be resolved by the parties, such dispute shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association and judgment on the award rendered by the arbitration panel may be entered in any court or tribunal of competent jurisdiction. Any arbitration occurring under this Section 12.16 shall be held in Baltimore, Maryland in the first instance, in Dallas, Texas in the second instance, and continuing in that order with respect to each dispute occurring hereunder. q. AGENTS. (a) Seller acknowledges and agrees that the Investor is acting as agent for and on behalf of the Pecuniary Owner and that the Investor shall not have any liability to Seller, and shall not be obligated to purchase securities hereunder with respect to which the Pecuniary Owner was obligated to but did not purchase. (b) In the event that the Investor shall no longer act as agent for and on behalf of the Pecuniary Owner in connection with the matters contemplated by this Agreement, then (i) any agent(s) appointed by the Pecuniary Owner as successor agent(s) to the Investor shall be entitled to, and to exercise on behalf of the Pecuniary Owner, all of the rights and remedies provided for herein with respect to the Investor and (ii) at any such time as no successor agent(s) shall have been appointed by the Pecuniary Owner, the Pecuniary Owner shall be entitled to exercise all of the rights and remedies provided for herein in its individual capacity, including the right to obtain, upon request, copies of all documents and notices as specified herein. In the event that the Investor shall no longer act as agent on behalf of the Pecuniary Owner hereunder, all consents or waivers of the Investor necessary to effect any action hereunder shall be required to be given by any successor agent(s) appointed by the Pecuniary Owner or, if no successor(s) has been appointed, by the Pecuniary Owner, prior to the consummation of such action. -51- 57 (c) Until such time as Seller shall have received a written notice from the Pecuniary Owner that the Investor is no longer acting as the Pecuniary Owner's agent hereunder, Seller shall be entitled to rely on any instructions and any notices received from the Investor on behalf of the Pecuniary Owner as if received from the Pecuniary Owner directly. "INVESTOR" ABKB/LASALLE SECURITIES LIMITED PARTNERSHIP, as Agent and for and on behalf of the Pecuniary Owner By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- "SELLER" AMERICAN INDUSTRIAL PROPERTIES REIT ------------------------------------- Charles W. Wolcott President and Chief Executive Officer -52- EX-10.8 9 COMMON SHARE PURCHASE AGREEMENT 1 EXHIBIT 10.8 COMMON SHARE PURCHASE AGREEMENT dated as of July 3, 1997 Between AMERICAN INDUSTRIAL PROPERTIES REIT and ABKB/LASALLE SECURITIES LIMITED PARTNERSHIP as Agent for and for the benefit of a particular client 2 TABLE OF CONTENTS SECTION 1. DEFINITIONS AND RULES OF CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1- 1.1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1- 1.2 RULES OF CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10- SECTION 2. PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11- 2.1 PURCHASE AND SALE OF THE COMMON SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11- 2.2 USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11- 2.3 CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11- SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11- 3.1 ORGANIZATION AND RELATED MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11- 3.2 CAPITAL STOCK; TITLE TO SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12- 3.3 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13- 3.4 SEC REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14- 3.5 AUTHORIZATION; NO CONFLICTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14- 3.6 LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15- 3.7 COMPLIANCE WITH LAW AND PERMITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16- 3.8 DIVIDENDS AND OTHER DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16- 3.9 CERTAIN INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16- 3.10 NO BROKERS OR FINDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17- 3.11 EMPLOYEE BENEFIT PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17- 3.12 LABOR MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18- 3.13 PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18- 3.14 TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20- 3.15 MATERIAL CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22- 3.16 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22- 3.17 ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22- 3.18 TRUST RECORDS; ACCOUNTING RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23- 3.19 NEW YORK STOCK EXCHANGE LISTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23- 3.20 DISCLOSURE OF FACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23- 3.21 PENSION-HELD REIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24- 3.22 SHAREHOLDER APPROVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24- SECTION 4. REPRESENTATIONS AND WARRANTIES OF INVESTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24- 4.1 ORGANIZATION AND RELATED MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24- 4.2 AUTHORIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24- 4.3 NO CONFLICTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24- 4.4 NO BROKERS OR FINDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24- 4.5 LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -25- 4.6 INVESTMENT REPRESENTATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -25- 4.7 LEGENDS; STOP-TRANSFER ORDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -25-
-i- 3 4.8 STATUS FOR REIT OWNERSHIP AND INCOME TESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26- 4.9 AUTHORITY OF THE INVESTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26- SECTION 5. COVENANTS WITH RESPECT TO CONDUCT OF SELLER PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . . -26- 5.1 ACCESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26- 5.2 MATERIAL ADVERSE CHANGES; SEC FILINGS; REPORTS; FINANCIAL STATEMENTS . . . . . . . . . . . . . . . -27- 5.3 CONDUCT OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27- 5.4 NOTIFICATION OF CERTAIN MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29- 5.5 ADJUSTMENT OF SHARE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29- SECTION 6. ADDITIONAL CONTINUING COVENANTS AND AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30- 6.1 USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30- 6.2 APPOINTMENT OF TRUST MANAGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -31- 6.3 ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32- 6.4 STATUS FOR REIT OWNERSHIP AND INCOME TESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32- 6.5 PROHIBITED TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32- 6.6 SELLER/BUYER REGISTRATION RIGHTS AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32- 6.7 REIT QUALIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32- 6.8 PREEMPTIVE RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32- 6.9 DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33- 6.10 FURNISH DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33- 6.11 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33- 6.12 ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34- 6.13 MSRE AND MSAM CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34- SECTION 7. GENERAL CONDITIONS OF PURCHASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34- 7.1 NO ORDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34- 7.2 APPROVALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34- 7.3 ABSENCE OF LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34- 7.4 NEW YORK STOCK EXCHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -35- 7.5 SHAREHOLDER APPROVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -35- SECTION 8. CONDITIONS TO OBLIGATIONS OF THE INVESTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -35- 8.1 ACCURACY OF SELLER'S REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . -35- 8.2 PERFORMANCE BY SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -35- 8.3 NO MATERIAL ADVERSE CHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -35- 8.4 CERTIFICATION BY SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -35- 8.5 OPINION OF SELLER'S COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36- 8.6 SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36- 8.7 REALCO, MSRE AND MSAM CONSENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36- 8.8 ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36- 8.9 CLOSING OF MSRE AND MSAM PURCHASE TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . -36-
-ii- 4 SECTION 9. CONDITIONS TO OBLIGATIONS OF SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36- 9.1 ACCURACY OF THE INVESTOR'S REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . -36- 9.2 BUYERS' PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36- 9.3 CERTIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36- 9.4 OPINION OF COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37- 9.5 REIT STATUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37- SECTION 10. TERMINATION OF OBLIGATIONS; SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37- 10.1 TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37- 10.2 EFFECT OF TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37- 10.3 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS . . . . . . . . . . . . . . . . . . . . . . -37- SECTION 11. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -38- 11.1 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -38- 11.2 OBLIGATIONS OF THE INVESTOR AND THE PECUNIARY OWNER. . . . . . . . . . . . . . . . . . . . . . . -39- 11.3 PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39- 11.4 SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -40- 11.5 NOTICE BY SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -40- SECTION 12. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -40- 12.1 AMENDMENTS; WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -40- 12.2 SCHEDULES; EXHIBITS; INTEGRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -41- 12.3 BEST EFFORTS; FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -41- 12.4 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -41- 12.5 NO ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -41- 12.6 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -41- 12.7 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -41- 12.8 PUBLICITY AND REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -41- 12.9 CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -42- 12.10 PARTIES IN INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -42- 12.11 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -42- 12.12 EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -43- 12.13 REMEDIES; WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -43- 12.14 REPRESENTATION BY COUNSEL; INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . -43- 12.15 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -44- 12.16 ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -44- 12.17 AGENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -44-
-iii- 5 EXHIBITS EXHIBIT A Registration Rights Agreement SCHEDULES SCHEDULE 3.1 Jurisdictions; Officers and Trust Managers SCHEDULE 3.2 Capital Stock; Title to Shares SCHEDULE 3.3 Additional Liabilities or Contingencies SCHEDULE 3.5 Permits and Approvals SCHEDULE 3.6 Litigation SCHEDULE 3.7 Compliance with Law and Permits SCHEDULE 3.8 Dividends and Other Distributions SCHEDULE 3.9 Certain Interests SCHEDULE 3.11 Seller Benefit Plans SCHEDULE 3.13 Properties and Encumbrances SCHEDULE 3.14 Taxes SCHEDULE 3.15 Material Contracts SCHEDULE 3.16 Insurance SCHEDULE 3.17 Environmental Compliance SCHEDULE 3.18 Trust Records SCHEDULE 5.3 Conduct of Business SCHEDULE 8.5 List of Opinions of Seller's Counsel SCHEDULE 9.4 List of Opinions of Investor's Counsel -iv- 6 COMMON SHARE PURCHASE AGREEMENT THIS COMMON SHARE PURCHASE AGREEMENT (this "AGREEMENT") is made and entered into as of July 3, 1997, by and among AMERICAN INDUSTRIAL PROPERTIES REIT, a Texas real estate investment trust ("SELLER"), and ABKB/LASALLE SECURITIES LIMITED PARTNERSHIP, a registered investment advisor (the "Investor"), as agent for and for the benefit of a particular client. R E C I T A L S A. Seller qualifies and operates as a real estate investment trust for federal income tax purposes. B. Seller desires to sell to Investor, and Investor desires to purchase from Seller, the number of Common Shares having an aggregate purchase price as specified herein (the "Shares") upon the terms and subject to the conditions set forth in this Agreement. C. The proceeds from the sale of the Shares are to be used for the purposes set forth in this Agreement. A G R E E M E N T NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: SECTION 1. DEFINITIONS AND RULES OF CONSTRUCTION a. DEFINITIONS. The capitalized terms used in this Agreement, the Exhibits and the Schedules attached hereto shall have the meanings set forth below: "ACTION" means any action, complaint, investigation, suit or other proceeding, whether civil or criminal, in law or in equity, or before any mediator, arbitrator or Governmental Entity. "AFFILIATE" means a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, a specified Person. "AGREEMENT" means this Common Share Purchase Agreement, by and between Seller and the Investor, as agent for and for the benefit of a particular client, as amended from time to time pursuant to the terms of this Agreement, together with all Exhibits and all Schedules attached hereto. -1- 7 "ANNUAL MEETING" shall mean the Seller's annual meeting that was held on June 30, 1997. "APPROVAL" means any approval, authorization, consent, qualification or registration, or any waiver of the foregoing, or any notice, statement or other communication required to be filed with or delivered to any Governmental Entity or any other Person. "ASSOCIATE" of a Person means (i) a corporation or organization (other than Seller or a party to this Agreement) of which such Person is an officer or partner or is, directly or indirectly, the beneficial owner of 10% or more of any class of equity securities; (ii) any trust or other estate in which such Person has a substantial beneficial interest or as to which such Person serves as trustee or in a similar capacity; and (iii) any relative or spouse of such Person who has the same residence as such Person. "AUDITED FINANCIAL STATEMENTS" has the meaning set forth in Section 3.3(a) of this Agreement. "AUDITORS" means Ernst & Young, LLP, independent public accountants to Seller. "BANKRUPTCY CODE" means Title 11 of the United States Code entitled "Bankruptcy," as now and hereafter in effect, and any successor statute, as well as any existing or future law of any jurisdiction, foreign or domestic, relating to bankruptcy, insolvency, reorganization, conservatorship or relief of debtors. "BUSINESS DAY" means a day other than a Saturday, a Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. "CAPITALIZED LEASE" means any lease of property, real or personal, the obligations of the lessee in respect of which are required in accordance with GAAP to be capitalized on a balance sheet of the lessee. "CAPITALIZED LEASE OBLIGATION" means, as to any Person, the obligation of such Person to pay rent or other amounts under a Capitalized Lease and, for purposes of this Agreement, the amount of such obligation shall be the capitalized amount thereof, determined in accordance with GAAP. "CAPITAL STOCK" means any capital stock, beneficial interest or other equity interest, or any securities convertible into or exchangeable or exercisable for capital stock, beneficial interests -2- 8 or other equity interests, or any other rights, warrants or options to acquire any of the foregoing securities. "CHARTER DOCUMENTS" means Seller's Third Amended and Restated Declaration of Trust and Fourth Amended and Restated Bylaws as in effect as of the date of this Agreement. "CLOSING" has the meaning set forth in Section 2.3(a) of this Agreement. "CLOSING AGREEMENT" shall mean a written and legally binding agreement with a taxing authority relating to Taxes. "CLOSING DATE" means each date specified in Section 2.3(a) of this Agreement. "CODE" means the Internal Revenue Code of 1986, as amended, and, as applicable, the regulations promulgated thereunder. "COMMISSION" means the United States Securities and Exchange Commission or any successor entity. "COMMON SHARES" means common shares of beneficial interest, par value $.10 per share, of Seller. "CONTRACT" means any agreement, arrangement, bond, commitment, franchise, indemnity, indenture, instrument, lease, license or understanding, whether or not in writing. "CURRENTLY OUTSTANDING SHARES" has the meaning set forth in Section 2.4 of this Agreement. "DEBT" means, with respect to any Person, without duplication, and without regard to whether it is contingent or direct, (a) all indebtedness of such Person for borrowed money, (b) any obligation incurred for all or any part of the purchase price of property or services, other than accounts payable and accrued expenses included in current liabilities in accordance with GAAP and incurred in respect of property or services purchased in the ordinary course of business, (c) indebtedness or obligations evidenced by bonds, notes or similar written instruments, (d) all reimbursement obligations of such Person (whether contingent or otherwise) in respect of letters of credit, banker's acceptances, surety or other bonds and similar instruments, (e) any obligation (whether or not such Person has assumed or becomes liable for the payment of such obligation) secured by a lien on any property of such Person, (f) all Capitalized Lease Obligations of such Person and (g) all Guarantees by such Person of obligations of any other Person of the types referred to in the foregoing clauses (a) through (f), inclusive, excluding, (i) the payment of commissions to Prudential Securities Incorporated in connection with the transactions contemplated herein and approved at the Annual Meeting, and (ii) a $25 million line of credit from Prudential Securities Incorporated or its Affiliates (the "Prudential Line of Credit"). -3- 9 "ENCUMBRANCE" means any claim, charge, easement, encumbrance, lease, covenant, security interest, lien, option, pledge, rights of others, preferential right, right of first refusal or restriction (whether on voting, sale, transfer, disposition or otherwise), whether imposed by agreement, understanding, law, equity or otherwise, except that "Encumbrance" does not include any such item that (i) is reflected in the Audited Financial Statements or (ii) constitutes a statutory lien arising in the ordinary course of business. "ENVIRONMENTAL CLAIMS" means any of the following to the extent they relate to, or arise out of, directly or indirectly, Environmental Noncompliance with respect to the Properties or actual or alleged Environmental Conditions or any Notification which may lead to: (i) claims, demands, suits, causes of action for personal injury, death or property damage; (ii) claims for actual or threatened damages to natural resources; (iii) claims for the recovery of response costs, or administrative or judicial orders directing the performance of investigations, response or remedial actions under any Environmental Law; (iv) a requirement to implement "corrective action" pursuant to any restitution, contribution or equitable indemnity to third parties or any Governmental Entity; (v) fines, penalties, liens against the Properties; (vi) claims for injunctive relief or other orders or notices of violation from any Governmental Entity; or (vii) with regard to any present or former employees, tenants or guests, exposure to or injury from Environmental Conditions. "ENVIRONMENTAL CONDITIONS" means conditions of the environment, including the ocean, natural resources (including flora and fauna), soil, surface water, ground water, any actual or potential drinking or water supply, subsurface strata, or air, including ambient air, relating to or arising out of the use, handling, storage, treatment, recycling, generation, transportation, release, spilling, leaking, pumping, pouring, emptying, discharging, injecting, escaping, leaching, disposal, dumping or threatened release of Hazardous Materials from, in, on, or onto the Properties. "ENVIRONMENTAL NONCOMPLIANCE" means any of the following to the extent they are applicable to the Properties or alleged to be applicable to the Properties or to Seller, Subsidiaries or a Seller Partnership: (i) the Release of any Hazardous Material into the environment, any storm drain, sewer, septic system or publicly-owned treatment works, in violation of any effluent or emission limitations, standards or other criteria or guidelines established by any Environmental Law; (ii) any noncompliance of physical structure, equipment, process or premises with the requirements of building or fire codes, zoning or land use regulations or ordinances or conditional use permits; (iii) any noncompliance with federal, state or local requirements governing occupational safety and health; (iv) any operations, procedures and designs at or on the Properties which do not conform to the statutory or regulatory requirements of any Law (including land use regulations and ordinances) intended to protect public health, welfare and the environment; (v) the failure to have obtained permits, licenses, variances or other governmental authorizations necessary for the legal use and/or operation of any equipment, process or any activity at the Properties; or (vi) the operation and/or use of any process or equipment in violation of any permit condition, schedule of compliance, administrative or court order. -4- 10 "ENVIRONMENTAL PERMITS" has the meaning set forth in Section 3.17(a) of this Agreement. "EQUITABLE REMEDIES" has the meaning set forth in Section 3.5 of this Agreement. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "GAAP" means generally accepted accounting principles as in effect from time to time. "GOVERNMENTAL ENTITY" means any agency, bureau, commission, court, department, official, political subdivision, tribunal or other instrumentality of any government, whether federal, state or local, domestic or foreign. "GUARANTEE" means, with respect to any Person, any guarantee or other contingent liability (other than any endorsement for collection or deposit in the ordinary course of business and performance bonds, indemnities and similar obligations not guaranteeing or otherwise insuring payment of any Debt or other financial obligation), direct or indirect, of such Person with respect to any Debt or other obligation of another Person (including obligations under leases), through an agreement or otherwise, including (a) any other endorsement or discount with recourse or undertaking substantially equivalent to or having economic effect similar to a guarantee in respect of any such Debt or other obligations and (b) any agreement (i) to purchase, or to advance or supply funds for the payment or purchase of, any such obligations, (ii) to purchase, sell or lease property, products, materials or supplies, or transportation or services, in respect of enabling such other Person to pay any such obligation or to assure the owner thereof against loss regardless of the delivery or nondelivery of the property, products, materials or supplies or transportation or services or (iii) to make any loan, advance or capital contribution to or other investment in, or to otherwise provide funds to or for, such other Person in respect of enabling such Person to satisfy any obligation (including any liability for a dividend, stock liquidation payment or expense) or to assure a minimum equity, working capital or other balance sheet condition in respect of any such obligation. The amount of any Guarantee shall be equal to the outstanding amount of the obligations of such other Person directly or indirectly guaranteed. "HAZARDOUS MATERIALS" means any substance, matter, material, waste, solid, liquid, gas, or pollutant, the generation, storage, disposal, handling, recycling, Release (or threatened Release) or treatment of which is regulated, prohibited, or limited under: (1) the Resource Conservation and Recovery Act, as amended by the Hazardous and Solid Waste Amendments of 1984, as now or hereafter amended ("RCRA") (42 U.S.C. Sections 6901 et seq.); (ii) the Comprehensive Environmental Response, Compensation and Liability Act, as amended by the Superfund Amendments and Reauthorization Act of 1986, as now or hereafter amended ("CERCLA") (42 U.S.C. Sections 9601 et seq.); (iii) the Clean Water Act, as now or hereafter -5- 11 amended ("CWA") (33 U.S.C. Sections 1251 et seq.); (iv) the Toxic Substances Control Act, as now or hereafter amended ("TSCA") (15 U.S.C. Sections 2601 et seq.); (v) the Clean Air Act, as now or hereafter amended ("CAA") (42 U.S.C. Sections 7401 et seq.) (RCRA, CERCLA, CWA, TSCA and CAA are collectively referred to herein as the "FEDERAL ENVIRONMENTAL LAWS"); (vi) any local, state or foreign law, statute, regulation, or ordinance analogous to any of the Federal Environmental Laws; or (vii) any other federal, state, local, or foreign law (including any common law), statute, regulation, or ordinance regulating, prohibiting, or otherwise restricting the placement, Release, threatened Release, generation, treatment, or disposal upon or into any environmental media of any substance, pollutant, or waste which is now or hereafter classified or considered to be hazardous or toxic to human health or the environment. All of the laws, statutes, regulations and ordinances referred to in subsections (vi) and (vii) above, together with the Federal Environmental Laws, are collectively referred to herein as "ENVIRONMENTAL LAWS." The term "HAZARDOUS MATERIALS" shall also include: (a) gasoline, diesel fuel, fuel oil, motor oil, waste oil, and any other petroleum hydrocarbons, including any additives or other by-products associated therewith; (b) "friable" asbestos (as the term "friable" is defined under 40 C.F.R. Section 61.141) and friable asbestos-containing materials in any form; (c) polychlorinated biphenyls; or (d) any substance the presence of which on the Properties, (x) requires reporting or remediation under any Environmental Law, (y) causes or threatens to cause a nuisance on the Properties or poses or threatens to pose a hazard to the health or safety of persons on the Properties, or (z) which, if it emanated or migrated from the Properties, could constitute a trespass, nuisance or health or safety hazard to persons on adjacent property. "INDEMNIFIABLE CLAIM" means any Loss for or against which any Person is entitled to indemnification under this Agreement. "INDEMNIFIED PERSON" shall mean each Investor Indemnified Person and each Seller Indemnified Party. "INDEMNIFYING PARTY" has the meaning set forth in Section 11.3(a) of this Agreement. "INITIAL REIT YEAR" has the meaning set forth in Section 3.14(c) of this Agreement. "INVESTMENT COMMITTEE" means the investment committee of the Seller's Board of Trust Managers which after the Annual Meeting shall consist of one Trust Manager designee of Investor, one Trust Manager designee of Realco, one Trust Manager designee of MSAM and one independent Trust Manager. "INVESTOR" means ABKB/LaSalle Securities Limited Partnership Advisors Limited Partnership, a registered investment advisor. "INVESTOR INDEMNIFIED PERSON" has the meaning set forth in Section 11.1 of this Agreement. -6- 12 "LAW" means any constitutional provision, statute or other law, rule, regulation or interpretation of any thereof and any Order of any Governmental Entity (including Environmental Laws, including, without limitation, the Americans with Disabilities Act). "LOSS" means any claim, amount paid in settlement, cost, damage (including, without limitation, consequential damage), disbursement, expense (including legal fees and expenses), liability, loss, deficiency, diminution in value or obligation. "MATERIAL CONTRACT" means any Contract to which Seller, any Subsidiary or any Seller Partnership is a party or by which any such Person or any of their respective Properties are bound that currently is in effect and (a) after December 31, 1996 obligates Seller, any Subsidiary or any Seller Partnership to pay an amount equal to $100,000 or more, (b) is one of the group of Tenant Leases that is anticipated by Seller to produce 66 2/3% of Seller's gross income during the fiscal year ending December 31, 1997, such group of Tenant Leases calculated beginning with the Tenant Lease that is anticipated to produce the most gross income during such period and thereafter in descending order of magnitude of gross income anticipated to be earned during such period under each other Tenant Lease until such percentage of gross income is reached, (c) is a Tenant Lease involving the lease of space in excess of 10,000 square feet for any Property, (d) other than any Tenant Lease, has an unexpired term as of December 31, 1996 in excess of five (5) years, (e) other than any Tenant Lease, contains a covenant not to compete or otherwise significantly restricts business activities of Seller, any Subsidiary or any Seller Partnership, (f) provides for the extension of credit by Seller, any Subsidiary or any Seller Partnership or a line of credit to Seller, any Subsidiary or any Seller Partnership in excess of $50,000, (g) provides for a guaranty or indemnity by Seller, any Subsidiary or any Seller Partnership, (h) grants a power of attorney, agency or similar authority to another Person, (i) contains an option to purchase or a right of first refusal relating to any of the Properties, (j) relates to the sale or issuance of any equity securities of Seller or securities exercisable for or convertible into any equity securities of Seller, or (k) any other Contract that is not within the general descriptions of clauses (a) through (j) (i.e., is not a Tenant Lease or within any of the other general categories listed above) but is material to the business, financial condition, assets, results of operations or prospects of Seller, Subsidiaries or Seller Partnerships. "MINIMUM EQUITY CAPITALIZATION" means $150 million as calculated using the average closing price of the Common Shares on the New York Stock Exchange for the 10 trading days immediately preceding the applicable date of determination multiplied by the current number of issued and outstanding Common Shares and Common Share equivalents; provided, however, it shall not in any event include operating partnership units in excess of $50 million. "MSAM" means Morgan Stanley Asset Management, Inc., a Delaware corporation. "MSAM PURCHASE AGREEMENT" means that certain Common Share Purchase Agreement dated as of June 20, 1997, by and among Seller, MSRE and MSAM pursuant to which MSRE and MSAM, as agent and attorney-in-fact on behalf of certain clients, have agreed to -7- 13 purchase up to $20 million of Common Shares of Seller on terms and conditions substantially similar to the terms and conditions contained herein. "MSAM PURCHASERS" means the clients of MSAM listed on Exhibit A to the MSAM Purchase Agreement. "MSRE" means MS Real Estate Special Situations Inc., a Delaware corporation. "NOTIFICATION" means any summons, citation, directive, order, claim, litigation, pleading, investigation, proceeding, judgment, letter or any other written or oral communication from any Governmental Entity, any entity or any individual, concerning any intentional or unintentional act or omission which has resulted in or which may result in any Environmental Noncompliance or Environmental Claim. "ORDER" means any decree, injunction, judgment, order, ruling, assessment or writ. "OTHER PECUNIARY OWNERS" means the other pecuniary owners for whom the Investor is acting as agent for and on behalf of in connection with the purchase of Common Shares of the Seller pursuant to Common Share Purchase Agreements dated the date hereof similar to this Agreement and who, along with the Pecuniary Owner, are purchasing Common Shares having an aggregate purchase price of up to $15 million. "PECUNIARY OWNER" means the client of Investor for whom Investor is acting as Agent for and for the benefit of, in connection with the purchase of the Common Shares pursuant to the Agreement. "PERMIT" means any license, permit, franchise, certificate of authority or order, or any waiver of the foregoing, required to be issued by any Governmental Entity. "PERSON" means an individual, corporation, partnership, limited liability company, joint venture, an unincorporated organization, government or any department or agency thereof, estate, trust, association, or private foundation within the meaning of Section 509(a) of the Code, or joint stock company. "PREEMPTIVE RIGHTS" has the meaning set forth in Section 6.8 of this Agreement. "PREFERRED SHARES" means any class of capital stock of a Person which is entitled to a preference or priority over any other class of capital stock of such Person with respect to any distribution of such Person's assets, whether with respect to dividends, or upon liquidation or dissolution, or both. "PROPERTIES" means the real property owned or leased by Seller, Subsidiaries and Seller Partnerships listed on Schedule 3.13 hereto. -8- 14 "PURCHASE PRICE" means, with respect to the Closing Date, the aggregate price paid for the Common Shares purchased by Investor on the Closing Date. "REALCO" means USAA Real Estate Company, a Delaware corporation. "REALCO DEBT" has the meaning set forth in Section 3.2 of this Agreement. "REGISTRATION RIGHTS AGREEMENT" means the registration rights agreement among Seller, and Investor, as agent for and on behalf of the Pecuniary Owner and certain Other Pecuniary Owners, to be executed contemporaneously with the execution of this Agreement. "REIT" has the meaning set forth in Section 3.14(b) of this Agreement. "RELEASE" means releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, ejecting, escaping, leaching, disposing, seeping, infiltrating, draining or dumping of any Hazardous Material. This term shall be interpreted to include both the present and past tense, as appropriate. "SCHEDULE" means any schedule attached to this Agreement. "SEC FILINGS" has the meaning set forth in Section 3.4 of this Agreement. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SELLER" means American Industrial Properties REIT, a Texas real estate investment trust. "SELLER BENEFIT PLANS" has the meaning set forth in Section 3.11 of this Agreement. "SELLER INDEMNIFIED PARTIES" has the meaning set forth in Section 11.2 of this Agreement. "SELLER PARTNERSHIPS" has the meaning set forth in Section 3.1 of this Agreement. "SELLER PERMITS" has the meaning set forth in Section 3.7(b) of this Agreement. "SHARE PRICE" has the meaning set forth in Section 2.1 of this Agreement. "SHAREHOLDER APPROVAL" means the approval by Seller's shareholders at the Annual Meeting of the proposal to approve the sale to Investor of Common Shares having an aggregate -9- 15 purchase price of up to $15 million, and the authorization of the issuance of a sufficient number of Common Shares to allow such sale to occur. "SHARES" has the meaning set forth in Section 2.1 of this Agreement. "SUBSIDIARIES" has the meaning set forth in Section 3.1 of this Agreement. "TAXES" has the meaning set forth in Section 3.14(a) of this Agreement. "TAX RETURN" has the meaning set forth in Section 3.14(b) of this Agreement. "TENANT LEASES" has the meaning set forth in Section 3.13(b) of this Agreement. "TRUST MANAGERS" means the Trust Managers of Seller. "THRESHOLD EQUITY CAPITALIZATION" means equity capitalization of $250 million, calculated in the same manner as Minimum Equity Capitalization. "UNAUDITED FINANCIAL STATEMENTS" has the meaning set forth in Section 3.3(b) of this Agreement. b. RULES OF CONSTRUCTION. This Agreement shall be construed in accordance with the following rules of construction: (a) the terms defined in this Agreement include the plural as well as the singular; (b) all accounting terms not otherwise defined herein have the meanings given such terms under GAAP; (c) all references in the Agreement to designated "Sections" and other subdivisions are to the designated Sections and other subdivisions of the body of this Agreement; (d) pronouns of either gender or neuter shall include, as appropriate, the other pronoun forms; (e) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Section or other subdivision; (f) the words "includes" and "including" are not limiting; and (g) knowledge of any Subsidiary or any Seller Partnership shall be deemed to be knowledge of Seller. -10- 16 SECTION 2. PURCHASE AND SALE a. PURCHASE AND SALE OF THE COMMON SHARES. Subject to the terms and conditions set forth herein, Seller shall sell and issue to Investor, and Investor shall purchase from Seller, up to an aggregate of 1,956,123 Common Shares (the "Shares") at a price of $2.45 per Common Share, subject to adjustment as set forth in Section 5.5 (the "Share Price"). b. USE OF PROCEEDS. The proceeds of the purchase of Shares hereunder shall be used by the Seller to purchase real property as approved by the Investment Committee. c. CLOSING. i. The Closing shall occur on or before July 11, 1997, (the "CLOSING DATE"), and the Investor shall purchase the number of Shares specified in Section 2.1. ii. At the Closing, Seller shall deliver to the Investor the certificates evidencing the Shares purchased by the Investor on the applicable Closing Date, registered in the name of the Investor or its nominee. In addition, all other actions shall be taken and all other documents shall be delivered which are necessary to consummate the purchase and sale of the Shares purchased by the Investor on the applicable Closing Date. iii. At the Closing, the Investor shall pay and deliver to Seller the Purchase Price for the Shares being purchased by the Investor at the Closing. SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLER Seller represents and warrants to, and agrees with, the Investor and the Pecuniary Owner as follows: a. ORGANIZATION AND RELATED MATTERS. Seller is duly organized, validly existing and in good standing under the laws of the State of Texas. Seller has all necessary power and authority to execute, deliver and perform this Agreement. Schedule 3.1 lists all Subsidiaries (the "SUBSIDIARIES") and all Partnerships of Seller (the "SELLER PARTNERSHIPS") and correctly sets forth Seller's ownership interest therein, the jurisdiction in which each Subsidiary and each Seller Partnership is organized and each jurisdiction in which Seller, each Subsidiary and each Seller Partnership is and is required to be qualified or licensed to do business as a foreign Person. Each Subsidiary and each Seller Partnership is duly organized, validly existing and, with -11- 17 respect to each Subsidiary, in good standing under the laws of the jurisdiction of its incorporation or organization. Seller, Subsidiaries and Seller Partnerships have all necessary power (whether corporate, partnership or other power, as applicable) and authority to own their respective properties and assets and to carry on their respective businesses as now conducted. Seller, Subsidiaries and Seller Partnerships are duly qualified or licensed to do business as foreign Persons in good standing in all jurisdictions in which the character or the location of the assets owned or leased by any of them or the nature of the business conducted by any of them requires licensing or qualification, except where the failure to be so qualified or licensed is not and will not be material to their respective businesses, financial condition, assets, results of operations or prospects. Schedule 3.1 correctly lists the current Trust Managers, directors, general partners and executive officers of Seller, Subsidiaries and Seller Partnerships. True, correct and complete copies of the Charter Documents and the charter or organizational documents of Subsidiaries and Seller Partnerships (including the declaration of trust, articles or certificate of incorporation, bylaws and partnership agreements, as applicable) as in effect on the date hereof have been delivered to the Investor. Seller is registered and is a reporting company under the Exchange Act. Neither any Subsidiary nor any Seller Partnership is registered or is a reporting company under the Exchange Act. Except as listed on Schedule 3.1, Seller does not directly or indirectly own or control any equity interest in any Person. b. CAPITAL STOCK; TITLE TO SHARES. The authorized Capital Stock of Seller consists of 500,000,000 Common Shares, 10,000,000 of which are issued and outstanding and 10,000,000 Preferred Shares, none of which are issued and outstanding. Seller owns all of the outstanding Capital Stock of Subsidiaries free and clear of any Encumbrances, equities and claims except as specified in Schedule 3.2. Seller owns the equity interest in each Seller Partnership free and clear of any Encumbrances, equities and claims except as specified in Schedule 3.2. No Common Shares or Capital Stock of any Subsidiary are held in treasury. Except as set forth in Schedule 3.2 or as contemplated in this Agreement, there are no outstanding Contracts or other rights to subscribe for or purchase, or Contracts or other obligations to issue or grant any rights to acquire, any Common Shares, any Capital Stock of any Subsidiary or any Seller Partnership or to restructure or recapitalize Seller, any Subsidiary or any Seller Partnership. Except as set forth in Schedule 3.2, there are no outstanding Contracts of Seller, any Subsidiary or any Seller Partnership to repurchase, redeem or otherwise acquire any of their respective Common Shares or Capital Stock, as applicable. No bonds, debentures, notes or other indebtedness having general voting rights (or convertible into securities having general voting rights) of Seller, any -12- 18 Subsidiary or any Seller Partnership are issued or outstanding other than the Seller's note in the aggregate principal amount of $5,449,618 (the "REALCO DEBT") held by Realco. There are no voting trusts or other agreements or understandings to which Seller, any Subsidiary or any Seller Partnership is a party or is bound, or to the knowledge of Seller, to which any other Person is a party or is bound, with respect to the voting of the Common Shares or the Capital Stock of any Subsidiary or any Seller Partnership. All issued and outstanding Common Shares and Capital Stock of all Subsidiaries and Seller Partnerships were duly authorized and validly issued at the time of issuance and are fully paid and nonassessable. Except as contemplated by this Agreement, there are no preemptive rights in respect of any Common Shares or Capital Stock of any Subsidiary or any Seller Partnership. Upon any issuance of Shares to the Investor, such Shares will have been duly authorized, validly issued and be validly outstanding, fully paid and nonassessable, and the issuance of such Shares will not be subject to preemptive rights of any other shareholder of Seller and such Shares will be issued in compliance with all applicable federal and state laws and stock trading requirements. Each Buyer shall receive good and marketable title to all Shares acquired by such Buyer pursuant to this Agreement, free and clear of all Encumbrances created by Seller, except for restrictions on the transferability of the Shares set forth in the Charter Documents or generally imposed on securities under federal and state securities laws. Such Shares will rank equally with all other Common Shares of Seller with respect to priority in payment of dividends and the distribution of assets upon any liquidation of Seller, and except for a class of preferred shares of beneficial interest which the shareholders approved at the Annual Meeting, none of which shall be issued and outstanding as of the First Closing Date, there are no shares of any class of Capital Stock of Seller having any priority in respect thereof. All of the outstanding securities of Seller were issued in compliance with all applicable federal and state securities laws. c. FINANCIAL STATEMENTS. i. AUDITED FINANCIAL STATEMENTS. Seller has delivered to the Investor the consolidated balance sheets of Seller (which reflect the financial position of all Subsidiaries and Seller Partnerships), as of December 31, 1994, 1995 and 1996, and the respective related consolidated statements of operations, cash flows and shareholders' equity for the periods then ended (collectively, the "AUDITED FINANCIAL STATEMENTS"). The Audited Financial Statements have been examined by the Auditors whose report thereon is attached to such financial statements. All Audited Financial Statements have been prepared in conformity with GAAP applied on a consistent basis (except for changes, if any, disclosed therein). The Audited Financial Statements -13- 19 present fairly, in all material respects, the consolidated financial condition and results of operations of Seller, Subsidiaries and Seller Partnerships as of their respective dates and periods. Since December 31, 1996, there has been no change in the significant accounting policies or procedures of Seller, any Subsidiary or any Seller Partnership. Seller has not received any annual management letters from the Auditors since March 5, 1997. ii. UNAUDITED FINANCIAL STATEMENTS. Seller has delivered to the Investor the consolidated balance sheets of Seller (which reflect the financial position of all Subsidiaries and Seller Partnerships), as of March 31, 1997 and the related consolidated statements of operations, cash flows and shareholders' equity for the period then ended (the "UNAUDITED FINANCIAL STATEMENTS"). The Unaudited Financial Statements have been prepared in conformity with GAAP applied on a consistent basis (except for changes, if any, disclosed therein). The Unaudited Financial Statements present fairly, in all material respects, the consolidated financial condition and results of operations of Seller, Subsidiaries and Seller Partnerships as of March 31, 1997. iii. NO MATERIAL ADVERSE CHANGES. Since March 31, 1997, except as set forth in Schedule 3.3, or specifically disclosed in any SEC Filings filed since March 31, 1997 and prior to the date of this Agreement (copies of which have been provided to the Investor), Seller, Subsidiaries and Seller Partnerships have conducted their respective businesses only in the ordinary course and in a manner consistent with past practice and, whether or not in the ordinary course of business, there has not been, occurred or arisen: (1) any change in or event affecting the business of Seller, Subsidiaries and Seller Partnerships that has had a material adverse effect on such business or any materially adverse change or trend in the business, financial condition, assets, results of operations or prospects of Seller, Subsidiaries or Seller Partnerships, or (2) any condition or action which would be proscribed by (or require consent under) Section 5.3 had it existed, occurred or arisen after the date of this Agreement, or (3) any casualty, loss, damage or destruction of any real property of Seller, any Subsidiary or any Seller Partnership that has involved or may involve a Loss (whether or not covered by insurance) to Seller, any Subsidiary or any Seller Partnership of more than $100,000 individually, or $300,000 in the aggregate. -14- 20 iv. NO OTHER LIABILITIES OR CONTINGENCIES. Neither Seller nor any Subsidiary nor any Seller Partnership has any material liability of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due, probable of assertion or not, except liabilities that (i) were incurred after March 31, 1997 in the ordinary course of business in a manner consistent with past practice and are not material in amount, or (ii) are set forth in Schedule 3.3 hereto. d. SEC REPORTS. Seller has filed with the Commission all forms, reports, statements, including registration statements, and other material documents, together with any amendments required to be made with respect thereto, that were required to be filed with the Commission since December 31, 1994. Such forms, reports, statements, including registration statements, and other material documents required to be filed with the Commission by Seller since December 31, 1994 are collectively referred to in this Agreement as the "SEC FILINGS." Seller has made available to the Investor all SEC Filings. As of their respective dates, (x) each of the SEC Filings, including the financial statements contained therein, was true and complete in all material respects, (y) each of the SEC Filings, including the financial statements contained therein, complied in all material respects with the Securities Act and Exchange Act, as applicable, and the rules and regulations promulgated thereunder, and (z) none contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. e. AUTHORIZATION; NO CONFLICTS. Seller has the requisite power and authority to enter into this Agreement and the Registration Rights Agreement and to carry out its obligations hereunder and thereunder. Except for the share ownership limitation contained therein, the Charter Documents do not in any way prevent or restrict the transactions contemplated hereby or preclude the Investor acting as agent on behalf of the Pecuniary Owner, or the Pecuniary Owner from owning or holding the amount, value or class of Common Shares to be purchased hereby. The execution, delivery and performance of this Agreement by Seller has been duly and validly authorized by the Trust Managers and by all other necessary action on the part of Seller, and no other proceedings on the part of Seller (including Trust Manager and shareholder approval) are necessary to authorize this Agreement or to consummate the transactions contemplated hereby except the shareholder consent needed to increase the number of authorized Common Shares to allow the issuance and sale of Shares on any Closing Date to occur. This Agreement has been duly -15- 21 executed and delivered by Seller and constitutes the legally valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws and equitable principles relating to or limiting creditors' rights generally (collectively, "EQUITABLE REMEDIES"). Except as set forth in Schedule 3.5, the execution, delivery and performance of this Agreement by Seller and the consummation by Seller of the transactions contemplated hereby will not (i) conflict with or result in the breach or violation of any provisions of, or trigger any preferential rights under, the Charter Documents or the charter or organizational documents of Subsidiaries or Seller Partnerships, (ii) result in a breach or violation of, a default under, or the triggering of any payment or other material obligations pursuant to, or accelerate vesting under, any Seller Benefit Plans or any grant or award thereunder or any employment or consulting agreement or arrangement of Seller, any Subsidiary or any Seller Partnership, (iii) violate, conflict with, result in a breach of any provision of, constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, result in the termination or in a right of termination or cancellation of, accelerate the performance required by, result in the creation of any Encumbrance upon any Properties under, result in the triggering of any rights under, or result in being declared void, voidable or without further binding effect, any of the terms or provisions of any Material Contract of Seller, any Subsidiary or any Seller Partnership or (iv) violate any Law. Schedule 3.5 lists all Permits and Approvals required to be obtained by Seller, Subsidiaries and Seller Partnerships to consummate the transactions contemplated hereby. Except for matters identified in Schedule 3.5 as requiring that certain actions be taken by or with respect to a third party or Governmental Entity, the execution and delivery of this Agreement by Seller and the consummation of the transactions contemplated hereby will not require the consent, authorization or approval or filing or registration with, or the issuance of any Permit by, any other third party or Governmental Entity under the terms of any applicable Laws or Material Contracts of Seller, Subsidiaries or Seller Partnerships. f. LEGAL PROCEEDINGS. Except as set forth in Schedule 3.6, there is no Order or Action pending, or to the knowledge of Seller threatened, against or affecting Seller, any Subsidiary, any Seller Partnership, any Trust Manager in his capacity as a Trust Manager of Seller or any of the Properties which (i) questions the validity of this Agreement, the Registration Rights Agreement or any action taken or to be taken pursuant hereto or thereto, (ii) may adversely affect the right, title or interest of the Investor to the Shares or (iii) individually or when aggregated with one or -16- 22 more other Orders or Actions has, or if determined adversely will have, a material adverse effect on the business, financial condition, assets, results of operations or prospects of Seller, any Subsidiary or any Seller Partnership or on Seller's ability to perform this Agreement. To Seller's knowledge, Schedule 3.6 lists each Order and each Action that (i) involves a claim or potential claim of aggregate liability in excess of $50,000 against Seller, any Subsidiary or any Seller Partnership that is not covered by insurance, (ii) involves a claim or potential claim of aggregate liability brought by Seller, any Subsidiary or any Seller Partnership against a tenant under any Tenant Lease which Tenant Lease obligates such tenant to pay rent to Seller, any Subsidiary or any Seller Partnership during the year ending December 31, 1997 in an amount equal to or in excess of $150,000, or (iii) that enjoins or seeks to enjoin any activity by Seller, any Subsidiary or any Seller Partnership. There is no matter as to which Seller, any Subsidiary or any Seller Partnership has received any notice, claim or assertion in connection with which any such Person has or may reasonably be expected to have any right to be indemnified by Seller, any Subsidiary or any Seller Partnership. g. COMPLIANCE WITH LAW AND PERMITS. i. Seller, Subsidiaries and Seller Partnerships are organized and have conducted their respective businesses in accordance with applicable Laws, neither Seller nor any Subsidiaries or Seller Partnerships has received any notice of violation of any Laws which remains uncorrected, and the respective forms, procedures and practices of Seller, Subsidiaries and Seller Partnerships are in compliance with all such Laws, to the extent applicable, the violation of which would have a material adverse effect on the respective businesses, financial condition, assets, results of operations or prospects of Seller, Subsidiaries and Seller Partnerships. ii. Except as set forth in Schedule 3.7, Seller, Subsidiaries and Seller Partnerships hold all permits, licenses, variances, exemptions, authorizations, orders and approvals of all Governmental Entities necessary for the lawful conduct of their respective businesses (the "SELLER PERMITS") and Seller, Subsidiaries and Seller Partnerships are in compliance with the terms of the Seller Permits relating to each such Person, except where the failure to hold such Seller Permits or be in compliance therewith would not, individually or in the aggregate, have a material adverse effect on the business, financial condition, assets, results of operations or prospects of Seller, Subsidiaries or Seller Partnerships. Seller has made available to the Investor correct and complete copies of all Seller Permits. Except as set forth in Schedule 3.7, to the knowledge of the Seller, no investigation or -17- 23 review by any Governmental Entity with respect to the Seller Permits is pending or threatened. h. DIVIDENDS AND OTHER DISTRIBUTIONS. Except as set forth in Schedule 3.8, there has been no dividend or other distribution of assets or securities by Seller or Seller Partnerships (other than Seller Partnerships in which Seller owns 100% beneficial interest) whether consisting of money, property or any other thing of value, declared, issued or paid to or for the benefit of Seller subsequent to December 31, 1996. i. CERTAIN INTERESTS. Except as set forth in Schedule 3.1 and Schedule 3.9, no Affiliate of Seller, any Subsidiary or any Seller Partnership, nor any of their respective officers, Trust Managers, directors or partners, nor any Associate of any such individual, has any material interest in any property used in or pertaining to the respective businesses of Seller, any Subsidiary or any Seller Partnership. Except as set forth in Schedule 3.1 and Schedule 3.9, no such Person is indebted or otherwise obligated to Seller, any Subsidiary or any Seller Partnership. Except as set forth in Schedule 3.9, Seller, Subsidiaries and Seller Partnerships are not indebted or otherwise obligated to any such Person, except for amounts due under normal arrangements applicable to all employees generally as to salary or reimbursement of ordinary business expenses not unusual in amount or significance. Except as set forth in Schedule 3.1 and Schedule 3.9, there are no material transactions between Seller, any Subsidiary or any Seller Partnership and any Affiliate of Seller, any Subsidiary or any Seller Partnership or any Associate of any such Affiliate that have continuing obligations of any party thereunder. Except as set forth in Schedule 3.9, the consummation of the transactions contemplated by this Agreement will not (either alone, or upon the occurrence of any act or event, or with the lapse of time, or both) result in any compensation or severance or other payment or benefit arising or becoming due from Seller, any Subsidiary or any Seller Partnership or any of its assigns to any Person. j. NO BROKERS OR FINDERS. No agent, broker, finder, or investment or commercial banker, or other Person or firm engaged by or acting on behalf of Seller or any of its Affiliates in connection with the negotiation, execution or performance of this Agreement or the transactions contemplated by this Agreement, is or will be entitled to any brokerage or finder's or similar fee or other commission as a result of this Agreement or such transactions except for a fee payable to Prudential Securities Incorporated. -18- 24 k. EMPLOYEE BENEFIT PLANS. Schedule 3.11 lists all employee benefit plans and collective bargaining, labor and employment agreements or other similar benefit arrangements to which either Seller, any Subsidiary, or any Seller Partnership is a party or by which either Seller, any Subsidiary, or any Seller Partnership is bound (collectively, the "SELLER BENEFIT PLANS"), including (i) any profit-sharing, deferred compensation, bonus, stock option, stock purchase, pension, retainer, consulting, retirement, severance, welfare or incentive plan, agreement or arrangement, (ii) any plan, agreement or arrangement providing for "fringe benefits" or perquisites to employees, officers, directors, trust managers or agents, including benefits relating to automobiles, clubs, vacation, child care, parenting, sabbatical, sick leave, medical, dental, hospitalization, life insurance and other types of insurance, (iii) any employment agreement not terminable on 30 days (or less) written notice or (iv) any other "employee benefit plan" within the meaning of Section 3(3) of ERISA. True and complete copies of the Seller Benefit Plans, current descriptive booklets and summary plan descriptions of the Seller Benefit Plans, any relevant trust agreements or insurance policies or contracts and, if applicable, the most recent annual return on Form 5500 (or equivalent form) have been made available to the Investor. To the extent applicable, the Seller Benefit Plans comply, in all material respects, with the requirements of ERISA and the Code. Except as set forth in Schedule 3.11, no Seller Benefit Plan is or is intended to be a stock bonus, pension or profit-sharing plan within the meaning of Section 401(a) of the Code. Neither any Seller Benefit Plan nor Seller, any Subsidiary, or any Seller Partnership has incurred any liability or penalty under Section 4975 of the Code or Section 502(i) of ERISA. Each Seller Benefit Plan has been maintained and administered in all material respects in compliance with its terms and with ERISA and the Code to the extent applicable thereto. Except as set forth in Schedule 3.11, there are no pending, or to the knowledge of Seller threatened, claims (other than pursuant to the terms of any such plan) against or otherwise involving any of the Seller Benefit Plans and no Action has been brought against or with respect to any Seller Benefit Plan, and neither Seller nor any Subsidiary nor any Seller Partnership has incurred any liability to any party with respect to any Seller Benefit Plan. All contributions required to be made to the Seller Benefit Plans have been made or provided for. Except as set forth in Schedule 3.11, neither Seller nor any Subsidiary nor any Seller Partnership maintains or contributes to any plan or arrangement which provides or has any liability to provide life insurance or medical or other employee welfare benefits to any employee or former employee upon his retirement or termination of employment and neither Seller nor any Subsidiary nor any Seller Partnership has represented, promised or contracted (whether in oral or written form) to any employee or former -19- 25 employee that such benefits would be provided. Except as set forth in Schedule 3.11, the execution of, and performance of the transactions contemplated by, this Agreement will not (either alone or upon the occurrence of any additional or subsequent event) constitute an event under any Seller Benefit Plan or other policy, arrangement or any trust or loan that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any employee. No Seller Benefit Plan is subject to Title IV of ERISA and neither Seller nor any Subsidiary nor any Seller Partnership has, within six years prior to the date of this Agreement, contributed to or had any obligation to contribute to any employee benefit plan subject to Title IV of ERISA. For purposes of this Section 3.11, (i) the term "Seller" includes any entity required to be aggregated with the Seller pursuant to Code Section 414(b), (c), (m) or (o) and (ii) provisions of ERISA or the Code include regulations prescribed under such provisions. l. LABOR MATTERS. Neither Seller nor any Subsidiary nor any Seller Partnership is a party to or bound by any collective bargaining or other labor union contracts. There is no pending or, to the knowledge of Seller, threatened labor dispute, strike or work stoppage against Seller, any Subsidiary, or any Seller Partnership. Neither Seller nor any Subsidiary nor any Seller Partnership, nor their respective representatives or employees, has committed any unfair labor practices in connection with the operation of the respective businesses of Seller, each Subsidiary, and each Seller Partnership, and there is no pending or, to the knowledge of Seller, threatened charge or complaint against Seller, any Subsidiary, or any Seller Partnership by the National Labor Relations Board or any comparable state agency. Seller, Subsidiaries, and Seller Partnerships are in compliance with all applicable Laws respecting employment, consulting, employment practices, wages, hours, and terms and conditions of employment. m. PROPERTIES. i. Schedule 3.13 contains a complete and correct list of all real property owned or leased by Seller, each Subsidiary and each Seller Partnership (collectively, the "PROPERTIES") as of the date hereof. Except as set forth in Schedule 3.13, Seller, Subsidiary or Seller Partnership, as applicable, owns good, marketable and indefeasible title to each Property, including the land and all improvements, all personalty and the Tenant Leases (as hereinafter defined). Except as set forth in Schedule 3.13, the Properties are free and clear of all Encumbrances of any nature, except for (i) liens for real property taxes or similar assessments not yet due and -20- 26 payable, (ii) easements for utilities servicing the Properties and (iii) such Encumbrances as do not materially detract from or interfere with the present use of the Properties subject thereto or affected thereby, or otherwise materially impair the use or value of such Properties. ii. Seller has delivered to the Investor a true, correct and complete copy of a rent roll with respect to each Property as of the date hereof setting forth, among other matters, the term (commencement or renewal date and expiration date) of each lease with respect to the Properties (collectively, the "TENANT LEASES"), the square feet for each of the Tenant Leases, the monthly base rental rates for each of the Tenant Leases and the security deposits for each of the Tenant Leases. Other than the Tenant Leases, no party has been granted any license, lease or other material right relating to the use or possession of the Properties which is material to the use or value of the Properties. Except as set forth in Schedule 3.13, all of the Tenant Leases are valid and subsisting and in full force and effect with respect to Seller, Subsidiaries and Seller Partnerships and, to Seller's knowledge, with respect to any other party thereto, and no tenant of the Properties is more than 30 days delinquent on its rental as of April 30, 1997 except as set forth in Schedule 3.13. To Seller's knowledge, no tenant of the Properties has initiated or threatened bankruptcy since January 1, 1997. No tenant of the Properties is an Affiliate or Associate of Seller, any Subsidiary or any Seller Partnership. Except as set forth in Schedule 3.13, there are no contracts or other material obligations outstanding for the sale, exchange or transfer of the Properties or any portion thereof. There are no attachments, executions, assignments for the benefit of creditors, receiverships, conservatorship or voluntary or involuntary proceedings in bankruptcy or pursuant to any other debtor relief laws filed by, or pending against, Seller, Subsidiaries, Seller Partnerships or the Properties. Except as set forth in Schedule 3.13, since January 1, 1997, no tenants have terminated their leases prior to expiration and, to Seller's knowledge, have no intent to do so. (c) Except as set forth in Schedule 3.13, there is no pending condemnation or similar proceeding affecting the land, the improvements or the personalty situated at the Properties or any portion thereof, and neither Seller nor any Subsidiary nor any Seller Partnership has received any written notice and has no knowledge that any such proceeding is contemplated. (d) The continued ownership, operation, use and occupancy of the land or the improvements thereon do not violate any zoning, building, administrative or other law, ordinance, order or regulation or any restrictive covenant applicable to the Properties, the violation of which would have a material adverse effect on the business, financial condition, assets, results of operations or prospects of Seller, Subsidiaries or Seller Partnerships, as applicable, and no written notice of any -21- 27 such violation has been received by Seller, any Subsidiary or any Seller Partnership from any Governmental Entity. (e) Seller, Subsidiaries or Seller Partnerships, as applicable, currently has in place title, liability, casualty and other insurance coverage with respect to the Properties in such amounts as are reasonable and customary for properties similar to the Properties. Each of such policies is in full force and effect, and all premiums due and payable thereunder have been, and on any Closing Date will be, fully paid when due. No notice of cancellation has been received, or to the knowledge of Seller threatened, with respect thereto. (f) Except as set forth in Schedule 3.13, there is no Action pending, or to the knowledge of Seller contemplated, by any Governmental Entity or third party to levy any special assessments against the Properties that, if successful, would have a material adverse effect on the business, financial condition, assets, results of operations or prospects of Seller, any Subsidiary or any Seller Partnership. (g) To Seller's knowledge, each unsatisfied brokerage obligation that is in excess of $25,000 with respect to the Properties is set forth on Schedule 3.13. (h) To Seller's knowledge and except as set forth on Schedule 3.13, no capital expenditures are contemplated by Seller to be incurred by Seller, any Subsidiary or any Seller Partnership within twelve months after the date of this Agreement in excess of $50,000 per Property with respect to any Property. (i) Except as set forth in Schedule 3.13, all management contracts with respect to the Properties are terminable by Seller on 30 days notice. (j) To Seller's knowledge, except for customary easements for access to building systems or utilities and except as set forth in Schedule 3.13, each Property is an independent unit which does not now rely on any facilities (other than facilities of municipalities or public utilities) located on any property that is not part of the Property for the furnishing to the Property of any essential building systems or utilities (including drainage facilities, catch basins and retention ponds) that if the owner of the Property could not avail the use of which, would materially detract from the value of the Property or materially interfere with the use of the Property. 3.14 TAX MATTERS. (a) For purposes of this Agreement, "TAXES" means any federal (including, without limitation, tax on its undistributed taxable income, alternative minimum tax, tax on certain sale proceeds or other nonqualifying income from foreclosure property or on income from prohibited transactions, and any taxes imposed upon Seller, Subsidiaries or Seller Partnerships under Section 857 or Section 4981 of the Code), state, county, local or foreign taxes, charges, fees, levies, or other assessments, including, without limitation, all net income, gross income, sales and use, ad valorem, -22- 28 transfer, gains, profits, excise, franchise, real and personal property, gross receipt, capital stock, business and occupation, disability, employment, payroll, license, estimated, or withholding taxes or charges imposed by any Governmental Entity, and includes any interest and penalties (civil or criminal) on or additions to any such taxes. (b) For purposes of this Agreement, "TAX RETURN" means a report, return or other information required to be filed with or supplied to a Governmental Entity with respect to Taxes including, without limitation, any notices or information reports or returns required to be filed by Seller, Subsidiaries or Seller Partnerships with respect to their respective operations, income, assets and shareholders or partners in order to maintain Seller's status as a real estate investment trust ("REIT") under the Code. (c) Seller elected to be taxed as a REIT under Sections 856 through 860 of the Code effective for its taxable year ended December 31, 1985 (the "INITIAL REIT YEAR"). Seller, since the Initial REIT Year through the end of the immediately preceding taxable year, has always qualified as a REIT under the Code. At all times from and after the Initial REIT Year to the date hereof, Seller has complied with, and through the Closing Date will comply with, all applicable Code and regulatory requirements necessary to maintain its qualification as a REIT under the Code and has otherwise operated, and through the Closing Date will have otherwise operated, in the manner necessary to maintain its qualification as a REIT under the Code. No dividend will be required to be distributed before December 31, 1997 in order for Seller to maintain its qualification as a REIT under the Code. (d) Except as disclosed in Schedule 3.14, Seller, Subsidiaries and Seller Partnerships have (i) filed all Tax Returns required to be filed by applicable Law since December 31, 1990, and all such Tax Returns were in all material respects (and, as to Tax Returns not filed as of the date hereof but filed on or before the Closing Date, will be in all material respects) true, complete and correct and filed on a timely basis and (ii) within the time and in the manner prescribed by law, paid (and until the Closing Date will pay within the time and in the manner prescribed by law) all material Taxes that were or are due and payable. (e) Except as set forth in Schedule 3.14, Seller, Subsidiaries and Seller Partnerships have established (and until the Closing Date will maintain) on their respective books and records reserves adequate to pay all Taxes of Seller, Subsidiaries and Seller Partnerships not yet due and payable in accordance with GAAP which are reflected in the Audited Financial Statements and Unaudited Financial Statements to the extent required by GAAP. (f) Except as disclosed in Schedule 3.14, as of the date hereof, there are no, and, as of any Closing Date, there will be no, material Tax liens upon the assets of Seller, Subsidiaries and Seller Partnerships, except liens for Taxes not yet due. (g) Except as disclosed in Schedule 3.14, Seller, Subsidiaries and Seller Partnerships have complied (and until the Closing Date will comply) in all material respects with the provisions -23- 29 of the Code relating to the payment and withholding of Taxes, including the withholding and reporting requirements under Code Sections 1441 through 1464, 3401 through 3406, and 6041 through 6049, as well as similar provisions under any other laws, and have, within the time and in the manner prescribed by law, withheld from employee wages and paid over to the proper governmental authorities all material amounts required by applicable Law. (h) Except as disclosed in Schedule 3.14, Seller, Subsidiaries and Seller Partnerships have not executed any outstanding waivers or comparable consents regarding the application of the statute of limitations with respect to any Taxes or Tax Returns. (i) No notice of any material deficiency for any Taxes has been received by Seller, any Subsidiary or any Seller Partnership that has not been resolved and paid in full or otherwise settled, no audits or other administrative proceedings or court proceedings are presently pending or, to Seller's knowledge, threatened with regard to any Taxes or Tax Returns of Seller, Subsidiaries or Seller Partnerships, and no notice of any material claim has been received by Seller, any Subsidiary or any Seller Partnership from any authority in a jurisdiction where Seller, Subsidiaries or Seller Partnerships do not file Tax Returns that Seller, any Subsidiary or any Seller Partnership is or may be subject to Tax in that jurisdiction. (j) Seller, Subsidiaries and Seller Partnerships have not received a Tax Ruling or entered into a Closing Agreement with the Internal Revenue Service that would have any continuing effect after the First Closing Date. (k) Seller has made available (or, with respect to all Tax Returns filed after the date hereof, will make available) to the Investor complete and accurate copies of all Tax Returns, and amendments thereto, filed by Seller, any Subsidiary or any Seller Partnership for all taxable periods or years ending on or prior to the First Closing Date. (l) Neither Seller nor any Subsidiary nor any Seller Partnership is required to include in income any adjustment pursuant to Code Section 481(a) by reason of a voluntary change in federal income tax accounting method (other than a change of federal income tax accounting method required as a result of a change in law) initiated by Seller, and the Internal Revenue Service has not proposed any such adjustment or change in accounting method. (m) Seller has made available to the Investor all relevant information with respect to the federal income tax net operating loss carryovers of Seller as of December 31, 1996, based on the federal income Tax Returns filed by Seller as of such date. (n) For all taxable years from and including its Initial REIT Year through the First Closing Date, (i) Seller has maintained permanent records containing the information required to be maintained by Code Section 857(a)(2) and Treasury Regulation Sections 1.857-(8)(a), 1.857-8(c) and 1.857-8(e) and (ii) Seller has demanded the written statements from its shareholders required by Treasury Regulation Section 1.857-8(d) in accordance with Treasury Regulation Section 1.857-8(e). -24- 30 3.15 MATERIAL CONTRACTS. Schedule 3.15 sets forth an accurate list of all Material Contracts of Seller, Subsidiaries and Seller Partnerships. Seller has made available to the Investor complete and correct copies of all Material Contracts. All Material Contracts are in full force and effect. Except as set forth in Schedule 3.15, Seller, Subsidiaries and Seller Partnerships are not in violation of or default in any material respect (nor is there any waiver in effect of any event that would constitute a default but for such waiver) under, and no event has occurred that (with notice or the lapse of time or both) would constitute a violation of or default under, any Material Contract. Except as set forth in Schedule 3.15, to the knowledge of Seller, no other party to any Material Contract is in breach of the terms, provisions and conditions of such Material Contract and no other party to any Material Contract has notified Seller, any Subsidiary or any Seller Partnership that it intends to terminate or modify a Material Contract. 3.16 INSURANCE. Schedule 3.16 sets forth a complete and correct list of all insurance policies, except for title insurance policies, currently in force insuring against risks of Seller, Subsidiaries and Seller Partnerships. Seller, Subsidiaries and Seller Partnerships are in compliance with the terms of such policies applicable to them and there are no claims by Seller, any Subsidiary or any Seller Partnership under any such policy as to which any insurance company is denying liability or defending under a reservation of rights clause. 3.17 ENVIRONMENTAL MATTERS. (a) Except as set forth in the documentation provided to Seller pursuant to Section 3.17(b) and in Schedule 3.17, there is no material Environmental Noncompliance with respect to any Property and there are no material Environmental Claims with respect to any Property or the Seller, any Subsidiary or any Seller Partnership or, to the knowledge of Seller, any tenants under any of the Tenant Leases. All material permits, consents, licenses, certificates, approvals, registrations, and authorizations in connection with environmental matters (collectively, "ENVIRONMENTAL PERMITS") which are required by any Law have been obtained and are valid. The Properties (and all uses thereof and operations conducted thereon) comply in all material respects with all Environmental Permits. All operations on or at the Properties conducted by Seller are and have been conducted in all material respects in compliance with applicable Environmental Laws. Except as set forth in the documentation provided to Seller pursuant to Section 3.17(b) and in Schedule 3.17, Seller has not received any Notification from any Governmental Entity seeking any information or alleging any violation of any Law regarding Environmental Conditions. Except as set forth in the documentation provided to Seller pursuant to Section 3.17(b) and in Schedule 3.17, Seller has not caused or given its verbal or written authorization to cause, and has no knowledge of, any Release of any Hazardous Materials on-site or off-site of the Properties in violation of any Environmental Law. (b) Seller has made available to Investor true, correct, and complete copies of all written reports of any environmental assessment, compliance or regulatory audit, inspection, or investigation -25- 31 of the Properties in its possession, and Seller has not received any other written report containing any evidence of Environmental Noncompliance. (c) Except as set forth in the documentation provided to Seller pursuant to Section 3.17(b) and in Schedule 3.17, there is not now, nor has there been in the past, any "friable" asbestos (as the term "friable" is defined under 40 C.F.R. Section 61.141) or friable asbestos containing materials located on, incorporated in, or otherwise contained in the Properties or any portion thereof, and there are not now, and have not in the past been, any underground storage tanks located on the Properties or any portion thereof. (d) Except as set forth in the documentation provided to Seller pursuant to Section 3.17(b), and in Schedule 3.17, none of the tenants under any Tenant Lease handle or store any Hazardous Material as a principal or primary business. 3.18 TRUST RECORDS; ACCOUNTING RECORDS. The minute books of Seller accurately reflect in all material respects all actions taken to the date of this Agreement by the holders of Common Shares, the Trust Managers and committees of the Trust Managers, except for those matters set forth in Schedule 3.18 for which minutes of such actions have not yet been prepared or approved. The share certificate books and records of Seller accurately reflect the ownership of the Common Shares. Seller maintains accounting records which fairly reflect, in all material respects, Seller's transactions. 3.19 NEW YORK STOCK EXCHANGE LISTING. The outstanding Common Shares are listed on the New York Stock Exchange. The issuance or sale and delivery of any Shares to the Investor pursuant to this Agreement will not violate any listing requirements of the New York Stock Exchange for the listing of Common Shares, including the Shares. 3.20 DISCLOSURE OF FACTS. There are no facts peculiar to Seller, Subsidiaries or the Seller Partnerships that Seller has not disclosed to the Investor that materially adversely affect, or insofar as Seller can reasonably foresee, will materially adversely affect, the business, financial condition, assets, results of operations or prospects of Seller, Subsidiaries or Seller Partnerships. 3.21 PENSION-HELD REIT. For purposes of Section 856(h)(3) of the Code, Seller hereby represents that at any time during the shorter of (i) the two-year period ending immediately prior to the First Closing Date or (ii) the period during which Seller was in existence, to the best of Seller's knowledge, no "qualified trust" has held, directly or indirectly, more than 10% of the interests in Seller. 3.22 SHAREHOLDER APPROVAL. The Seller's shareholders approved at the Annual Meeting all of the proposals set forth in the Notice of Annual Meeting of Shareholders and accompanying proxy statement dated May 12, 1997. -26- 32 SECTION 4. REPRESENTATIONS AND WARRANTIES OF INVESTOR The Investor represents and warrants with respect to itself (except as indicated) to, and agrees with, Seller as follows: a. ORGANIZATION AND RELATED MATTERS. It is a limited partnership duly organized and validly existing under the laws of the state of its organization. It has all necessary partnership power and partnership authority to carry on its business as now being conducted. It has all necessary partnership power and partnership authority to execute, deliver and perform this Agreement and the transactions contemplated hereby. b. AUTHORIZATION. This Agreement has been duly executed and delivered by it and constitutes the legally valid and binding obligation of the Investor and the Pecuniary Owner, enforceable in accordance with its terms, except as such enforceability may be limited by Equitable Remedies. The execution and delivery of this Agreement by it and the consummation of the transactions contemplated hereby will not require filing or registration with, or the issuance of any Permit by, any other third party or Governmental Entity under the terms of any applicable Law or its material Contracts, other than any filing required under the Exchange Act. c. NO CONFLICTS. The execution, delivery and performance of this Agreement by it will not violate the provisions of, or constitute a breach or default (whether upon lapse of time and/or the occurrence of any act or event or otherwise) under, (a) its organizational documents, pursuant to which it was organized and by which it is governed, (b) any Law to which it is subject or (c) any Contract to which it is a party that is material to the financial condition, results of operations or conduct of its business. d. NO BROKERS OR FINDERS. No agent, broker, finder or investment or commercial banker, or other Person or firms engaged by or acting on its behalf or on behalf of any of its Affiliates in connection with the negotiation, execution or performance of this Agreement or the transactions contemplated by this Agreement, is or will be entitled to any broker's or finder's or similar fees or other commissions as a result of this Agreement or such transactions. e. LEGAL PROCEEDINGS. There is no Order or Action pending against or, to its knowledge, affecting it that individually or when aggregated with one or more other Actions has, or if determined adversely would have, a material adverse effect on its business, properties, or financial condition or on its ability to perform this Agreement. -27- 33 f. INVESTMENT REPRESENTATION. This Agreement is made with the Investor in reliance upon such Investor's representation to Seller, which by such Investor's execution of this Agreement such Investor hereby confirms that the Shares will be acquired by the Investor as agent for and on behalf of the Pecuniary Owner, for the Pecuniary Owner's own account, not as nominee or agent for any other party, for investment purposes only and not with a view to or for sale in connection with the distribution thereof. It agrees to execute any further certificate or other document representing such investment intent or as to any other matter reasonably requested by Seller to assure compliance with applicable securities laws. g. LEGENDS; STOP-TRANSFER ORDERS. i. The certificates for Shares will bear legends in substantially the following form: THE SHARES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE AND, ACCORDINGLY, MAY BE OFFERED, SOLD, TRANSFERRED OR PLEDGED ONLY IN A TRANSACTION WHICH IS REGISTERED UNDER SUCH ACT AND UNDER SUCH LAWS OR IS EXEMPTED FROM SUCH REGISTRATION REQUIREMENTS. The foregoing legend shall be removed from any such certificate at the request of the holder thereof at such time as the shares represented thereby are registered under the Securities Act or become eligible for resale under Rule 144 promulgated under the Securities Act. ii. The certificates for Shares may also bear any legend required by any applicable state blue sky law. iii. Any certificates for Shares will also bear a legend relating to restrictions on transfer imposed pursuant to the percentage ownership limitation contained in the Charter Documents. iv. Seller may impose appropriate stop-transfer instructions relating to the restrictions set forth herein. h. STATUS FOR REIT OWNERSHIP AND INCOME TESTS. At the Closing, to the best of Investor's knowledge, the purchase of the Common -28- 34 Shares by the Pecuniary Owner will not result in a "qualified trust" as defined in Code Section 856(h)(3) holding more than 25% in value of the Seller's outstanding Capital Stock. The Pecuniary Owner is not purchasing the Common Shares, and will not hold any or all of the Common Shares so purchased, through any arrangement or entity that would be deemed, for federal income tax purposes, to be a partnership between the Pecuniary Owner and any or all of the Other Pecuniary Owners (other than ABKB/LaSalle Securities Private Placement Limited Partnership I, L.P.). The Common Shares that each Pecuniary Owner owns will not be considered to be owned by any individual (or entity treated as an individual under Section 856(h) of the Code), who after application of the stock ownership rules of Section 856(h) of the Code would own more than 9.8% of the lesser of the number or value of any outstanding class of Capital Stock. i. AUTHORITY OF THE INVESTOR. The Investor is duly authorized to enter into this Agreement and to consummate the transactions contemplated hereby as agent for and on behalf of the Pecuniary Owner. SECTION 5. COVENANTS WITH RESPECT TO CONDUCT OF SELLER PRIOR TO CLOSING From the date of this Agreement up to and including the Closing Date, Seller covenants and agrees to take such actions, or refrain from taking such actions, as are set forth in this Section 5. a. ACCESS. Seller shall, and shall cause the Subsidiaries and Seller Partnerships to, authorize and permit the Investor and its representatives (which term shall be deemed to include its independent accountants and counsel) to have reasonable access during normal business hours, upon reasonable notice and in such manner as will not unreasonably interfere with the conduct of business, to all of the Properties, books, records, operating instructions and procedures, Tax Returns and all other information with respect to the businesses of Seller, Subsidiaries and Seller Partnerships as the Investor may from time to time reasonably request, and to make copies of such books, records and other documents and to discuss the business of Seller, Subsidiaries and Seller Partnerships with the Investor and its partners and their respective officers, employees, accountants and counsel, as the Investor considers necessary or appropriate for the purposes of familiarizing itself with the business of Seller, obtaining any necessary Approvals of, or Permits for, the transactions contemplated by this Agreement and conducting an evaluation of the organization and business of Seller. From the date of this Agreement up to and including the Closing Date, Seller will permit, and cause Subsidiaries and Seller Partnerships to -29- 35 permit, the Investor and its officers, directors, agents, attorneys, accountants, and representatives, to audit such books and records, to meet with tenants of the Properties, and to conduct such investigations, tests, or inspections of the Properties as Seller shall approve in Seller's sole discretion, including intrusive sampling studies to ascertain whether or not there are any Hazardous Materials on, in, or under the Properties. b. MATERIAL ADVERSE CHANGES; SEC FILINGS; REPORTS; FINANCIAL STATEMENTS. i. Seller shall promptly notify the Investor of any event of which Seller obtains knowledge which has had or might reasonably be expected to have a material adverse effect on Seller's business or which if known as of the date hereof would have been required to be disclosed to the Investor. ii. Seller will, and will cause the Subsidiaries and Seller Partnerships to, furnish to the Investor as soon as available copies of all SEC Filings, and all material reports, renewals, filings, certificates, statements and other documents filed with any Governmental Entity. c. CONDUCT OF BUSINESS. Except as set forth in Schedule 5.3 and as provided in Section 5.4, from the date of this Agreement until the Closing Date, Seller agrees with and for the benefit of Buyer that Seller shall not, and Seller shall cause Subsidiaries and Seller Partnerships not to, without the prior written consent of the Investor, which consent may not unreasonably be withheld: i. conduct the business of Seller, Subsidiaries and Seller Partnerships in any manner except in the ordinary course consistent with past practices; or ii. purchase any real property without the consent of the Investment Committee; or iii. declare, issue, make or pay any dividend or other distribution of assets, whether consisting of money, other tangible or intangible personal property, real property or other thing of value, to its shareholders, or split, combine, dividend, distribute or reclassify any Common Shares or any shares of its Capital Stock, as applicable, except for dividends the record date of which is after the First Closing Date; or -30- 36 iv. issue, sell, redeem or acquire for value, or agree to do so, any debt obligations (other than the Prudential Line of Credit), Common Shares or Capital Stock; or v. incur or agree to incur any obligation or liability (absolute or contingent) that individually calls for payment by Seller, any Subsidiary or any Seller Partnership of more than $50,000 individually or in the aggregate except for (i) liabilities (other than indebtedness for borrowed money) incurred in the ordinary course of business consistent with past practices (including, but not limited to, tenant improvements and capital improvements to Properties), (ii) liabilities arising out of, incurred in connection with, or related to the consummation of the transactions contemplated by this Agreement, (iii) payments to Realco under the Realco Debt and (iv) purchases of real property in accordance with Section 5.3(b); or vi. merge (if Seller is not the surviving entity), sell substantially all of its assets or enter into any other contract involving any other form of business combination or liquidate, wind-up or dissolve (or suffer any liquidation or dissolution) or adopt any plan of liquidation or dissolution; or vii. change the number of Trust Managers or the Board of Directors of any of the Subsidiaries, or admit any additional partners to the Seller Partnerships; or viii. amend the Charter Documents or the charter or organizational documents of the Subsidiaries or Seller Partnerships; or ix. sell, lease, transfer or otherwise dispose of, or mortgage, pledge or otherwise encumber, other than the lease of any Property or space therein in the ordinary course of business consistent with past practices, any of the Properties; or x. cancel, satisfy or prepay any debt, obligation, liability or encumbrance, or waive any claim or right of value of Seller, Subsidiaries or Seller Partnerships except the extinguishment of debt under the Realco Debt through the conversion of the Realco Debt to Common Shares; or xi. (i) increase in any manner the compensation or fringe benefits (including, but not limited to, severance benefits) payable or to become payable by Seller, Subsidiaries, or Seller Partnerships to any officer, Trust Manager, director, partner, consultant or independent contractor as salary -31- 37 or wages or under any bonus, insurance, welfare, severance, deferred compensation, pension, retirement, profit sharing, share option (including, without limitation, the granting of any share option or share appreciation right or performance or restricted share award), share purchase or other employee benefit plan, (ii) except as approved by the Compensation Committee prior to the date of this Agreement or except as approved by the Compensation Committee and approved by a unanimous vote of the Seller's Board of Trust Managers, increase in any manner the compensation or fringe benefits (including, but not limited to, severance benefits) payable or to become payable by Seller, Subsidiaries or Seller Partnerships to any employee who is not an officer, Trust Manager, director or partner of Seller, Subsidiaries or Seller Partnerships as salary or wages or under any bonus, insurance, welfare, severance, deferred compensation, pension, retirement, profit sharing, share option (including, without limitation, the granting of any share option or share appreciation right or performance or restricted share award), share purchase or other employee benefit plan, except for such increase in salary, bonuses or severance benefits to such employees in the ordinary course of business consistent with past practices and provided that all such increases in salary, bonuses or severance benefits do not have a material adverse effect on the business, assets, financial condition or prospects of Seller, Subsidiaries or Seller Partnerships, or (iii) enter into, adopt, amend in any material respect (except as required by law) or terminate any Seller Benefit Plan or any agreement, arrangement, plan or policy between Seller, Subsidiaries or Seller Partnerships, as applicable, and one or more of its Trust Managers, directors, partners, officers, employees or independent contractors; or xii. make any tax election other than in connection with maintaining Seller's qualification as a REIT or take any action that would cause Seller not to qualify as a REIT, or fail to take any reasonable action to preserve Seller's qualification as a REIT; or xiii. make any change in any significant accounting principles or practices used by Seller, Subsidiaries or Seller Partnerships, except as required by the Commission; or xiv. amend, modify or change the terms of any Material Contract other than in the ordinary course of business consistent with past practice and provided that such amendment, modification or change does not have a material adverse effect on the business, assets, financial condition or prospects of Seller, Subsidiaries or Seller Partnerships; or -32- 38 xv. except as provided in Section 5.3(b), acquire any Person (or interest therein) or any material amount of assets, or make any loans, advances or capital contributions to, or investments in, any Person; or xvi. take any action that would, or fail to take any action which failure would, result in any of Seller's representations and warranties set forth in this Agreement not being true; or xvii. agree to or make any commitment to take any action prohibited by this Section 5.3. d. NOTIFICATION OF CERTAIN MATTERS. Seller shall give prompt notice to the Investor, and the Investor shall give prompt notice to Seller, of (a) the occurrence, or failure to occur, of any event that causes any representation or warranty contained in this Agreement to be untrue or inaccurate at any time from the date of this Agreement to the Closing Date and (b) any failure of the Investor or Seller, as the case may be, to comply with or satisfy, in any material respect, any covenant, condition or agreement to be complied with or satisfied by it under this Agreement. e. ADJUSTMENT OF SHARE PRICE. The Share Price will be subject to adjustment from time to time prior to the Closing Date as follows: (a) If Seller shall at any time prior to the Closing Date (i) pay a dividend or make any other distribution payable in Common Shares to holders of any class of Capital Stock of Seller, (ii) subdivide or reclassify the outstanding Common Shares into a greater number of shares or (iii) combine or reclassify the outstanding Common Shares into a smaller number of shares, the Share Price in effect at the time of the record date for such dividend or distribution or the effective date of such subdivision, combination or reclassification will be proportionately adjusted so that the Investor will be entitled to receive upon purchase after such time the number of Common Shares that the Investor would have owned or been entitled to receive had such purchase occurred immediately prior to such time. An adjustment made pursuant to this subsection (a) will become effective immediately after the record date in the case of a dividend or other distribution and will become effective immediately after the effective date of any such subdivision, combination, reclassification or change, provided that, if such dividend or distribution is not ultimately paid or made, the Share Price shall be readjusted to be equal to the Share Price in effect immediately prior to such record date. Such adjustment will be made successively whenever any event listed above occurs. (b) If Seller shall at any time prior to the Closing Date issue rights or warrants to all holders of Common Share entitling them (for a period commencing no earlier than the record date for the determination of holders of Common Shares entitled to receive such rights or warrants and expiring within 45 days after such record date) to subscribe for or purchase Common Shares at -33- 39 a price per share less than the Current Market Price (as defined in subsection (d) below) of Common Shares on such record date, the Share Price will be adjusted effective as of immediately after such record date so that it shall equal the price determined by multiplying the Share Price in effect immediately prior thereto by a fraction, the numerator of which is the number of Common Shares outstanding on such record date plus the number of Common Shares that the aggregate offering price of the Common Shares so offered for subscription or purchase or purchased would purchase at the Current Market Price per Common Share, and the denominator of which is the number of Common Shares outstanding on such record date plus the number of additional Common Shares which may be purchased upon the exercise of the rights or warrants issued, provided that, if such issuance is not ultimately made, the Share Price shall be readjusted to be equal to the Share Price in effect immediately prior to such record date. Common Shares owned by or held for the account of Seller shall not be deemed outstanding for the purpose of any such computation. Such adjustment will be made successively whenever such rights or warrants are issued. (c) If Seller shall at any time prior to the Closing Date distribute to all holders of Common Shares any shares of any class of Capital Stock other than Common Shares, evidences of indebtedness or other assets (other than cash dividends or distributions out of retained earnings), or shall distribute to holders of Common Shares rights or warrants to subscribe to securities (other than those referred to in subsection (b) above), then in each such case the Share Price will be adjusted so that it equals the price determined by multiplying the Share Price in effect immediately prior to the date of such distribution by a fraction, the numerator of which is the Current Market Price per Common Share on the record date mentioned below less the then fair market value (as determined by the Board of Trust Managers, whose determinations shall be conclusive evidences of such fair market value) of said shares, evidences of indebtedness, assets, rights or warrants or distributions applicable to one Common Share, and the denominator of which is such Current Market Price. Such adjustment will become effective immediately after the record date for the determination of the holders of Common Shares entitled to receive such distribution, provided that, if such issuance is not ultimately made, the Share Price shall be readjusted to be equal to the Share Price in effect immediately prior to such record date. Such adjustment will be made successively whenever such a distribution is made. (d) For the purpose of computation under subsections (b) and (c) above, the "Current Market Price" per Common Share at any date will be deemed to be the average of the daily closing price for the Common Shares on the New York Stock Exchange for 20 consecutive trading days commencing 30 trading days before such date. SECTION 6. ADDITIONAL CONTINUING COVENANTS AND AGREEMENTS a. USE OF PROCEEDS. The proceeds from the sale of the Shares to the Investor, net of any costs (including any accounting, legal and fairness opinion costs and expenses) associated with the transactions contemplated by this Agreement, shall be applied by Seller to the purchase of real property as approved by the Investment Committee in accordance with Section 2.2. -34- 40 b. APPOINTMENT OF TRUST MANAGER. i. GENERAL. Effective immediately following the Closing, Seller shall increase the number of its Trust Managers from seven to eight, and Seller shall appoint one individual designated by the Investor as Agent for and on behalf of the Pecuniary Owner and the Other Pecuniary Owners collectively to fill the vacancy caused by the increase in the number of Trust Managers under this Section 6.2(a). Simultaneously with the designee of the Investor becoming a Trust Manager of Seller, Seller and such designee shall enter into an indemnification agreement providing for indemnification of such designee identical in form to the indemnification agreements entered into between Seller and other Trust Managers. In addition, at the first annual meeting and all subsequent annual meetings of shareholders after the number of Trust Managers has been increased to eight under this Section 6.2(a), until Seller achieves the Threshold Equity Capitalization, Seller shall nominate, and use its best efforts to have such person elected (which efforts shall include, without limitation, including the Investor's nominee in management's slate for nomination and election and solicitation of proxies on their behalf), one designee of the Investor (which may be a different person than the person initially appointed as Trust Manager pursuant to the first sentence of this Section 6.2(a) if such initial designee shall have died, resigned, been removed or declined to be nominated) as Trust Manager. During such time as Seller shall have an individual designated by the Investor serving as Trust Manager pursuant to this Section 6.2(a), and except as otherwise provided in Section 6.2(b) hereof, the number of Trust Managers shall consist of not more than eight persons, including the designee of the Investor. Such designee of the Investor shall hold office until resignation, removal, death or expiration of the term for which he or she was appointed and any successive term for which such representative is duly elected as a Trust Manager by the shareholders of Seller. In the event of the death, resignation or removal from office of the designee of the Investor serving as a Trust Manager pursuant to the first sentence of this Section 6.2(a), Seller agrees to promptly appoint a replacement designee selected by the Investor as Trust Manager prior to the date Trust Managers are to be elected at the first annual meeting after the number of Trust Managers has been increased to eight pursuant to this Section 6.2(a). -35- 41 ii. OBSERVATION RIGHTS. In the event that the designee selected by the Investor to serve as Trust Manager is not, for any reason, elected by Seller's shareholders, the Investor shall have full observation rights with respect to Seller's Trust Managers, including the right to obtain full and timely notice of all meetings of the Trust Managers and of each of its committees, to obtain copies of all written and other materials disseminated to Trust Managers and to designate a person to attend in person or by telephone all meetings of the Trust Managers or their committees. If the Investor receives observation rights pursuant to the provisions of this paragraph, the Investor and its designees in respect of such rights shall each execute a confidentiality agreement in form and substance reasonably satisfactory to Seller. iii. RESIGNATIONS. At such time as Seller achieves Threshold Equity Capitalization, the Investor shall cause its designee to not seek re-election at the next annual meeting, or at Seller's option, to immediately resign. iv. QUALIFICATIONS. Each of the representatives designated by the Investor in accordance with this Section 6.2 shall be a Person selected by the Investor in its sole discretion; provided, however, that any such person may not have been involved in any of the events described in Item 401(f)(1)-(4) of Regulation S-K promulgated under the Exchange Act. v. COMMITTEES. At any time that the Investor shall have exercised its rights under this Section 6.2 to appoint a designee as Trust Manager, Seller shall appoint the Investor's designee on each committee of the Trust Managers, and each such committee shall contain no more than four members until expiration of the latest term of office of any designee of the Investor pursuant to Section 6.2(a) or 6.2(b). c. ENVIRONMENTAL MATTERS. Seller will advise the Investor promptly (a) upon obtaining knowledge that a Release has occurred at or upon the Properties and/or (b) upon receipt of a Notification pertaining to the Properties. d. STATUS FOR REIT OWNERSHIP AND INCOME TESTS. Following the Closing Date, and at all subsequent times during which the Investor or the Pecuniary Owner owns any of the Shares, applying the stock ownership rules of Section 856(h) of the Code, the representation set forth in Section 4.8 will remain true and correct. e. PROHIBITED TRANSACTIONS. Seller shall not effect any business transactions, or agree to effect any business transactions, with Affiliates, Trust Managers or employees of Seller except in the ordinary course of business and unless the consideration paid by Seller in any such business transaction is fair value at market rates, or approved by Seller's shareholders in accordance with applicable state law. -36- 42 f. SELLER/BUYER REGISTRATION RIGHTS AGREEMENT. On the Closing Date, the Investor, as agent for and on behalf of the Pecuniary Owner and certain Other Pecuniary Owners, and Seller shall enter into a Registration Rights Agreement substantially in the form of Exhibit A. g. REIT QUALIFICATION. Seller shall take all actions necessary to maintain Seller's qualification as a REIT and, without the written consent of the Investor shall take no action that would cause Seller not to qualify as a REIT or fail to take any action that would preserve Seller's qualification as a REIT. Seller covenants and agrees that (i) it will duly and promptly notify the Investor upon becoming aware that any "qualified trust" holds or is expected to hold, directly or indirectly, more than 10% of the interests in Seller, and (ii) it will provide the Investor such information and/or verification as the Investor shall reasonably request in order to verify whether Seller constitutes a "pension-held REIT" as defined under Section 856(h)(3)(C) of the Code. h. PREEMPTIVE RIGHTS. In the event that Seller shall at any time subsequent to the date of this Agreement issue any Common Shares to any Person or Persons (other than (i) Common Shares issued to Realco in connection with the conversion of the Realco Debt to Common Shares, (ii) Common Shares issued pursuant to an employee share option, share purchase, share incentive or compensation plan or (iii) Common Shares issued to any partners in Affiliates of Realco in connection with the merger of such Affiliates with and into Seller) (each such issuance, a "Subsequent Offering")), the Investor shall have the right to purchase, on the same terms and conditions as the other purchasers in the Subsequent Offering, Common Shares in an amount not to exceed, in the aggregate, such number of Common Shares as is equal to the total number of Common Shares offered in the Subsequent Offering times a fraction, the numerator of which is the number of Common Shares then owned by the Investor in the aggregate and the denominator of which is the total number of Common Shares outstanding immediately prior to such Subsequent Offering. Notwithstanding the foregoing, with respect to each Subsequent Offering by Seller in the amount of $10 million or more, the amount of shares the Investor may purchase in the aggregate pursuant to such Preemptive Rights shall be reduced by 5% of the total Common Shares outstanding (on a fully-diluted basis) after each such Subsequent Offering. The Investor's Preemptive Rights will immediately terminate once Seller achieves a Minimum Equity Capitalization. The Investor or the Pecuniary Owner, as -37- 43 applicable, shall have the right to assign the preemptive right to buy additional Common Shares pursuant to this Section 6.8 to any of the Other Pecuniary Owners or to any other client of the Investor who can make the representation to Seller set forth in Section 4.8. i. DEBT. Neither Seller, any Subsidiary or any Seller Partnership shall, without the prior written consent of the Investor (i) incur, create, assume, guarantee or in any way become liable for, or permit to exist, any Debt prior to such time as the Seller achieves a Minimum Equity Capitalization, except to the extent the proceeds of such Debt is to be used to acquire real property, and such acquisition occurs within 90 days of the date such Debt is incurred; or (ii) issue or have outstanding any Preferred Shares, or any warrants, options, conversion rights or other rights to subscribe for, purchase or acquire any Preferred Shares, prior to such time as the Seller achieves Minimum Equity Capitalization. j. FURNISH DOCUMENTS. Seller shall furnish or cause to be furnished to the Investor within five Business Days after Seller is required to file the same with the Commission , copies of the periodic information, documents and other reports which Seller is required to file with the Commission pursuant to Section 13(a) of the Exchange Act. If Seller ceases to be required to file information, documents and other reports pursuant to Section 13 of the Exchange Act, it shall remain obligated to furnish the same information, documents and reports otherwise required under Section 13(a) of the Exchange Act to the Investor within five Business Days after Seller would have been required to file the same with the Commission; and i. Seller shall furnish or cause to be furnished to the Investor, within five Business Days after the effective date thereof, copies of any amendment or modification to its Charter Documents. k. TAXES. Seller shall, and shall cause each Subsidiary and Seller Partnership to, pay, when due, all taxes, assessments and governmental charges or levies imposed upon it and all claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and any other like person or entity which, if unpaid, might result in the creation of a lien upon the income of Seller or its assets; provided that items of the foregoing description need not be paid while being contested in good faith and by appropriate proceedings and adequate reserves with respect thereto have been provided on the books of Seller, such Subsidiary of such Seller Partnership, as the case may be. -38- 44 l. ADDITIONAL INFORMATION Seller shall execute and deliver or cause to be executed and delivered to the Investor upon the Investor's reasonable request such other and further instruments or documents as in the reasonable judgment of the Investor and Seller are necessary to conform, create, evidence, preserve or maintain the Pecuniary Owner's rights in the Shares, and Seller shall do all such additional acts, give such assurances and execute such instruments as the Investor may reasonably require to vest more completely in and assure to the Pecuniary Owner its rights in the Shares. m. MSRE AND MSAM CLOSING. If MSRE and MSAM, as agent and attorney-in-fact on behalf of certain clients, do not purchase additional Common Shares of Seller for an aggregate purchase price of at least $4,500,000 within seven days of the Closing Date, Seller shall rescind the sale of Shares hereunder and promptly repay to the Investor the full purchase price for the Shares purchased hereby. SECTION 7. GENERAL CONDITIONS OF PURCHASE The obligations of the parties to effect each Closing shall be subject to the following conditions unless waived in writing by all parties: a. NO ORDERS. No Law or Order shall have been enacted, entered, issued, promulgated or enforced by any Governmental Entity which prohibits or restricts the transactions contemplated by this Agreement. No Governmental Entity shall have notified any party to this Agreement that consummation of the transactions contemplated by this Agreement would constitute a violation of any Law of any jurisdiction or that it intends to commence proceedings to restrain or prohibit such transactions or force divestiture or rescission, unless such Governmental Entity shall have withdrawn such notice and abandoned any such proceedings prior to the time which otherwise would have been the applicable Closing Date. b. APPROVALS. To the extent required by applicable Law, all Permits and Approvals required to be obtained in connection with each Closing from any Governmental Entity or any consent from a third party material to Seller or its business shall have been received or obtained on or prior to the applicable Closing Date. c. ABSENCE OF LITIGATION. No Action before any Governmental Entity pertaining to the transactions contemplated by this Agreement shall -39- 45 have been instituted on or before the applicable Closing Date whether or not any of the parties hereto or its Affiliates is a party. d. NEW YORK STOCK EXCHANGE. The Shares shall have been approved for listing, upon official notice of issuance, on the New York Stock Exchange. Seller will use its best efforts to maintain the listing of its Common Shares on the New York Stock Exchange. e. SHAREHOLDER APPROVAL. Seller shall have received Shareholder Approval. SECTION 8. CONDITIONS TO OBLIGATIONS OF THE INVESTOR The obligations of the Investor, as agent for and on behalf of the Pecuniary Owner, to effect the Closing shall be subject to the following conditions except to the extent waived in writing by the Investor: a. ACCURACY OF SELLER'S REPRESENTATIONS AND WARRANTIES. All representations and warranties of Seller set forth in this Agreement shall be true and correct in all material respects on the applicable Closing Date as if made on and as of such Closing Date. b. PERFORMANCE BY SELLER. Seller shall have in all material respects performed, satisfied and complied with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by Seller on or before the applicable Closing Date, including the covenants set forth in Section 5. c. NO MATERIAL ADVERSE CHANGE. During the period from December 31, 1996 to the applicable Closing Date, (i) there shall not have been any material adverse change or any development involving a material adverse change in the condition (financial or otherwise) of Seller, any Subsidiary or any Seller Partnership, taken as a whole, or in the earnings, business, prospects or operations of Seller, any Subsidiary or any Seller Partnership, taken as a whole, and (ii) there shall not have occurred any material adverse change in the financial markets in the United States, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, in each case the effect of which is such as to, in the judgment of the Investor, significantly impair the marketability or value of the Shares, (iii) the trading in any securities of Seller shall not have been suspended or limited by the -40- 46 Commission or the New York Stock Exchange, trading generally on the American Stock Exchange or the New York Stock Exchange or in the Nasdaq National Market shall not have been suspended or limited, minimum or maximum prices for trading shall not have been fixed, and maximum ranges for prices shall not have been required, by any of said exchanges or by such system or by order of the Commission, the National Association of Securities Dealers, Inc. or any other Governmental Entity, and (iv) a banking moratorium shall not have been declared by Federal, Texas or New York authorities. d. CERTIFICATION BY SELLER. The Investor shall have received a certificate, addressed to the Investor and dated as of the applicable Closing Date, signed by the President of Seller, certifying, in such detail as the Investor and its counsel reasonably may request, that all of the conditions specified in Section 8 have been fulfilled. e. OPINION OF SELLER'S COUNSEL. The Investor shall have received from counsel for Seller an opinion, addressed to the Investor and dated as of the applicable Closing Date, in form and substance reasonably satisfactory to the Investor as to the matters set forth in Schedule 8.5. f. SCHEDULES. Seller shall have delivered to the Investor updated Schedules, if any, to this Agreement. g. REALCO, MSRE AND MSAM CONSENT. Seller shall have received all necessary consents or waivers from Realco, MSRE and MSAM in connection with the matters contemplated by this Agreement. h. ADDITIONAL INFORMATION. Seller's Fourth Amended and Restated Bylaws shall have been amended to provide for a maximum of eight (8) Trust Managers. i. CLOSING OF MSRE AND MSAM PURCHASE TRANSACTIONS. Seller shall have closed on the sale of the Common Shares to MSRE and MSAM, as agent and attorney-in-fact on behalf of the MSAM Purchasers, pursuant o the MSAM Purchase Agreement whereby Seller shall have received an aggregate purchase price of at least $12,500,00 from such purchasers from the issuance and sale of its Common Shares. -41- 47 SECTION 9. CONDITIONS TO OBLIGATIONS OF SELLER The obligations of Seller to effect each Closing shall be subject to the following conditions, except to the extent waived in writing by Seller: a. ACCURACY OF THE INVESTOR'S REPRESENTATIONS AND WARRANTIES. All representations and warranties of the Investor set forth in this Agreement shall be true and correct in all material respects on the applicable Closing Date as if made on and as of such Closing Date. b. BUYERS' PERFORMANCE. The Investor shall have in all material respects performed, satisfied and complied with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Investor on or before the applicable Closing Date. c. CERTIFICATION. Seller shall have received a certificate, dated as of the applicable Closing Date, signed by a Managing Director of the Investor, certifying, in such detail as Seller and its counsel reasonably may request, that the conditions specified in Section 9 have been fulfilled. d. OPINION OF COUNSEL. Seller shall have received from counsel to the Investors an opinion, dated as of the applicable Closing Date, in form and substance reasonably satisfactory to Seller as to the matters set forth in Schedule 9.4. e. REIT STATUS. The purchase of Shares by the Investor, as agent for and on behalf of the Pecuniary Owner, will not cause Seller to lose its status as a REIT under the Code. SECTION 10. TERMINATION OF OBLIGATIONS; SURVIVAL a. TERMINATION OF AGREEMENT. This Agreement and the transactions contemplated by this Agreement may be terminated at any time before the Closing Date, as follows and in no other manner: i. MUTUAL CONSENT. By mutual consent in writing of the Investor and Seller. ii. MISREPRESENTATION OR MATERIAL BREACH. By the Investor or Seller with written notice to the other parties if there has been a misrepresentation or material breach on the part of Seller or the Investor, in their respective representations, warranties and covenants set forth herein, which, with respect to a breach of a covenant, if curable, has not been cured within 10 business days after receipt of notice from the Investor or Seller of the terminating party's intention to terminate. -42- 48 iii. ENVIRONMENTAL NONCOMPLIANCE. By the Investor in the event of the discovery of any Release or other matter prior to any Closing Date which, if known to Seller as of the date of this Agreement, would have constituted a breach of the representations and warranties contained in Section 3.17. iv. CLOSING. This Agreement shall terminate if the Closing does not occur on or before July 11, 1997. b. EFFECT OF TERMINATION. In the event that this Agreement shall be terminated pursuant to Section 10.1all further obligations of the parties under this Agreement shall terminate; provided that the obligations of the parties contained in this Section 10.2, Section 11, and Section 12 (other than Sections 12.3 and 12.8) shall survive any such termination. A termination under Section 10.1shall not relieve any party of any liability for a breach of, or for any misrepresentation under, this Agreement, or be deemed to constitute a waiver of any available remedy (including specific performance if available) for any such breach or misrepresentation. c. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. (a) The representations and warranties contained in or made pursuant to this Agreement shall expire on the third anniversary of the Closing Date except that (a) the representations and warranties contained in Section 3.2 shall continue forever (subject to all defenses of Seller available under applicable Law, including the expiration of the applicable statute of limitations period), (b) the representations and warranties contained in Section 3.14 shall continue through the applicable statute of limitations, (c) representations and warranties which are intentionally misrepresented shall continue through the later of the first anniversary of the Closing Date and one year following the date of actual discovery of such intentional misrepresentation, and (d) if a claim or notice is given under Section 12 with respect to the breach of any representation or warranty prior to the applicable expiration date, such representation or warranty shall continue indefinitely until such claim is finally resolved. (b) All covenants and agreements of the parties hereto shall be continuing and shall survive each Closing Date pursuant to the terms thereof. -43- 49 (c) The provisions of Section 11.1 through Section 11.5 and Section 12.12 shall survive and remain in full force and effect with respect to the Investor notwithstanding any termination of the Investor's appointment as agent on behalf of the Pecuniary Owner. SECTION 11. INDEMNIFICATION a. INDEMNIFICATION. In partial consideration of the commitment of the Investors as agent for and on behalf of the Pecuniary Owner hereunder, Seller agrees to indemnify and hold harmless the Investor and the Pecuniary Owner and any of their respective affiliates, directors, officers, agents and employees and each other person, if any, controlling the Investor or the Pecuniary Owner or any of their respective affiliates (each an "Investor Indemnified Person") from and against any Losses (or actions in respect thereof) to which such Investor Indemnified Person may become subject in connection with the matters which are the subject of the commitment made hereunder (including any use or proposed use of the proceeds from the sale of the Common Shares) including without limitation any and all Losses of the Investor Indemnified Person as a result of, or based upon or arising out of, directly or indirectly any inaccuracy in, breach or nonperformance of, any of the representations, warranties, covenants or agreements made by Seller in, or pursuant to this Agreement, and will reimburse any Investor Indemnified Person for all reasonable expenses (including the reasonable fees of counsel) as they are incurred by any such Investor Indemnified Person in connection with investigating, preparing or defending any such action or claim pending or threatened, whether or not such Investor Indemnified Person is a party hereto. Seller shall not be responsible for any losses, claims, damages, liabilities or expenses resulting from such Investor Indemnified Person's gross negligence or willful misconduct. Seller also agrees that no Investor Indemnified Person shall have any liability (whether direct or indirect, in contract or tort or otherwise) to Seller for or in connection with this Agreement except for losses, claims, damages, liabilities or expenses to the extent that a court of competent jurisdiction or arbitration panel shall have finally determined that such losses, claims, damages, liabilities or expenses resulted from such Investor Indemnified Persons's gross negligence or willful misconduct. In the event that the foregoing indemnity is unavailable or insufficient to hold Investor Indemnified Person harmless, Seller shall contribute to amounts paid or payable by such Investor Indemnified Person in respect of such losses, claims, damages, liabilities and expenses in such proportion as appropriately reflects the relative benefits received by, and fault of Seller, on the one hand, and the Investor and the Pecuniary Owner on the other hand, in connection with the matters as to which such losses, claims, damages, liabilities or expenses relate. The agreement of Seller in this paragraph shall be in addition to any other liability that Seller may otherwise have. -44- 50 b. OBLIGATIONS OF THE INVESTOR AND THE PECUNIARY OWNER. The Investor and the Pecuniary Owner, severally and not jointly, agree to indemnify, defend and hold harmless Seller and its Trust Managers, officers, employees, agents, directors and Affiliates (collectively, the "SELLER INDEMNIFIED PARTIES") from and against any and all Losses of the Seller Indemnified Parties as a result of, or based upon or arising out of, directly or indirectly, (a) any material inaccuracy in, or material breach or material nonperformance of, any of the representations, warranties, covenants or agreements made by the Investor as agent for and on behalf of the Pecuniary Owner in, or pursuant to, this Agreement, or (b) any pending or threatened Action brought by the Investor's or the Pecuniary Owner's shareholders or creditors relating to, or arising out of or in connection with, directly or indirectly, the transactions contemplated under this Agreement; provided, however, that the Investor or the Pecuniary Owner, as applicable, shall not be obligated to indemnify, defend or hold harmless any of the Seller Indemnified Parties for any claims based solely on actions taken by any of the Seller Indemnified Parties other than the performance of the covenants and agreements to be undertaken by Seller pursuant to the terms and conditions of this Agreement and any other action authorized in writing by the Investor or the Pecuniary Owner, as applicable. As a condition to the rights of any of the Seller Indemnified Parties under this Section 11, the Investor may require that any such Person provide a written undertaking that such Person will repay to the Investor or the Pecuniary Owner, as applicable, any amount expended by the Investor or the Pecuniary Owner, as applicable, to indemnify, defend or hold harmless such Person in the event and to the extent a court determines that such Investor's or Pecuniary Owner's indemnification or defense of such Person is prohibited by applicable Law. The agreement of the Investor and the Pecuniary Owner in this paragraph shall be in addition to any other liability that the Investor and the Pecuniary Owner may otherwise have. c. PROCEDURE. i. NOTICE. Any party seeking indemnification with respect to any Loss shall give notice to the party required to provide indemnity hereunder (the "INDEMNIFYING PARTY") on or before the date specified in Section 11.4. ii. DEFENSE OF CLAIM. If any claim, demand or liability is asserted by any third party against any Indemnified Party, the Indemnifying Party shall have the right, unless otherwise precluded by applicable law, to -45- 51 conduct and control the defense, compromise or settlement of any Action or threatened Action brought against the Indemnified Party in respect of matters embraced by the indemnity set forth in this Section 11. The Indemnified Party shall have the right to employ counsel separate from counsel employed by the Indemnifying Party in connection with any such Action or threatened Action and to participate in the defense thereof, but the fees and expenses of such counsel employed by the Indemnified Party shall be at the sole expense of the Indemnified Party unless (i) the Indemnifying Party shall have elected not, or, after reasonable written notice of any such Action or threatened Action, shall have failed, to assume or participate in the defense thereof, (ii) the employment thereof has been specifically authorized by the Indemnifying Party in writing, or (iii) the parties to any such Action or threatened Action (including any impleaded parties) include both the Indemnifying Party and the Indemnified Party and the Indemnified Party shall have been advised in writing by counsel for the Indemnified Party that there may be one or more defenses available to the Indemnified Party that are not available to the Indemnifying Party or legal conflicts of interest pursuant to applicable rules of professional conduct between the Indemnifying Party and the Indemnified Party (in any which case, the Indemnifying Party shall not have the right to assume the defense of such Action on behalf of the Indemnified Party), in either of which events referred to in clauses (i), (ii) and (iii) the fees and expenses of such counsel employed by the Indemnified Party shall be at the expense of the Indemnifying Party. The Indemnifying Party shall not, without the written consent of the Indemnified Party, settle or compromise any such Action or threatened Action or consent to the entry of any judgment which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the Indemnified Party a release from all liability in respect of such Action or threatened Action. Unless the Indemnifying Party shall have elected not, or shall have after reasonable written notice of any such Action or threatened Action failed, to assume or participate in the defense thereof, the Indemnified Party may not settle or compromise any Action or threatened Action without the written consent of the Indemnifying Party. If, after reasonable written notice of any such Action or threatened Action, the Indemnifying Party neglects to defend the Indemnified Party, a recovery against the latter suffered by it in good faith, is conclusive in its favor against the Indemnifying Party; provided, however, that no such conclusive presumption shall be made if the Indemnifying Party has not received reasonable written notice of the Action against the Indemnified Party. d. SURVIVAL. The indemnity set forth in this Section 11 shall survive each Closing or any termination of this Agreement and shall remain in effect for a period of (a) with respect to a breach of a representation or warranty, for the period through which such representation or warranty shall continue pursuant to Section 10.3 (including such period of time through -46- 52 which such representation or warranty shall be extended until resolution of a claim with respect thereto) and (b) with respect to a breach of a covenant or agreement or an Action referred to in Sections 11.1 or 11.2(b), forever. e. NOTICE BY SELLER. Seller and the Investor agree to notify in writing the other parties of any liabilities, claims or misrepresentations, breaches or other matters covered by this Section 11 upon discovery or receipt of notice thereof (other than from such other parties), whether before or after any Closing Date. SECTION 12. GENERAL a. AMENDMENTS; WAIVERS. This Agreement and any Schedule or Exhibit attached hereto or referenced herein may be amended only by agreement in writing of all parties. No waiver of any provision nor consent to any exception to the terms of this Agreement shall be effective unless in writing and signed by the party to be bound and then only to the specific purpose, extent and instance so provided. b. SCHEDULES; EXHIBITS; INTEGRATION. Each Exhibit and Schedule delivered pursuant to the terms of this Agreement shall be in writing and shall constitute a part of the Agreement. This Agreement, together with such Exhibits and Schedules, constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior agreements and understandings of the parties in connection therewith. c. BEST EFFORTS; FURTHER ASSURANCES. Each party will use its best efforts to cause all conditions to its obligations to be timely satisfied and to perform and fulfill all obligations on its part to be performed and fulfilled under this Agreement. The parties shall cooperate with each other in such actions and in securing requisite Approvals. Each party shall execute and deliver such further certificates, agreements and other documents and take such other actions as the other party may reasonably request to consummate or implement the transactions contemplated hereby or to evidence such events or matters, including the seeking of any necessary shareholder approvals. d. GOVERNING LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF MARYLAND, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION (WHETHER OF THE STATE OF MARYLAND OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK. -47- 53 e. NO ASSIGNMENT. Except as otherwise specifically provided herein, neither this Agreement nor any rights or obligations under it are assignable by any party, except that the Investor may assign the commitment of any Pecuniary Owner to purchase Shares hereunder, and the related rights and remedies of such Pecuniary Owner, to any other client on behalf of whom it or any of its Affiliates acts as investment advisor, whether or not such client is initially the Pecuniary Owner hereunder and (ii) the Pecuniary Owner may at any time subsequent to the date hereof appoint a successor agent to act on its behalf in connection with the matters contemplated herein. f. HEADINGS. The descriptive headings of the Sections and subsections of this Agreement are for convenience only and do not constitute a part of this Agreement. g. COUNTERPARTS. This Agreement and any other agreement or document delivered pursuant hereto may be executed in one or more counterparts and by different parties in separate counterparts. All of such counterparts shall constitute one and the same agreement or other document and shall become effective when one or more counterparts of this Agreement have been signed by each party and delivered to the other parties. h. PUBLICITY AND REPORTS. Seller and the Investor shall coordinate all publicity relating to the transactions contemplated by this Agreement and no party shall issue any press release, publicity statement or other public notice relating to this Agreement, or the transactions contemplated by this Agreement, without obtaining the prior consent of the other parties, except to the extent that independent legal counsel to Seller or the Investor, as the case may be, shall advise the other parties in writing that a particular action is required by applicable Law (in which event the party taking such action shall cooperate with the other party in connection with any disclosure or publicity resulting from such action). i. CONFIDENTIALITY. All information disclosed by any party (or its representatives) to the other party whether before or after the date hereof, in connection with the transactions contemplated by, or the discussions and negotiations preceding, this Agreement to any other party (or its representatives) shall be kept confidential by such other party and its representatives and shall not be used by any such Persons other than as contemplated by this Agreement, except (a) to the extent that such information (i) was known by the recipient when received, (ii) is or -48- 54 hereafter becomes lawfully obtainable from other public sources or (iii) is necessary or appropriate to be disclosed to a Governmental Entity having jurisdiction over the parties, (b) as may otherwise be required by Law to be disclosed or (c) to the extent such duty as to confidentiality is waived in writing by the other parties. Notwithstanding the foregoing, the Investor shall be entitled to disclose information relating to this Agreement and the transactions contemplated hereby to any client on behalf of whom it or any of its Affiliates acts as investment advisor, in connection with a contemplated investment by such client in Seller as described herein. If this Agreement is terminated in accordance with its terms, each party shall use all reasonable efforts to return upon written request from the other parties all documents (and reproductions thereof) received by it or its representatives from such other parties (and, in the case of reproductions, all such reproductions made by the receiving party) that include information not within the exceptions contained in the first sentence of this Section 12.9, unless the recipients provide assurances reasonably satisfactory to the requesting party that such documents have been destroyed. j. PARTIES IN INTEREST. This Agreement shall be binding upon and inure to the benefit of each party, and nothing in this Agreement, express or implied, is intended to confer upon any other Person any rights or remedies of any nature whatsoever under or by reason of this Agreement. Nothing in this Agreement is intended to relieve or discharge the obligation of any third Person to or to confer any right of subrogation or action over or against any party to this Agreement. k. NOTICES. Any notice or other communication hereunder must be given in writing and (a) either delivered in person, (b) transmitted by telex, telefax or telecopy mechanism, (c) mailed by first class mail, return receipt requested, or (d) delivered by overnight mail or courier service, as follows: If to the Investor, addressed to: ABKB/LaSalle Securities Limited Partnership 100 East Pratt Street Baltimore, Maryland 21202 Attention: Stanley J. Kraska, Jr. Telecopy: (410) 347-0612 With a copy to: Elizabeth Grieb, Esquire Piper & Marbury L.L.P. 36 S. Charles Street Baltimore, Maryland 21201 Telecopy: (410) 576-1710 -49- 55 If to Seller, addressed to: American Industrial Properties REIT 6220 North Beltline Road, Suite 205 Irving, Texas 75063-2656 Attention: Mr. Charles W. Wolcott President and Chief Executive Officer Telecopy: (972) 550-6037 or to such other address or to such other person as any party shall have last designated by such notice to the other parties. Each such notice or other communication shall be effective (i) if given by telecommunication, when transmitted to the applicable number so specified in this Section 12.11 and an appropriate answer back is received, (ii) if given by mail, three days after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, when actually delivered at such address. l. EXPENSES. Except as set forth in the next sentence, each of the parties hereto shall pay its own respective expenses incident to the negotiation, preparation and performance of this Agreement and the transactions contemplated hereby, including but not limited to the fees, expenses and disbursements of its respective financial advisers, accountants and counsel. Seller shall reimburse the Investors for all legal fees incurred by the Investor relating to the transactions contemplated by this Agreement and the Registration Rights Agreement up to a maximum of $25,000. m. REMEDIES; WAIVER. All rights and remedies existing under this Agreement and any related agreements or documents are cumulative to and not exclusive of any rights or remedies otherwise available under applicable Law. No failure on the part of any party to exercise or delay in exercising any right hereunder shall be deemed a waiver thereof, nor shall any single or partial exercise preclude any further or other exercise of such or any other right. Each of the parties hereto shall be entitled to seek any equitable remedy to the extent such remedy is available under applicable Law. n. REPRESENTATION BY COUNSEL; INTERPRETATION. Each of the parties hereto acknowledges that each party to this Agreement has been represented by counsel in connection with this Agreement and the transactions contemplated by this Agreement. Accordingly, any rule of Law or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the party that drafted it has no application and is expressly waived. The provisions of this Agreement shall be interpreted in a reasonable manner to effect the intent of the parties -50- 56 hereto, and no rule of strict construction shall be applied against any party to this Agreement. o. SEVERABILITY. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any current or future law, and if the rights or obligations of the parties under this Agreement would not be materially and adversely affected thereby, such provision shall be fully separable, and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part thereof, and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance therefrom. In lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as a part of this Agreement, a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible, and the parties hereto request the court or any arbitrator to whom disputes relating to this Agreement are submitted to reform the otherwise illegal, invalid or unenforceable provision in accordance with this Section 12.15. p. ARBITRATION. In the event of a dispute hereunder which cannot be resolved by the parties, such dispute shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association and judgment on the award rendered by the arbitration panel may be entered in any court or tribunal of competent jurisdiction. Any arbitration occurring under this Section 12.16 shall be held in Baltimore, Maryland in the first instance, in Dallas, Texas in the second instance, and continuing in that order with respect to each dispute occurring hereunder. q. AGENTS. (a) Seller acknowledges and agrees that the Investor is acting as agent for and on behalf of the Pecuniary Owner and that the Investor shall not have any liability to Seller, and shall not be obligated to purchase securities hereunder with respect to which the Pecuniary Owner was obligated to but did not purchase. (b) In the event that the Investor shall no longer act as agent for and on behalf of the Pecuniary Owner in connection with the matters contemplated by this Agreement, then (i) any agent(s) appointed by the Pecuniary Owner as successor agent(s) to the Investor shall be entitled to, and to exercise on behalf of the Pecuniary Owner, all of the rights and remedies provided for herein with respect to the Investor and (ii) at any such time as no successor agent(s) shall have been appointed by the Pecuniary Owner, the Pecuniary Owner shall be entitled to exercise all of the rights and remedies provided for herein in its individual capacity, including the right to obtain, upon request, copies of all documents and notices as specified herein. In the event that the Investor shall no longer act as agent on behalf of the Pecuniary Owner hereunder, all consents or waivers of the -51- 57 Investor necessary to effect any action hereunder shall be required to be given by any successor agent(s) appointed by the Pecuniary Owner or, if no successor(s) has been appointed, by the Pecuniary Owner, prior to the consummation of such action. (c) Until such time as Seller shall have received a written notice from the Pecuniary Owner that the Investor is no longer acting as the Pecuniary Owner's agent hereunder, Seller shall be entitled to rely on any instructions and any notices received from the Investor on behalf of the Pecuniary Owner as if received from the Pecuniary Owner directly. "INVESTOR" ABKB/LASALLE SECURITIES LIMITED PARTNERSHIP, as Agent and for and on behalf of the Pecuniary Owner By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- "SELLER" AMERICAN INDUSTRIAL PROPERTIES REIT ------------------------------------- Charles W. Wolcott President and Chief Executive Officer -52- EX-10.9 10 COMMON SHARE AGREEMENT 1 EXHIBIT 10.9 COMMON SHARE PURCHASE AGREEMENT dated as of July 3, 1997 Between AMERICAN INDUSTRIAL PROPERTIES REIT and LASALLE ADVISORS LIMITED PARTNERSHIP as Agent for and for the benefit of a particular client 2 TABLE OF CONTENTS SECTION 1. DEFINITIONS AND RULES OF CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . -1- 1.1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1- 1.2 RULES OF CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . -10- SECTION 2. PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10- 2.1 PURCHASE AND SALE OF THE COMMON SHARES . . . . . . . . . . . . . . . . . . -10- 2.2 USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11- 2.3 CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11- SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLER . . . . . . . . . . . . . . . . . . . -11- 3.1 ORGANIZATION AND RELATED MATTERS . . . . . . . . . . . . . . . . . . . . . -11- 3.2 CAPITAL STOCK; TITLE TO SHARES. . . . . . . . . . . . . . . . . . . . . . -12- 3.3 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . -13- 3.4 SEC REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14- 3.5 AUTHORIZATION; NO CONFLICTS . . . . . . . . . . . . . . . . . . . . . . . -14- 3.6 LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15- 3.7 COMPLIANCE WITH LAW AND PERMITS . . . . . . . . . . . . . . . . . . . . . -15- 3.8 DIVIDENDS AND OTHER DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . -16- 3.9 CERTAIN INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16- 3.10 NO BROKERS OR FINDERS . . . . . . . . . . . . . . . . . . . . . . . . . . -16- 3.11 EMPLOYEE BENEFIT PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . -17- 3.12 LABOR MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18- 3.13 PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18- 3.14 TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20- 3.15 MATERIAL CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22- 3.16 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22- 3.17 ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . -22- 3.18 TRUST RECORDS; ACCOUNTING RECORDS . . . . . . . . . . . . . . . . . . . . -23- 3.19 NEW YORK STOCK EXCHANGE LISTING . . . . . . . . . . . . . . . . . . . . . -23- 3.20 DISCLOSURE OF FACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . -23- 3.21 PENSION-HELD REIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23- 3.22 SHAREHOLDER APPROVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . -24- SECTION 4. REPRESENTATIONS AND WARRANTIES OF INVESTOR . . . . . . . . . . . . . . . . . . -24- 4.1 ORGANIZATION AND RELATED MATTERS . . . . . . . . . . . . . . . . . . . . . -24- 4.2 AUTHORIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24- 4.3 NO CONFLICTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24- 4.4 NO BROKERS OR FINDERS . . . . . . . . . . . . . . . . . . . . . . . . . . -24- 4.5 LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24- 4.6 INVESTMENT REPRESENTATION . . . . . . . . . . . . . . . . . . . . . . . . -25- 4.7 LEGENDS; STOP-TRANSFER ORDERS . . . . . . . . . . . . . . . . . . . . . . -25-
-i- 3 4.8 STATUS FOR REIT OWNERSHIP AND INCOME TESTS . . . . . . . . . . . . . . . . -25- 4.9 AUTHORITY OF THE INVESTOR . . . . . . . . . . . . . . . . . . . . . . . . -26- SECTION 5. COVENANTS WITH RESPECT TO CONDUCT OF SELLER PRIOR TO CLOSING . . . . . . -26- 5.1 ACCESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26- 5.2 MATERIAL ADVERSE CHANGES; SEC FILINGS; REPORTS; FINANCIAL STATEMENTS . . . -26- 5.3 CONDUCT OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . -27- 5.4 NOTIFICATION OF CERTAIN MATTERS . . . . . . . . . . . . . . . . . . . . . -29- 5.5 ADJUSTMENT OF SHARE PRICE . . . . . . . . . . . . . . . . . . . . . . . . -29- SECTION 6. ADDITIONAL CONTINUING COVENANTS AND AGREEMENTS . . . . . . . . . . . . . . . . -30- 6.1 USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30- 6.2 APPOINTMENT OF TRUST MANAGER . . . . . . . . . . . . . . . . . . . . . . . -30- 6.3 ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . -32- 6.4 STATUS FOR REIT OWNERSHIP AND INCOME TESTS . . . . . . . . . . . . . . . . -32- 6.5 PROHIBITED TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . -32- 6.6 SELLER/BUYER REGISTRATION RIGHTS AGREEMENT . . . . . . . . . . . . . . . . -32- 6.7 REIT QUALIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32- 6.8 PREEMPTIVE RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32- 6.9 DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33- 6.10 FURNISH DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33- 6.11 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33- 6.12 ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . -33- 6.13 MSRE AND MSAM CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . -34- SECTION 7. GENERAL CONDITIONS OF PURCHASE . . . . . . . . . . . . . . . . . . . . . . . . -34- 7.1 NO ORDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34- 7.2 APPROVALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34- 7.3 ABSENCE OF LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . -34- 7.4 NEW YORK STOCK EXCHANGE . . . . . . . . . . . . . . . . . . . . . . . . . -34- 7.5 SHAREHOLDER APPROVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . -34- SECTION 8. CONDITIONS TO OBLIGATIONS OF THE INVESTOR . . . . . . . . . . . . . . . . . . . -34- 8.1 ACCURACY OF SELLER'S REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . -35- 8.2 PERFORMANCE BY SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . -35- 8.3 NO MATERIAL ADVERSE CHANGE . . . . . . . . . . . . . . . . . . . . . . . . -35- 8.4 CERTIFICATION BY SELLER . . . . . . . . . . . . . . . . . . . . . . . . . -35- 8.5 OPINION OF SELLER'S COUNSEL . . . . . . . . . . . . . . . . . . . . . . . -35- 8.6 SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -35- 8.7 REALCO, MSRE AND MSAM CONSENT . . . . . . . . . . . . . . . . . . . . . . -35- 8.8 ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . -36- 8.9 CLOSING OF MSRE AND MSAM PURCHASE TRANSACTIONS . . . . . . . . . . . . . . -36-
-ii- 4 SECTION 9. CONDITIONS TO OBLIGATIONS OF SELLER . . . . . . . . . . . . . . . . . . . . . . -36- 9.1 ACCURACY OF THE INVESTOR'S REPRESENTATIONS AND WARRANTIES . . . . . . . . -36- 9.2 BUYERS' PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . -36- 9.3 CERTIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36- 9.4 OPINION OF COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36- 9.5 REIT STATUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36- SECTION 10. TERMINATION OF OBLIGATIONS; SURVIVAL . . . . . . . . . . . . . . . . . . . . . -36- 10.1 TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . -36- 10.2 EFFECT OF TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . -37- 10.3 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS . . . . . . . . . . -37- SECTION 11. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -38- 11.1 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -38- 11.2 OBLIGATIONS OF THE INVESTOR AND THE PECUNIARY OWNER. . . . . . . . . . . -38- 11.3 PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39- 11.4 SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -40- 11.5 NOTICE BY SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -40- SECTION 12. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -40- 12.1 AMENDMENTS; WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . -40- 12.2 SCHEDULES; EXHIBITS; INTEGRATION . . . . . . . . . . . . . . . . . . . . . -40- 12.3 BEST EFFORTS; FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . -40- 12.4 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -41- 12.5 NO ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -41- 12.6 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -41- 12.7 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -41- 12.8 PUBLICITY AND REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . -41- 12.9 CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -41- 12.10 PARTIES IN INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . -42- 12.11 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -42- 12.12 EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -43- 12.13 REMEDIES; WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -43- 12.14 REPRESENTATION BY COUNSEL; INTERPRETATION . . . . . . . . . . . . . . . . -43- 12.15 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -43- 12.16 ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -44- 12.17 AGENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -44-
EXHIBITS EXHIBIT A Registration Rights Agreement -iii- 5 SCHEDULES SCHEDULE 3.1 Jurisdictions; Officers and Trust Managers SCHEDULE 3.2 Capital Stock; Title to Shares SCHEDULE 3.3 Additional Liabilities or Contingencies SCHEDULE 3.5 Permits and Approvals SCHEDULE 3.6 Litigation SCHEDULE 3.7 Compliance with Law and Permits SCHEDULE 3.8 Dividends and Other Distributions SCHEDULE 3.9 Certain Interests SCHEDULE 3.11 Seller Benefit Plans SCHEDULE 3.13 Properties and Encumbrances SCHEDULE 3.14 Taxes SCHEDULE 3.15 Material Contracts SCHEDULE 3.16 Insurance SCHEDULE 3.17 Environmental Compliance SCHEDULE 3.18 Trust Records SCHEDULE 5.3 Conduct of Business SCHEDULE 8.5 List of Opinions of Seller's Counsel SCHEDULE 9.4 List of Opinions of Investor's Counsel -iv- 6 COMMON SHARE PURCHASE AGREEMENT THIS COMMON SHARE PURCHASE AGREEMENT (this "AGREEMENT") is made and entered into as of July 3, 1997, by and among AMERICAN INDUSTRIAL PROPERTIES REIT, a Texas real estate investment trust ("SELLER"), and LASALLE ADVISORS LIMITED PARTNERSHIP, a registered investment advisor (the "Investor"), as agent for and for the benefit of a particular client. R E C I T A L S A. Seller qualifies and operates as a real estate investment trust for federal income tax purposes. B. Seller desires to sell to Investor, and Investor desires to purchase from Seller, the number of Common Shares having an aggregate purchase price as specified herein (the "Shares") upon the terms and subject to the conditions set forth in this Agreement. C. The proceeds from the sale of the Shares are to be used for the purposes set forth in this Agreement. A G R E E M E N T NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: SECTION 1. DEFINITIONS AND RULES OF CONSTRUCTION a. DEFINITIONS. The capitalized terms used in this Agreement, the Exhibits and the Schedules attached hereto shall have the meanings set forth below: "ACTION" means any action, complaint, investigation, suit or other proceeding, whether civil or criminal, in law or in equity, or before any mediator, arbitrator or Governmental Entity. "AFFILIATE" means a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, a specified Person. "AGREEMENT" means this Common Share Purchase Agreement, by and between Seller and the Investor, as agent for and for the benefit of a particular client, as amended from time to time pursuant to the terms of this Agreement, together with all Exhibits and all Schedules attached hereto. -1- 7 "ANNUAL MEETING" shall mean the Seller's annual meeting that was held on June 30, 1997. "APPROVAL" means any approval, authorization, consent, qualification or registration, or any waiver of the foregoing, or any notice, statement or other communication required to be filed with or delivered to any Governmental Entity or any other Person. "ASSOCIATE" of a Person means (i) a corporation or organization (other than Seller or a party to this Agreement) of which such Person is an officer or partner or is, directly or indirectly, the beneficial owner of 10% or more of any class of equity securities; (ii) any trust or other estate in which such Person has a substantial beneficial interest or as to which such Person serves as trustee or in a similar capacity; and (iii) any relative or spouse of such Person who has the same residence as such Person. "AUDITED FINANCIAL STATEMENTS" has the meaning set forth in Section 3.3(a) of this Agreement. "AUDITORS" means Ernst & Young, LLP, independent public accountants to Seller. "BANKRUPTCY CODE" means Title 11 of the United States Code entitled "Bankruptcy," as now and hereafter in effect, and any successor statute, as well as any existing or future law of any jurisdiction, foreign or domestic, relating to bankruptcy, insolvency, reorganization, conservatorship or relief of debtors. "BUSINESS DAY" means a day other than a Saturday, a Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. "CAPITALIZED LEASE" means any lease of property, real or personal, the obligations of the lessee in respect of which are required in accordance with GAAP to be capitalized on a balance sheet of the lessee. "CAPITALIZED LEASE OBLIGATION" means, as to any Person, the obligation of such Person to pay rent or other amounts under a Capitalized Lease and, for purposes of this Agreement, the amount of such obligation shall be the capitalized amount thereof, determined in accordance with GAAP. "CAPITAL STOCK" means any capital stock, beneficial interest or other equity interest, or any securities convertible into or exchangeable or exercisable for capital stock, beneficial interests -2- 8 or other equity interests, or any other rights, warrants or options to acquire any of the foregoing securities. "CHARTER DOCUMENTS" means Seller's Third Amended and Restated Declaration of Trust and Fourth Amended and Restated Bylaws as in effect as of the date of this Agreement. "CLOSING" has the meaning set forth in Section 2.3(a) of this Agreement. "CLOSING AGREEMENT" shall mean a written and legally binding agreement with a taxing authority relating to Taxes. "CLOSING DATE" means each date specified in Section 2.3(a) of this Agreement. "CODE" means the Internal Revenue Code of 1986, as amended, and, as applicable, the regulations promulgated thereunder. "COMMISSION" means the United States Securities and Exchange Commission or any successor entity. "COMMON SHARES" means common shares of beneficial interest, par value $.10 per share, of Seller. "CONTRACT" means any agreement, arrangement, bond, commitment, franchise, indemnity, indenture, instrument, lease, license or understanding, whether or not in writing. "CURRENTLY OUTSTANDING SHARES" has the meaning set forth in Section 2.4 of this Agreement. "DEBT" means, with respect to any Person, without duplication, and without regard to whether it is contingent or direct, (a) all indebtedness of such Person for borrowed money, (b) any obligation incurred for all or any part of the purchase price of property or services, other than accounts payable and accrued expenses included in current liabilities in accordance with GAAP and incurred in respect of property or services purchased in the ordinary course of business, (c) indebtedness or obligations evidenced by bonds, notes or similar written instruments, (d) all reimbursement obligations of such Person (whether contingent or otherwise) in respect of letters of credit, banker's acceptances, surety or other bonds and similar instruments, (e) any obligation (whether or not such Person has assumed or becomes liable for the payment of such obligation) secured by a lien on any property of such Person, (f) all Capitalized Lease Obligations of such Person and (g) all Guarantees by such Person of obligations of any other Person of the types referred to in the foregoing clauses (a) through (f), inclusive, excluding, (i) the payment of commissions to Prudential Securities Incorporated in connection with the transactions contemplated herein and approved at the Annual Meeting, and (ii) a $25 million line of credit from Prudential Securities Incorporated or its Affiliates (the "Prudential Line of Credit"). -3- 9 "ENCUMBRANCE" means any claim, charge, easement, encumbrance, lease, covenant, security interest, lien, option, pledge, rights of others, preferential right, right of first refusal or restriction (whether on voting, sale, transfer, disposition or otherwise), whether imposed by agreement, understanding, law, equity or otherwise, except that "Encumbrance" does not include any such item that (i) is reflected in the Audited Financial Statements or (ii) constitutes a statutory lien arising in the ordinary course of business. "ENVIRONMENTAL CLAIMS" means any of the following to the extent they relate to, or arise out of, directly or indirectly, Environmental Noncompliance with respect to the Properties or actual or alleged Environmental Conditions or any Notification which may lead to: (i) claims, demands, suits, causes of action for personal injury, death or property damage; (ii) claims for actual or threatened damages to natural resources; (iii) claims for the recovery of response costs, or administrative or judicial orders directing the performance of investigations, response or remedial actions under any Environmental Law; (iv) a requirement to implement "corrective action" pursuant to any restitution, contribution or equitable indemnity to third parties or any Governmental Entity; (v) fines, penalties, liens against the Properties; (vi) claims for injunctive relief or other orders or notices of violation from any Governmental Entity; or (vii) with regard to any present or former employees, tenants or guests, exposure to or injury from Environmental Conditions. "ENVIRONMENTAL CONDITIONS" means conditions of the environment, including the ocean, natural resources (including flora and fauna), soil, surface water, ground water, any actual or potential drinking or water supply, subsurface strata, or air, including ambient air, relating to or arising out of the use, handling, storage, treatment, recycling, generation, transportation, release, spilling, leaking, pumping, pouring, emptying, discharging, injecting, escaping, leaching, disposal, dumping or threatened release of Hazardous Materials from, in, on, or onto the Properties. "ENVIRONMENTAL NONCOMPLIANCE" means any of the following to the extent they are applicable to the Properties or alleged to be applicable to the Properties or to Seller, Subsidiaries or a Seller Partnership: (i) the Release of any Hazardous Material into the environment, any storm drain, sewer, septic system or publicly-owned treatment works, in violation of any effluent or emission limitations, standards or other criteria or guidelines established by any Environmental Law; (ii) any noncompliance of physical structure, equipment, process or premises with the requirements of building or fire codes, zoning or land use regulations or ordinances or conditional use permits; (iii) any noncompliance with federal, state or local requirements governing occupational safety and health; (iv) any operations, procedures and designs at or on the Properties which do not conform to the statutory or regulatory requirements of any Law (including land use regulations and ordinances) intended to protect public health, welfare and the environment; (v) the failure to have obtained permits, licenses, variances or other governmental authorizations necessary for the legal use and/or operation of any equipment, process or any activity at the Properties; or (vi) the operation and/or use of any process or equipment in violation of any permit condition, schedule of compliance, administrative or court order. -4- 10 "ENVIRONMENTAL PERMITS" has the meaning set forth in Section 3.17(a) of this Agreement. "EQUITABLE REMEDIES" has the meaning set forth in Section 3.5 of this Agreement. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "GAAP" means generally accepted accounting principles as in effect from time to time. "GOVERNMENTAL ENTITY" means any agency, bureau, commission, court, department, official, political subdivision, tribunal or other instrumentality of any government, whether federal, state or local, domestic or foreign. "GUARANTEE" means, with respect to any Person, any guarantee or other contingent liability (other than any endorsement for collection or deposit in the ordinary course of business and performance bonds, indemnities and similar obligations not guaranteeing or otherwise insuring payment of any Debt or other financial obligation), direct or indirect, of such Person with respect to any Debt or other obligation of another Person (including obligations under leases), through an agreement or otherwise, including (a) any other endorsement or discount with recourse or undertaking substantially equivalent to or having economic effect similar to a guarantee in respect of any such Debt or other obligations and (b) any agreement (i) to purchase, or to advance or supply funds for the payment or purchase of, any such obligations, (ii) to purchase, sell or lease property, products, materials or supplies, or transportation or services, in respect of enabling such other Person to pay any such obligation or to assure the owner thereof against loss regardless of the delivery or nondelivery of the property, products, materials or supplies or transportation or services or (iii) to make any loan, advance or capital contribution to or other investment in, or to otherwise provide funds to or for, such other Person in respect of enabling such Person to satisfy any obligation (including any liability for a dividend, stock liquidation payment or expense) or to assure a minimum equity, working capital or other balance sheet condition in respect of any such obligation. The amount of any Guarantee shall be equal to the outstanding amount of the obligations of such other Person directly or indirectly guaranteed. "HAZARDOUS MATERIALS" means any substance, matter, material, waste, solid, liquid, gas, or pollutant, the generation, storage, disposal, handling, recycling, Release (or threatened Release) or treatment of which is regulated, prohibited, or limited under: (1) the Resource Conservation and Recovery Act, as amended by the Hazardous and Solid Waste Amendments of 1984, as now or hereafter amended ("RCRA") (42 U.S.C. Sections 6901 et seq.); (ii) the Comprehensive Environmental Response, Compensation and Liability Act, as amended by the Superfund Amendments and Reauthorization Act of 1986, as now or hereafter amended ("CERCLA") (42 U.S.C. Sections 9601 et seq.); (iii) the Clean Water Act, as now or hereafter -5- 11 amended ("CWA") (33 U.S.C. Sections 1251 et seq.); (iv) the Toxic Substances Control Act, as now or hereafter amended ("TSCA") (15 U.S.C. Sections 2601 et seq.); (v) the Clean Air Act, as now or hereafter amended ("CAA") (42 U.S.C. Sections 7401 et seq.) (RCRA, CERCLA, CWA, TSCA and CAA are collectively referred to herein as the "FEDERAL ENVIRONMENTAL LAWS"); (vi) any local, state or foreign law, statute, regulation, or ordinance analogous to any of the Federal Environmental Laws; or (vii) any other federal, state, local, or foreign law (including any common law), statute, regulation, or ordinance regulating, prohibiting, or otherwise restricting the placement, Release, threatened Release, generation, treatment, or disposal upon or into any environmental media of any substance, pollutant, or waste which is now or hereafter classified or considered to be hazardous or toxic to human health or the environment. All of the laws, statutes, regulations and ordinances referred to in subsections (vi) and (vii) above, together with the Federal Environmental Laws, are collectively referred to herein as "ENVIRONMENTAL LAWS." The term "HAZARDOUS MATERIALS" shall also include: (a) gasoline, diesel fuel, fuel oil, motor oil, waste oil, and any other petroleum hydrocarbons, including any additives or other by-products associated therewith; (b) "friable" asbestos (as the term "friable" is defined under 40 C.F.R. Section 61.141) and friable asbestos-containing materials in any form; (c) polychlorinated biphenyls; or (d) any substance the presence of which on the Properties, (x) requires reporting or remediation under any Environmental Law, (y) causes or threatens to cause a nuisance on the Properties or poses or threatens to pose a hazard to the health or safety of persons on the Properties, or (z) which, if it emanated or migrated from the Properties, could constitute a trespass, nuisance or health or safety hazard to persons on adjacent property. "INDEMNIFIABLE CLAIM" means any Loss for or against which any Person is entitled to indemnification under this Agreement. "INDEMNIFIED PERSON" shall mean each Investor Indemnified Person and each Seller Indemnified Party. "INDEMNIFYING PARTY" has the meaning set forth in Section 11.3(a) of this Agreement. "INITIAL REIT YEAR" has the meaning set forth in Section 3.14(c) of this Agreement. "INVESTMENT COMMITTEE" means the investment committee of the Seller's Board of Trust Managers which after the Annual Meeting shall consist of one Trust Manager designee of Investor, one Trust Manager designee of Realco, one Trust Manager designee of MSAM and one independent Trust Manager. "INVESTOR" means LaSalle Advisors Limited Partnership, a registered investment advisor. "INVESTOR INDEMNIFIED PERSON" has the meaning set forth in Section 11.1 of this Agreement. -6- 12 "LAW" means any constitutional provision, statute or other law, rule, regulation or interpretation of any thereof and any Order of any Governmental Entity (including Environmental Laws, including, without limitation, the Americans with Disabilities Act). "LOSS" means any claim, amount paid in settlement, cost, damage (including, without limitation, consequential damage), disbursement, expense (including legal fees and expenses), liability, loss, deficiency, diminution in value or obligation. "MATERIAL CONTRACT" means any Contract to which Seller, any Subsidiary or any Seller Partnership is a party or by which any such Person or any of their respective Properties are bound that currently is in effect and (a) after December 31, 1996 obligates Seller, any Subsidiary or any Seller Partnership to pay an amount equal to $100,000 or more, (b) is one of the group of Tenant Leases that is anticipated by Seller to produce 66 2/3% of Seller's gross income during the fiscal year ending December 31, 1997, such group of Tenant Leases calculated beginning with the Tenant Lease that is anticipated to produce the most gross income during such period and thereafter in descending order of magnitude of gross income anticipated to be earned during such period under each other Tenant Lease until such percentage of gross income is reached, (c) is a Tenant Lease involving the lease of space in excess of 10,000 square feet for any Property, (d) other than any Tenant Lease, has an unexpired term as of December 31, 1996 in excess of five (5) years, (e) other than any Tenant Lease, contains a covenant not to compete or otherwise significantly restricts business activities of Seller, any Subsidiary or any Seller Partnership, (f) provides for the extension of credit by Seller, any Subsidiary or any Seller Partnership or a line of credit to Seller, any Subsidiary or any Seller Partnership in excess of $50,000, (g) provides for a guaranty or indemnity by Seller, any Subsidiary or any Seller Partnership, (h) grants a power of attorney, agency or similar authority to another Person, (i) contains an option to purchase or a right of first refusal relating to any of the Properties, (j) relates to the sale or issuance of any equity securities of Seller or securities exercisable for or convertible into any equity securities of Seller, or (k) any other Contract that is not within the general descriptions of clauses (a) through (j) (i.e., is not a Tenant Lease or within any of the other general categories listed above) but is material to the business, financial condition, assets, results of operations or prospects of Seller, Subsidiaries or Seller Partnerships. "MINIMUM EQUITY CAPITALIZATION" means $150 million as calculated using the average closing price of the Common Shares on the New York Stock Exchange for the 10 trading days immediately preceding the applicable date of determination multiplied by the current number of issued and outstanding Common Shares and Common Share equivalents; provided, however, it shall not in any event include operating partnership units in excess of $50 million. "MSAM" means Morgan Stanley Asset Management, Inc., a Delaware corporation. "MSAM PURCHASE AGREEMENT" means that certain Common Share Purchase Agreement dated as of June 20, 1997, by and among Seller, MSRE and MSAM pursuant to which MSRE and MSAM, as agent and attorney-in-fact on behalf of certain clients, have agreed to -7- 13 purchase up to $20 million of Common Shares of Seller on terms and conditions substantially similar to the terms and conditions contained herein. "MSAM PURCHASERS" means the clients of MSAM listed on Exhibit A to the MSAM Purchase Agreement. "MSRE" means MS Real Estate Special Situations Inc., a Delaware corporation. "NOTIFICATION" means any summons, citation, directive, order, claim, litigation, pleading, investigation, proceeding, judgment, letter or any other written or oral communication from any Governmental Entity, any entity or any individual, concerning any intentional or unintentional act or omission which has resulted in or which may result in any Environmental Noncompliance or Environmental Claim. "ORDER" means any decree, injunction, judgment, order, ruling, assessment or writ. "OTHER PECUNIARY OWNERS" means the other pecuniary owners for whom the Investor is acting as agent for and on behalf of in connection with the purchase of Common Shares of the Seller pursuant to Common Share Purchase Agreements dated the date hereof similar to this Agreement and who, along with the Pecuniary Owner, are purchasing Common Shares having an aggregate purchase price of up to $15 million. "PECUNIARY OWNER" means the client of Investor for whom Investor is acting as Agent for and for the benefit of, in connection with the purchase of the Common Shares pursuant to the Agreement. "PERMIT" means any license, permit, franchise, certificate of authority or order, or any waiver of the foregoing, required to be issued by any Governmental Entity. "PERSON" means an individual, corporation, partnership, limited liability company, joint venture, an unincorporated organization, government or any department or agency thereof, estate, trust, association, or private foundation within the meaning of Section 509(a) of the Code, or joint stock company. "PREEMPTIVE RIGHTS" has the meaning set forth in Section 6.8 of this Agreement. "PREFERRED SHARES" means any class of capital stock of a Person which is entitled to a preference or priority over any other class of capital stock of such Person with respect to any distribution of such Person's assets, whether with respect to dividends, or upon liquidation or dissolution, or both. "PROPERTIES" means the real property owned or leased by Seller, Subsidiaries and Seller Partnerships listed on Schedule 3.13 hereto. -8- 14 "PURCHASE PRICE" means, with respect to the Closing Date, the aggregate price paid for the Common Shares purchased by Investor on the Closing Date. "REALCO" means USAA Real Estate Company, a Delaware corporation. "REALCO DEBT" has the meaning set forth in Section 3.2 of this Agreement. "REGISTRATION RIGHTS AGREEMENT" means the registration rights agreement among Seller, and Investor, as agent for and on behalf of the Pecuniary Owner and certain Other Pecuniary Owners, to be executed contemporaneously with the execution of this Agreement. "REIT" has the meaning set forth in Section 3.14(b) of this Agreement. "RELEASE" means releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, ejecting, escaping, leaching, disposing, seeping, infiltrating, draining or dumping of any Hazardous Material. This term shall be interpreted to include both the present and past tense, as appropriate. "SCHEDULE" means any schedule attached to this Agreement. "SEC FILINGS" has the meaning set forth in Section 3.4 of this Agreement. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SELLER" means American Industrial Properties REIT, a Texas real estate investment trust. "SELLER BENEFIT PLANS" has the meaning set forth in Section 3.11 of this Agreement. "SELLER INDEMNIFIED PARTIES" has the meaning set forth in Section 11.2 of this Agreement. "SELLER PARTNERSHIPS" has the meaning set forth in Section 3.1 of this Agreement. "SELLER PERMITS" has the meaning set forth in Section 3.7(b) of this Agreement. "SHARE PRICE" has the meaning set forth in Section 2.1 of this Agreement. "SHAREHOLDER APPROVAL" means the approval by Seller's shareholders at the Annual Meeting of the proposal to approve the sale to Investor of Common Shares having an aggregate -9- 15 purchase price of up to $15 million, and the authorization of the issuance of a sufficient number of Common Shares to allow such sale to occur. "SHARES" has the meaning set forth in Section 2.1 of this Agreement. "SUBSIDIARIES" has the meaning set forth in Section 3.1 of this Agreement. "TAXES" has the meaning set forth in Section 3.14(a) of this Agreement. "TAX RETURN" has the meaning set forth in Section 3.14(b) of this Agreement. "TENANT LEASES" has the meaning set forth in Section 3.13(b) of this Agreement. "TRUST MANAGERS" means the Trust Managers of Seller. "THRESHOLD EQUITY CAPITALIZATION" means equity capitalization of $250 million, calculated in the same manner as Minimum Equity Capitalization. "UNAUDITED FINANCIAL STATEMENTS" has the meaning set forth in Section 3.3(b) of this Agreement. b. RULES OF CONSTRUCTION. This Agreement shall be construed in accordance with the following rules of construction: (a) the terms defined in this Agreement include the plural as well as the singular; (b) all accounting terms not otherwise defined herein have the meanings given such terms under GAAP; (c) all references in the Agreement to designated "Sections" and other subdivisions are to the designated Sections and other subdivisions of the body of this Agreement; (d) pronouns of either gender or neuter shall include, as appropriate, the other pronoun forms; (e) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Section or other subdivision; (f) the words "includes" and "including" are not limiting; and (g) knowledge of any Subsidiary or any Seller Partnership shall be deemed to be knowledge of Seller. -10- 16 SECTION 2. PURCHASE AND SALE a. PURCHASE AND SALE OF THE COMMON SHARES. Subject to the terms and conditions set forth herein, Seller shall sell and issue to Investor, and Investor shall purchase from Seller, up to an aggregate of 2,210,204 Common Shares (the "Shares") at a price of $2.45 per Common Share, subject to adjustment as set forth in Section 5.5 (the "Share Price"). b. USE OF PROCEEDS. The proceeds of the purchase of Shares hereunder shall be used by the Seller to purchase real property as approved by the Investment Committee. c. CLOSING. i. The Closing shall occur on or before July 11, 1997, (the "CLOSING DATE"), and the Investor shall purchase the number of Shares specified in Section 2.1. ii. At the Closing, Seller shall deliver to the Investor the certificates evidencing the Shares purchased by the Investor on the applicable Closing Date, registered in the name of the Investor or its nominee. In addition, all other actions shall be taken and all other documents shall be delivered which are necessary to consummate the purchase and sale of the Shares purchased by the Investor on the applicable Closing Date. iii. At the Closing, the Investor shall pay and deliver to Seller the Purchase Price for the Shares being purchased by the Investor at the Closing. SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLER Seller represents and warrants to, and agrees with, the Investor and the Pecuniary Owner as follows: a. ORGANIZATION AND RELATED MATTERS. Seller is duly organized, validly existing and in good standing under the laws of the State of Texas. Seller has all necessary power and authority to execute, deliver and perform this Agreement. Schedule 3.1 lists all Subsidiaries (the "SUBSIDIARIES") and all Partnerships of Seller (the "SELLER PARTNERSHIPS") and correctly sets forth Seller's ownership interest therein, the jurisdiction in which each Subsidiary and each Seller Partnership is organized and each jurisdiction in which Seller, each Subsidiary and each Seller Partnership is and is required to be qualified or licensed to do business as a foreign Person. Each Subsidiary and each Seller Partnership is duly organized, validly existing and, with -11- 17 respect to each Subsidiary, in good standing under the laws of the jurisdiction of its incorporation or organization. Seller, Subsidiaries and Seller Partnerships have all necessary power (whether corporate, partnership or other power, as applicable) and authority to own their respective properties and assets and to carry on their respective businesses as now conducted. Seller, Subsidiaries and Seller Partnerships are duly qualified or licensed to do business as foreign Persons in good standing in all jurisdictions in which the character or the location of the assets owned or leased by any of them or the nature of the business conducted by any of them requires licensing or qualification, except where the failure to be so qualified or licensed is not and will not be material to their respective businesses, financial condition, assets, results of operations or prospects. Schedule 3.1 correctly lists the current Trust Managers, directors, general partners and executive officers of Seller, Subsidiaries and Seller Partnerships. True, correct and complete copies of the Charter Documents and the charter or organizational documents of Subsidiaries and Seller Partnerships (including the declaration of trust, articles or certificate of incorporation, bylaws and partnership agreements, as applicable) as in effect on the date hereof have been delivered to the Investor. Seller is registered and is a reporting company under the Exchange Act. Neither any Subsidiary nor any Seller Partnership is registered or is a reporting company under the Exchange Act. Except as listed on Schedule 3.1, Seller does not directly or indirectly own or control any equity interest in any Person. b. CAPITAL STOCK; TITLE TO SHARES. The authorized Capital Stock of Seller consists of 500,000,000 Common Shares, 10,000,000 of which are issued and outstanding and 10,000,000 Preferred Shares, none of which are issued and outstanding. Seller owns all of the outstanding Capital Stock of Subsidiaries free and clear of any Encumbrances, equities and claims except as specified in Schedule 3.2. Seller owns the equity interest in each Seller Partnership free and clear of any Encumbrances, equities and claims except as specified in Schedule 3.2. No Common Shares or Capital Stock of any Subsidiary are held in treasury. Except as set forth in Schedule 3.2 or as contemplated in this Agreement, there are no outstanding Contracts or other rights to subscribe for or purchase, or Contracts or other obligations to issue or grant any rights to acquire, any Common Shares, any Capital Stock of any Subsidiary or any Seller Partnership or to restructure or recapitalize Seller, any Subsidiary or any Seller Partnership. Except as set forth in Schedule 3.2, there are no outstanding Contracts of Seller, any Subsidiary or any Seller Partnership to repurchase, redeem or otherwise acquire any of their respective Common Shares or Capital Stock, as applicable. No bonds, debentures, notes or other indebtedness having general voting rights (or convertible into securities having general voting rights) of Seller, any -12- 18 Subsidiary or any Seller Partnership are issued or outstanding other than the Seller's note in the aggregate principal amount of $5,449,618 (the "REALCO DEBT") held by Realco. There are no voting trusts or other agreements or understandings to which Seller, any Subsidiary or any Seller Partnership is a party or is bound, or to the knowledge of Seller, to which any other Person is a party or is bound, with respect to the voting of the Common Shares or the Capital Stock of any Subsidiary or any Seller Partnership. All issued and outstanding Common Shares and Capital Stock of all Subsidiaries and Seller Partnerships were duly authorized and validly issued at the time of issuance and are fully paid and nonassessable. Except as contemplated by this Agreement, there are no preemptive rights in respect of any Common Shares or Capital Stock of any Subsidiary or any Seller Partnership. Upon any issuance of Shares to the Investor, such Shares will have been duly authorized, validly issued and be validly outstanding, fully paid and nonassessable, and the issuance of such Shares will not be subject to preemptive rights of any other shareholder of Seller and such Shares will be issued in compliance with all applicable federal and state laws and stock trading requirements. Each Buyer shall receive good and marketable title to all Shares acquired by such Buyer pursuant to this Agreement, free and clear of all Encumbrances created by Seller, except for restrictions on the transferability of the Shares set forth in the Charter Documents or generally imposed on securities under federal and state securities laws. Such Shares will rank equally with all other Common Shares of Seller with respect to priority in payment of dividends and the distribution of assets upon any liquidation of Seller, and except for a class of preferred shares of beneficial interest which the shareholders approved at the Annual Meeting, none of which shall be issued and outstanding as of the First Closing Date, there are no shares of any class of Capital Stock of Seller having any priority in respect thereof. All of the outstanding securities of Seller were issued in compliance with all applicable federal and state securities laws. c. FINANCIAL STATEMENTS. i. AUDITED FINANCIAL STATEMENTS. Seller has delivered to the Investor the consolidated balance sheets of Seller (which reflect the financial position of all Subsidiaries and Seller Partnerships), as of December 31, 1994, 1995 and 1996, and the respective related consolidated statements of operations, cash flows and shareholders' equity for the periods then ended (collectively, the "AUDITED FINANCIAL STATEMENTS"). The Audited Financial Statements have been examined by the Auditors whose report thereon is attached to such financial statements. All Audited Financial Statements have been prepared in conformity with GAAP applied on a consistent basis (except for changes, if any, disclosed therein). The Audited Financial Statements -13- 19 present fairly, in all material respects, the consolidated financial condition and results of operations of Seller, Subsidiaries and Seller Partnerships as of their respective dates and periods. Since December 31, 1996, there has been no change in the significant accounting policies or procedures of Seller, any Subsidiary or any Seller Partnership. Seller has not received any annual management letters from the Auditors since March 5, 1997. ii. UNAUDITED FINANCIAL STATEMENTS. Seller has delivered to the Investor the consolidated balance sheets of Seller (which reflect the financial position of all Subsidiaries and Seller Partnerships), as of March 31, 1997 and the related consolidated statements of operations, cash flows and shareholders' equity for the period then ended (the "UNAUDITED FINANCIAL STATEMENTS"). The Unaudited Financial Statements have been prepared in conformity with GAAP applied on a consistent basis (except for changes, if any, disclosed therein). The Unaudited Financial Statements present fairly, in all material respects, the consolidated financial condition and results of operations of Seller, Subsidiaries and Seller Partnerships as of March 31, 1997. iii. NO MATERIAL ADVERSE CHANGES. Since March 31, 1997, except as set forth in Schedule 3.3, or specifically disclosed in any SEC Filings filed since March 31, 1997 and prior to the date of this Agreement (copies of which have been provided to the Investor), Seller, Subsidiaries and Seller Partnerships have conducted their respective businesses only in the ordinary course and in a manner consistent with past practice and, whether or not in the ordinary course of business, there has not been, occurred or arisen: (1) any change in or event affecting the business of Seller, Subsidiaries and Seller Partnerships that has had a material adverse effect on such business or any materially adverse change or trend in the business, financial condition, assets, results of operations or prospects of Seller, Subsidiaries or Seller Partnerships, or (2) any condition or action which would be proscribed by (or require consent under) Section 5.3 had it existed, occurred or arisen after the date of this Agreement, or (3) any casualty, loss, damage or destruction of any real property of Seller, any Subsidiary or any Seller Partnership that has involved or may involve a Loss (whether or not covered by insurance) to Seller, any Subsidiary or any Seller Partnership of more than $100,000 individually, or $300,000 in the aggregate. -14- 20 iv. NO OTHER LIABILITIES OR CONTINGENCIES. Neither Seller nor any Subsidiary nor any Seller Partnership has any material liability of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due, probable of assertion or not, except liabilities that (i) were incurred after March 31, 1997 in the ordinary course of business in a manner consistent with past practice and are not material in amount, or (ii) are set forth in Schedule 3.3 hereto. d. SEC REPORTS. Seller has filed with the Commission all forms, reports, statements, including registration statements, and other material documents, together with any amendments required to be made with respect thereto, that were required to be filed with the Commission since December 31, 1994. Such forms, reports, statements, including registration statements, and other material documents required to be filed with the Commission by Seller since December 31, 1994 are collectively referred to in this Agreement as the "SEC FILINGS." Seller has made available to the Investor all SEC Filings. As of their respective dates, (x) each of the SEC Filings, including the financial statements contained therein, was true and complete in all material respects, (y) each of the SEC Filings, including the financial statements contained therein, complied in all material respects with the Securities Act and Exchange Act, as applicable, and the rules and regulations promulgated thereunder, and (z) none contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. e. AUTHORIZATION; NO CONFLICTS. Seller has the requisite power and authority to enter into this Agreement and the Registration Rights Agreement and to carry out its obligations hereunder and thereunder. Except for the share ownership limitation contained therein, the Charter Documents do not in any way prevent or restrict the transactions contemplated hereby or preclude the Investor acting as agent on behalf of the Pecuniary Owner, or the Pecuniary Owner from owning or holding the amount, value or class of Common Shares to be purchased hereby. The execution, delivery and performance of this Agreement by Seller has been duly and validly authorized by the Trust Managers and by all other necessary action on the part of Seller, and no other proceedings on the part of Seller (including Trust Manager and shareholder approval) are necessary to authorize this Agreement or to consummate the transactions contemplated hereby except the shareholder consent needed to increase the number of authorized Common Shares to allow the issuance and sale of Shares on any Closing Date to occur. This Agreement has been duly -15- 21 executed and delivered by Seller and constitutes the legally valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws and equitable principles relating to or limiting creditors' rights generally (collectively, "EQUITABLE REMEDIES"). Except as set forth in Schedule 3.5, the execution, delivery and performance of this Agreement by Seller and the consummation by Seller of the transactions contemplated hereby will not (i) conflict with or result in the breach or violation of any provisions of, or trigger any preferential rights under, the Charter Documents or the charter or organizational documents of Subsidiaries or Seller Partnerships, (ii) result in a breach or violation of, a default under, or the triggering of any payment or other material obligations pursuant to, or accelerate vesting under, any Seller Benefit Plans or any grant or award thereunder or any employment or consulting agreement or arrangement of Seller, any Subsidiary or any Seller Partnership, (iii) violate, conflict with, result in a breach of any provision of, constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, result in the termination or in a right of termination or cancellation of, accelerate the performance required by, result in the creation of any Encumbrance upon any Properties under, result in the triggering of any rights under, or result in being declared void, voidable or without further binding effect, any of the terms or provisions of any Material Contract of Seller, any Subsidiary or any Seller Partnership or (iv) violate any Law. Schedule 3.5 lists all Permits and Approvals required to be obtained by Seller, Subsidiaries and Seller Partnerships to consummate the transactions contemplated hereby. Except for matters identified in Schedule 3.5 as requiring that certain actions be taken by or with respect to a third party or Governmental Entity, the execution and delivery of this Agreement by Seller and the consummation of the transactions contemplated hereby will not require the consent, authorization or approval or filing or registration with, or the issuance of any Permit by, any other third party or Governmental Entity under the terms of any applicable Laws or Material Contracts of Seller, Subsidiaries or Seller Partnerships. f. LEGAL PROCEEDINGS. Except as set forth in Schedule 3.6, there is no Order or Action pending, or to the knowledge of Seller threatened, against or affecting Seller, any Subsidiary, any Seller Partnership, any Trust Manager in his capacity as a Trust Manager of Seller or any of the Properties which (i) questions the validity of this Agreement, the Registration Rights Agreement or any action taken or to be taken pursuant hereto or thereto, (ii) may adversely affect the right, title or interest of the Investor to the Shares or (iii) individually or when aggregated with one or -16- 22 more other Orders or Actions has, or if determined adversely will have, a material adverse effect on the business, financial condition, assets, results of operations or prospects of Seller, any Subsidiary or any Seller Partnership or on Seller's ability to perform this Agreement. To Seller's knowledge, Schedule 3.6 lists each Order and each Action that (i) involves a claim or potential claim of aggregate liability in excess of $50,000 against Seller, any Subsidiary or any Seller Partnership that is not covered by insurance, (ii) involves a claim or potential claim of aggregate liability brought by Seller, any Subsidiary or any Seller Partnership against a tenant under any Tenant Lease which Tenant Lease obligates such tenant to pay rent to Seller, any Subsidiary or any Seller Partnership during the year ending December 31, 1997 in an amount equal to or in excess of $150,000, or (iii) that enjoins or seeks to enjoin any activity by Seller, any Subsidiary or any Seller Partnership. There is no matter as to which Seller, any Subsidiary or any Seller Partnership has received any notice, claim or assertion in connection with which any such Person has or may reasonably be expected to have any right to be indemnified by Seller, any Subsidiary or any Seller Partnership. g. COMPLIANCE WITH LAW AND PERMITS. i. Seller, Subsidiaries and Seller Partnerships are organized and have conducted their respective businesses in accordance with applicable Laws, neither Seller nor any Subsidiaries or Seller Partnerships has received any notice of violation of any Laws which remains uncorrected, and the respective forms, procedures and practices of Seller, Subsidiaries and Seller Partnerships are in compliance with all such Laws, to the extent applicable, the violation of which would have a material adverse effect on the respective businesses, financial condition, assets, results of operations or prospects of Seller, Subsidiaries and Seller Partnerships. ii. Except as set forth in Schedule 3.7, Seller, Subsidiaries and Seller Partnerships hold all permits, licenses, variances, exemptions, authorizations, orders and approvals of all Governmental Entities necessary for the lawful conduct of their respective businesses (the "SELLER PERMITS") and Seller, Subsidiaries and Seller Partnerships are in compliance with the terms of the Seller Permits relating to each such Person, except where the failure to hold such Seller Permits or be in compliance therewith would not, individually or in the aggregate, have a material adverse effect on the business, financial condition, assets, results of operations or prospects of Seller, Subsidiaries or Seller Partnerships. Seller has made available to the Investor correct and complete copies of all Seller Permits. Except as set forth in Schedule 3.7, to the knowledge of the Seller, no investigation or -17- 23 review by any Governmental Entity with respect to the Seller Permits is pending or threatened. h. DIVIDENDS AND OTHER DISTRIBUTIONS. Except as set forth in Schedule 3.8, there has been no dividend or other distribution of assets or securities by Seller or Seller Partnerships (other than Seller Partnerships in which Seller owns 100% beneficial interest) whether consisting of money, property or any other thing of value, declared, issued or paid to or for the benefit of Seller subsequent to December 31, 1996. i. CERTAIN INTERESTS. Except as set forth in Schedule 3.1 and Schedule 3.9, no Affiliate of Seller, any Subsidiary or any Seller Partnership, nor any of their respective officers, Trust Managers, directors or partners, nor any Associate of any such individual, has any material interest in any property used in or pertaining to the respective businesses of Seller, any Subsidiary or any Seller Partnership. Except as set forth in Schedule 3.1 and Schedule 3.9, no such Person is indebted or otherwise obligated to Seller, any Subsidiary or any Seller Partnership. Except as set forth in Schedule 3.9, Seller, Subsidiaries and Seller Partnerships are not indebted or otherwise obligated to any such Person, except for amounts due under normal arrangements applicable to all employees generally as to salary or reimbursement of ordinary business expenses not unusual in amount or significance. Except as set forth in Schedule 3.1 and Schedule 3.9, there are no material transactions between Seller, any Subsidiary or any Seller Partnership and any Affiliate of Seller, any Subsidiary or any Seller Partnership or any Associate of any such Affiliate that have continuing obligations of any party thereunder. Except as set forth in Schedule 3.9, the consummation of the transactions contemplated by this Agreement will not (either alone, or upon the occurrence of any act or event, or with the lapse of time, or both) result in any compensation or severance or other payment or benefit arising or becoming due from Seller, any Subsidiary or any Seller Partnership or any of its assigns to any Person. j. NO BROKERS OR FINDERS. No agent, broker, finder, or investment or commercial banker, or other Person or firm engaged by or acting on behalf of Seller or any of its Affiliates in connection with the negotiation, execution or performance of this Agreement or the transactions contemplated by this Agreement, is or will be entitled to any brokerage or finder's or similar fee or other commission as a result of this Agreement or such transactions except for a fee payable to Prudential Securities Incorporated. -18- 24 k. EMPLOYEE BENEFIT PLANS. Schedule 3.11 lists all employee benefit plans and collective bargaining, labor and employment agreements or other similar benefit arrangements to which either Seller, any Subsidiary, or any Seller Partnership is a party or by which either Seller, any Subsidiary, or any Seller Partnership is bound (collectively, the "SELLER BENEFIT PLANS"), including (i) any profit-sharing, deferred compensation, bonus, stock option, stock purchase, pension, retainer, consulting, retirement, severance, welfare or incentive plan, agreement or arrangement, (ii) any plan, agreement or arrangement providing for "fringe benefits" or perquisites to employees, officers, directors, trust managers or agents, including benefits relating to automobiles, clubs, vacation, child care, parenting, sabbatical, sick leave, medical, dental, hospitalization, life insurance and other types of insurance, (iii) any employment agreement not terminable on 30 days (or less) written notice or (iv) any other "employee benefit plan" within the meaning of Section 3(3) of ERISA. True and complete copies of the Seller Benefit Plans, current descriptive booklets and summary plan descriptions of the Seller Benefit Plans, any relevant trust agreements or insurance policies or contracts and, if applicable, the most recent annual return on Form 5500 (or equivalent form) have been made available to the Investor. To the extent applicable, the Seller Benefit Plans comply, in all material respects, with the requirements of ERISA and the Code. Except as set forth in Schedule 3.11, no Seller Benefit Plan is or is intended to be a stock bonus, pension or profit-sharing plan within the meaning of Section 401(a) of the Code. Neither any Seller Benefit Plan nor Seller, any Subsidiary, or any Seller Partnership has incurred any liability or penalty under Section 4975 of the Code or Section 502(i) of ERISA. Each Seller Benefit Plan has been maintained and administered in all material respects in compliance with its terms and with ERISA and the Code to the extent applicable thereto. Except as set forth in Schedule 3.11, there are no pending, or to the knowledge of Seller threatened, claims (other than pursuant to the terms of any such plan) against or otherwise involving any of the Seller Benefit Plans and no Action has been brought against or with respect to any Seller Benefit Plan, and neither Seller nor any Subsidiary nor any Seller Partnership has incurred any liability to any party with respect to any Seller Benefit Plan. All contributions required to be made to the Seller Benefit Plans have been made or provided for. Except as set forth in Schedule 3.11, neither Seller nor any Subsidiary nor any Seller Partnership maintains or contributes to any plan or arrangement which provides or has any liability to provide life insurance or medical or other employee welfare benefits to any employee or former employee upon his retirement or termination of employment and neither Seller nor any Subsidiary nor any Seller Partnership has represented, promised or contracted (whether in oral or written form) to any employee or former -19- 25 employee that such benefits would be provided. Except as set forth in Schedule 3.11, the execution of, and performance of the transactions contemplated by, this Agreement will not (either alone or upon the occurrence of any additional or subsequent event) constitute an event under any Seller Benefit Plan or other policy, arrangement or any trust or loan that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any employee. No Seller Benefit Plan is subject to Title IV of ERISA and neither Seller nor any Subsidiary nor any Seller Partnership has, within six years prior to the date of this Agreement, contributed to or had any obligation to contribute to any employee benefit plan subject to Title IV of ERISA. For purposes of this Section 3.11, (i) the term "Seller" includes any entity required to be aggregated with the Seller pursuant to Code Section 414(b), (c), (m) or (o) and (ii) provisions of ERISA or the Code include regulations prescribed under such provisions. l. LABOR MATTERS. Neither Seller nor any Subsidiary nor any Seller Partnership is a party to or bound by any collective bargaining or other labor union contracts. There is no pending or, to the knowledge of Seller, threatened labor dispute, strike or work stoppage against Seller, any Subsidiary, or any Seller Partnership. Neither Seller nor any Subsidiary nor any Seller Partnership, nor their respective representatives or employees, has committed any unfair labor practices in connection with the operation of the respective businesses of Seller, each Subsidiary, and each Seller Partnership, and there is no pending or, to the knowledge of Seller, threatened charge or complaint against Seller, any Subsidiary, or any Seller Partnership by the National Labor Relations Board or any comparable state agency. Seller, Subsidiaries, and Seller Partnerships are in compliance with all applicable Laws respecting employment, consulting, employment practices, wages, hours, and terms and conditions of employment. m. PROPERTIES. i. Schedule 3.13 contains a complete and correct list of all real property owned or leased by Seller, each Subsidiary and each Seller Partnership (collectively, the "PROPERTIES") as of the date hereof. Except as set forth in Schedule 3.13, Seller, Subsidiary or Seller Partnership, as applicable, owns good, marketable and indefeasible title to each Property, including the land and all improvements, all personalty and the Tenant Leases (as hereinafter defined). Except as set forth in Schedule 3.13, the Properties are free and clear of all Encumbrances of any nature, except for (i) liens for real property taxes or similar assessments not yet due and -20- 26 payable, (ii) easements for utilities servicing the Properties and (iii) such Encumbrances as do not materially detract from or interfere with the present use of the Properties subject thereto or affected thereby, or otherwise materially impair the use or value of such Properties. ii. Seller has delivered to the Investor a true, correct and complete copy of a rent roll with respect to each Property as of the date hereof setting forth, among other matters, the term (commencement or renewal date and expiration date) of each lease with respect to the Properties (collectively, the "TENANT LEASES"), the square feet for each of the Tenant Leases, the monthly base rental rates for each of the Tenant Leases and the security deposits for each of the Tenant Leases. Other than the Tenant Leases, no party has been granted any license, lease or other material right relating to the use or possession of the Properties which is material to the use or value of the Properties. Except as set forth in Schedule 3.13, all of the Tenant Leases are valid and subsisting and in full force and effect with respect to Seller, Subsidiaries and Seller Partnerships and, to Seller's knowledge, with respect to any other party thereto, and no tenant of the Properties is more than 30 days delinquent on its rental as of April 30, 1997 except as set forth in Schedule 3.13. To Seller's knowledge, no tenant of the Properties has initiated or threatened bankruptcy since January 1, 1997. No tenant of the Properties is an Affiliate or Associate of Seller, any Subsidiary or any Seller Partnership. Except as set forth in Schedule 3.13, there are no contracts or other material obligations outstanding for the sale, exchange or transfer of the Properties or any portion thereof. There are no attachments, executions, assignments for the benefit of creditors, receiverships, conservatorship or voluntary or involuntary proceedings in bankruptcy or pursuant to any other debtor relief laws filed by, or pending against, Seller, Subsidiaries, Seller Partnerships or the Properties. Except as set forth in Schedule 3.13, since January 1, 1997, no tenants have terminated their leases prior to expiration and, to Seller's knowledge, have no intent to do so. (c) Except as set forth in Schedule 3.13, there is no pending condemnation or similar proceeding affecting the land, the improvements or the personalty situated at the Properties or any portion thereof, and neither Seller nor any Subsidiary nor any Seller Partnership has received any written notice and has no knowledge that any such proceeding is contemplated. (d) The continued ownership, operation, use and occupancy of the land or the improvements thereon do not violate any zoning, building, administrative or other law, ordinance, order or regulation or any restrictive covenant applicable to the Properties, the violation of which would have a material adverse effect on the business, financial condition, assets, results of operations or prospects of Seller, Subsidiaries or Seller Partnerships, as applicable, and no written notice of any -21- 27 such violation has been received by Seller, any Subsidiary or any Seller Partnership from any Governmental Entity. (e) Seller, Subsidiaries or Seller Partnerships, as applicable, currently has in place title, liability, casualty and other insurance coverage with respect to the Properties in such amounts as are reasonable and customary for properties similar to the Properties. Each of such policies is in full force and effect, and all premiums due and payable thereunder have been, and on any Closing Date will be, fully paid when due. No notice of cancellation has been received, or to the knowledge of Seller threatened, with respect thereto. (f) Except as set forth in Schedule 3.13, there is no Action pending, or to the knowledge of Seller contemplated, by any Governmental Entity or third party to levy any special assessments against the Properties that, if successful, would have a material adverse effect on the business, financial condition, assets, results of operations or prospects of Seller, any Subsidiary or any Seller Partnership. (g) To Seller's knowledge, each unsatisfied brokerage obligation that is in excess of $25,000 with respect to the Properties is set forth on Schedule 3.13. (h) To Seller's knowledge and except as set forth on Schedule 3.13, no capital expenditures are contemplated by Seller to be incurred by Seller, any Subsidiary or any Seller Partnership within twelve months after the date of this Agreement in excess of $50,000 per Property with respect to any Property. (i) Except as set forth in Schedule 3.13, all management contracts with respect to the Properties are terminable by Seller on 30 days notice. (j) To Seller's knowledge, except for customary easements for access to building systems or utilities and except as set forth in Schedule 3.13, each Property is an independent unit which does not now rely on any facilities (other than facilities of municipalities or public utilities) located on any property that is not part of the Property for the furnishing to the Property of any essential building systems or utilities (including drainage facilities, catch basins and retention ponds) that if the owner of the Property could not avail the use of which, would materially detract from the value of the Property or materially interfere with the use of the Property. 3.14 TAX MATTERS. (a) For purposes of this Agreement, "TAXES" means any federal (including, without limitation, tax on its undistributed taxable income, alternative minimum tax, tax on certain sale proceeds or other nonqualifying income from foreclosure property or on income from prohibited transactions, and any taxes imposed upon Seller, Subsidiaries or Seller Partnerships under Section 857 or Section 4981 of the Code), state, county, local or foreign taxes, charges, fees, levies, or other assessments, including, without limitation, all net income, gross income, sales and use, ad valorem, -22- 28 transfer, gains, profits, excise, franchise, real and personal property, gross receipt, capital stock, business and occupation, disability, employment, payroll, license, estimated, or withholding taxes or charges imposed by any Governmental Entity, and includes any interest and penalties (civil or criminal) on or additions to any such taxes. (b) For purposes of this Agreement, "TAX RETURN" means a report, return or other information required to be filed with or supplied to a Governmental Entity with respect to Taxes including, without limitation, any notices or information reports or returns required to be filed by Seller, Subsidiaries or Seller Partnerships with respect to their respective operations, income, assets and shareholders or partners in order to maintain Seller's status as a real estate investment trust ("REIT") under the Code. (c) Seller elected to be taxed as a REIT under Sections 856 through 860 of the Code effective for its taxable year ended December 31, 1985 (the "INITIAL REIT YEAR"). Seller, since the Initial REIT Year through the end of the immediately preceding taxable year, has always qualified as a REIT under the Code. At all times from and after the Initial REIT Year to the date hereof, Seller has complied with, and through the Closing Date will comply with, all applicable Code and regulatory requirements necessary to maintain its qualification as a REIT under the Code and has otherwise operated, and through the Closing Date will have otherwise operated, in the manner necessary to maintain its qualification as a REIT under the Code. No dividend will be required to be distributed before December 31, 1997 in order for Seller to maintain its qualification as a REIT under the Code. (d) Except as disclosed in Schedule 3.14, Seller, Subsidiaries and Seller Partnerships have (i) filed all Tax Returns required to be filed by applicable Law since December 31, 1990, and all such Tax Returns were in all material respects (and, as to Tax Returns not filed as of the date hereof but filed on or before the Closing Date, will be in all material respects) true, complete and correct and filed on a timely basis and (ii) within the time and in the manner prescribed by law, paid (and until the Closing Date will pay within the time and in the manner prescribed by law) all material Taxes that were or are due and payable. (e) Except as set forth in Schedule 3.14, Seller, Subsidiaries and Seller Partnerships have established (and until the Closing Date will maintain) on their respective books and records reserves adequate to pay all Taxes of Seller, Subsidiaries and Seller Partnerships not yet due and payable in accordance with GAAP which are reflected in the Audited Financial Statements and Unaudited Financial Statements to the extent required by GAAP. (f) Except as disclosed in Schedule 3.14, as of the date hereof, there are no, and, as of any Closing Date, there will be no, material Tax liens upon the assets of Seller, Subsidiaries and Seller Partnerships, except liens for Taxes not yet due. (g) Except as disclosed in Schedule 3.14, Seller, Subsidiaries and Seller Partnerships have complied (and until the Closing Date will comply) in all material respects with the provisions -23- 29 of the Code relating to the payment and withholding of Taxes, including the withholding and reporting requirements under Code Sections 1441 through 1464, 3401 through 3406, and 6041 through 6049, as well as similar provisions under any other laws, and have, within the time and in the manner prescribed by law, withheld from employee wages and paid over to the proper governmental authorities all material amounts required by applicable Law. (h) Except as disclosed in Schedule 3.14, Seller, Subsidiaries and Seller Partnerships have not executed any outstanding waivers or comparable consents regarding the application of the statute of limitations with respect to any Taxes or Tax Returns. (i) No notice of any material deficiency for any Taxes has been received by Seller, any Subsidiary or any Seller Partnership that has not been resolved and paid in full or otherwise settled, no audits or other administrative proceedings or court proceedings are presently pending or, to Seller's knowledge, threatened with regard to any Taxes or Tax Returns of Seller, Subsidiaries or Seller Partnerships, and no notice of any material claim has been received by Seller, any Subsidiary or any Seller Partnership from any authority in a jurisdiction where Seller, Subsidiaries or Seller Partnerships do not file Tax Returns that Seller, any Subsidiary or any Seller Partnership is or may be subject to Tax in that jurisdiction. (j) Seller, Subsidiaries and Seller Partnerships have not received a Tax Ruling or entered into a Closing Agreement with the Internal Revenue Service that would have any continuing effect after the First Closing Date. (k) Seller has made available (or, with respect to all Tax Returns filed after the date hereof, will make available) to the Investor complete and accurate copies of all Tax Returns, and amendments thereto, filed by Seller, any Subsidiary or any Seller Partnership for all taxable periods or years ending on or prior to the First Closing Date. (l) Neither Seller nor any Subsidiary nor any Seller Partnership is required to include in income any adjustment pursuant to Code Section 481(a) by reason of a voluntary change in federal income tax accounting method (other than a change of federal income tax accounting method required as a result of a change in law) initiated by Seller, and the Internal Revenue Service has not proposed any such adjustment or change in accounting method. (m) Seller has made available to the Investor all relevant information with respect to the federal income tax net operating loss carryovers of Seller as of December 31, 1996, based on the federal income Tax Returns filed by Seller as of such date. (n) For all taxable years from and including its Initial REIT Year through the First Closing Date, (i) Seller has maintained permanent records containing the information required to be maintained by Code Section 857(a)(2) and Treasury Regulation Sections 1.857-(8)(a), 1.857-8(c) and 1.857-8(e) and (ii) Seller has demanded the written statements from its shareholders required -24- 30 by Treasury Regulation Section 1.857-8(d) in accordance with Treasury Regulation Section 1.857-8(e). 3.15 MATERIAL CONTRACTS. Schedule 3.15 sets forth an accurate list of all Material Contracts of Seller, Subsidiaries and Seller Partnerships. Seller has made available to the Investor complete and correct copies of all Material Contracts. All Material Contracts are in full force and effect. Except as set forth in Schedule 3.15, Seller, Subsidiaries and Seller Partnerships are not in violation of or default in any material respect (nor is there any waiver in effect of any event that would constitute a default but for such waiver) under, and no event has occurred that (with notice or the lapse of time or both) would constitute a violation of or default under, any Material Contract. Except as set forth in Schedule 3.15, to the knowledge of Seller, no other party to any Material Contract is in breach of the terms, provisions and conditions of such Material Contract and no other party to any Material Contract has notified Seller, any Subsidiary or any Seller Partnership that it intends to terminate or modify a Material Contract. 3.16 INSURANCE. Schedule 3.16 sets forth a complete and correct list of all insurance policies, except for title insurance policies, currently in force insuring against risks of Seller, Subsidiaries and Seller Partnerships. Seller, Subsidiaries and Seller Partnerships are in compliance with the terms of such policies applicable to them and there are no claims by Seller, any Subsidiary or any Seller Partnership under any such policy as to which any insurance company is denying liability or defending under a reservation of rights clause. 3.17 ENVIRONMENTAL MATTERS. (a) Except as set forth in the documentation provided to Seller pursuant to Section 3.17(b) and in Schedule 3.17, there is no material Environmental Noncompliance with respect to any Property and there are no material Environmental Claims with respect to any Property or the Seller, any Subsidiary or any Seller Partnership or, to the knowledge of Seller, any tenants under any of the Tenant Leases. All material permits, consents, licenses, certificates, approvals, registrations, and authorizations in connection with environmental matters (collectively, "ENVIRONMENTAL PERMITS") which are required by any Law have been obtained and are valid. The Properties (and all uses thereof and operations conducted thereon) comply in all material respects with all Environmental Permits. All operations on or at the Properties conducted by Seller are and have been conducted in all material respects in compliance with applicable Environmental Laws. Except as set forth in the documentation provided to Seller pursuant to Section 3.17(b) and in Schedule 3.17, Seller has not received any Notification from any Governmental Entity seeking any information or alleging any violation of any Law regarding Environmental Conditions. Except as set forth in the documentation provided to Seller pursuant to Section 3.17(b) and in Schedule 3.17, Seller has not caused or given its verbal or written authorization to cause, and has no knowledge of, any Release of any Hazardous Materials on-site or off-site of the Properties in violation of any Environmental Law. (b) Seller has made available to Investor true, correct, and complete copies of all written reports of any environmental assessment, compliance or regulatory audit, inspection, or investigation -25- 31 of the Properties in its possession, and Seller has not received any other written report containing any evidence of Environmental Noncompliance. (c) Except as set forth in the documentation provided to Seller pursuant to Section 3.17(b) and in Schedule 3.17, there is not now, nor has there been in the past, any "friable" asbestos (as the term "friable" is defined under 40 C.F.R. Section 61.141) or friable asbestos containing materials located on, incorporated in, or otherwise contained in the Properties or any portion thereof, and there are not now, and have not in the past been, any underground storage tanks located on the Properties or any portion thereof. (d) Except as set forth in the documentation provided to Seller pursuant to Section 3.17(b), and in Schedule 3.17, none of the tenants under any Tenant Lease handle or store any Hazardous Material as a principal or primary business. 3.18 TRUST RECORDS; ACCOUNTING RECORDS. The minute books of Seller accurately reflect in all material respects all actions taken to the date of this Agreement by the holders of Common Shares, the Trust Managers and committees of the Trust Managers, except for those matters set forth in Schedule 3.18 for which minutes of such actions have not yet been prepared or approved. The share certificate books and records of Seller accurately reflect the ownership of the Common Shares. Seller maintains accounting records which fairly reflect, in all material respects, Seller's transactions. 3.19 NEW YORK STOCK EXCHANGE LISTING. The outstanding Common Shares are listed on the New York Stock Exchange. The issuance or sale and delivery of any Shares to the Investor pursuant to this Agreement will not violate any listing requirements of the New York Stock Exchange for the listing of Common Shares, including the Shares. 3.20 DISCLOSURE OF FACTS. There are no facts peculiar to Seller, Subsidiaries or the Seller Partnerships that Seller has not disclosed to the Investor that materially adversely affect, or insofar as Seller can reasonably foresee, will materially adversely affect, the business, financial condition, assets, results of operations or prospects of Seller, Subsidiaries or Seller Partnerships. 3.21 PENSION-HELD REIT. For purposes of Section 856(h)(3) of the Code, Seller hereby represents that at any time during the shorter of (i) the two-year period ending immediately prior to the First Closing Date or (ii) the period during which Seller was in existence, to the best of Seller's knowledge, no "qualified trust" has held, directly or indirectly, more than 10% of the interests in Seller. 3.22 SHAREHOLDER APPROVAL. The Seller's shareholders approved at the Annual Meeting all of the proposals set forth in the Notice of Annual Meeting of Shareholders and accompanying proxy statement dated May 12, 1997. -26- 32 SECTION 4. REPRESENTATIONS AND WARRANTIES OF INVESTOR The Investor represents and warrants with respect to itself (except as indicated) to, and agrees with, Seller as follows: a. ORGANIZATION AND RELATED MATTERS. It is a limited partnership duly organized and validly existing under the laws of the state of its organization. It has all necessary partnership power and partnership authority to carry on its business as now being conducted. It has all necessary partnership power and partnership authority to execute, deliver and perform this Agreement and the transactions contemplated hereby. b. AUTHORIZATION. This Agreement has been duly executed and delivered by it and constitutes the legally valid and binding obligation of the Investor and the Pecuniary Owner, enforceable in accordance with its terms, except as such enforceability may be limited by Equitable Remedies. The execution and delivery of this Agreement by it and the consummation of the transactions contemplated hereby will not require filing or registration with, or the issuance of any Permit by, any other third party or Governmental Entity under the terms of any applicable Law or its material Contracts, other than any filing required under the Exchange Act. c. NO CONFLICTS. The execution, delivery and performance of this Agreement by it will not violate the provisions of, or constitute a breach or default (whether upon lapse of time and/or the occurrence of any act or event or otherwise) under, (a) its organizational documents, pursuant to which it was organized and by which it is governed, (b) any Law to which it is subject or (c) any Contract to which it is a party that is material to the financial condition, results of operations or conduct of its business. d. NO BROKERS OR FINDERS. No agent, broker, finder or investment or commercial banker, or other Person or firms engaged by or acting on its behalf or on behalf of any of its Affiliates in connection with the negotiation, execution or performance of this Agreement or the transactions contemplated by this Agreement, is or will be entitled to any broker's or finder's or similar fees or other commissions as a result of this Agreement or such transactions. e. LEGAL PROCEEDINGS. There is no Order or Action pending against or, to its knowledge, affecting it that individually or when aggregated with one or more other Actions has, or if determined adversely would have, a material adverse effect on its business, properties, or financial condition or on its ability to perform this Agreement. -27- 33 f. INVESTMENT REPRESENTATION. This Agreement is made with the Investor in reliance upon such Investor's representation to Seller, which by such Investor's execution of this Agreement such Investor hereby confirms that the Shares will be acquired by the Investor as agent for and on behalf of the Pecuniary Owner, for the Pecuniary Owner's own account, not as nominee or agent for any other party, for investment purposes only and not with a view to or for sale in connection with the distribution thereof. It agrees to execute any further certificate or other document representing such investment intent or as to any other matter reasonably requested by Seller to assure compliance with applicable securities laws. g. LEGENDS; STOP-TRANSFER ORDERS. i. The certificates for Shares will bear legends in substantially the following form: THE SHARES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE AND, ACCORDINGLY, MAY BE OFFERED, SOLD, TRANSFERRED OR PLEDGED ONLY IN A TRANSACTION WHICH IS REGISTERED UNDER SUCH ACT AND UNDER SUCH LAWS OR IS EXEMPTED FROM SUCH REGISTRATION REQUIREMENTS. The foregoing legend shall be removed from any such certificate at the request of the holder thereof at such time as the shares represented thereby are registered under the Securities Act or become eligible for resale under Rule 144 promulgated under the Securities Act. ii. The certificates for Shares may also bear any legend required by any applicable state blue sky law. iii. Any certificates for Shares will also bear a legend relating to restrictions on transfer imposed pursuant to the percentage ownership limitation contained in the Charter Documents. iv. Seller may impose appropriate stop-transfer instructions relating to the restrictions set forth herein. h. STATUS FOR REIT OWNERSHIP AND INCOME TESTS. At the Closing, to the best of Investor's knowledge, the purchase of the Common -28- 34 Shares by the Pecuniary Owner will not result in a "qualified trust" as defined in Code Section 856(h)(3) holding more than 25% in value of the Seller's outstanding Capital Stock. The Pecuniary Owner is not purchasing the Common Shares, and will not hold any or all of the Common Shares so purchased, through any arrangement or entity that would be deemed, for federal income tax purposes, to be a partnership between the Pecuniary Owner and any or all of the Other Pecuniary Owners. The Common Shares that each Pecuniary Owner owns will not be considered to be owned by any individual (or entity treated as an individual under Section 856(h) of the Code), who after application of the stock ownership rules of Section 856(h) of the Code would own more than 9.8% of the lesser of the number or value of any outstanding class of Capital Stock. i. AUTHORITY OF THE INVESTOR. The Investor is duly authorized to enter into this Agreement and to consummate the transactions contemplated hereby as agent for and on behalf of the Pecuniary Owner. SECTION 5. COVENANTS WITH RESPECT TO CONDUCT OF SELLER PRIOR TO CLOSING From the date of this Agreement up to and including the Closing Date, Seller covenants and agrees to take such actions, or refrain from taking such actions, as are set forth in this Section 5. a. ACCESS. Seller shall, and shall cause the Subsidiaries and Seller Partnerships to, authorize and permit the Investor and its representatives (which term shall be deemed to include its independent accountants and counsel) to have reasonable access during normal business hours, upon reasonable notice and in such manner as will not unreasonably interfere with the conduct of business, to all of the Properties, books, records, operating instructions and procedures, Tax Returns and all other information with respect to the businesses of Seller, Subsidiaries and Seller Partnerships as the Investor may from time to time reasonably request, and to make copies of such books, records and other documents and to discuss the business of Seller, Subsidiaries and Seller Partnerships with the Investor and its partners and their respective officers, employees, accountants and counsel, as the Investor considers necessary or appropriate for the purposes of familiarizing itself with the business of Seller, obtaining any necessary Approvals of, or Permits for, the transactions contemplated by this Agreement and conducting an evaluation of the organization and business of Seller. From the date of this Agreement up to and including the Closing Date, Seller will permit, and cause Subsidiaries and Seller Partnerships to permit, the Investor and its officers, directors, agents, attorneys, accountants, and representatives, to audit such books and records, to meet -29- 35 with tenants of the Properties, and to conduct such investigations, tests, or inspections of the Properties as Seller shall approve in Seller's sole discretion, including intrusive sampling studies to ascertain whether or not there are any Hazardous Materials on, in, or under the Properties. b. MATERIAL ADVERSE CHANGES; SEC FILINGS; REPORTS; FINANCIAL STATEMENTS. i. Seller shall promptly notify the Investor of any event of which Seller obtains knowledge which has had or might reasonably be expected to have a material adverse effect on Seller's business or which if known as of the date hereof would have been required to be disclosed to the Investor. ii. Seller will, and will cause the Subsidiaries and Seller Partnerships to, furnish to the Investor as soon as available copies of all SEC Filings, and all material reports, renewals, filings, certificates, statements and other documents filed with any Governmental Entity. c. CONDUCT OF BUSINESS. Except as set forth in Schedule 5.3 and as provided in Section 5.4, from the date of this Agreement until the Closing Date, Seller agrees with and for the benefit of Buyer that Seller shall not, and Seller shall cause Subsidiaries and Seller Partnerships not to, without the prior written consent of the Investor, which consent may not unreasonably be withheld: i. conduct the business of Seller, Subsidiaries and Seller Partnerships in any manner except in the ordinary course consistent with past practices; or ii. purchase any real property without the consent of the Investment Committee; or iii. declare, issue, make or pay any dividend or other distribution of assets, whether consisting of money, other tangible or intangible personal property, real property or other thing of value, to its shareholders, or split, combine, dividend, distribute or reclassify any Common Shares or any shares of its Capital Stock, as applicable, except for dividends the record date of which is after the First Closing Date; or iv. issue, sell, redeem or acquire for value, or agree to do so, any debt obligations (other than the Prudential Line of Credit), Common Shares or Capital Stock; or -30- 36 v. incur or agree to incur any obligation or liability (absolute or contingent) that individually calls for payment by Seller, any Subsidiary or any Seller Partnership of more than $50,000 individually or in the aggregate except for (i) liabilities (other than indebtedness for borrowed money) incurred in the ordinary course of business consistent with past practices (including, but not limited to, tenant improvements and capital improvements to Properties), (ii) liabilities arising out of, incurred in connection with, or related to the consummation of the transactions contemplated by this Agreement, (iii) payments to Realco under the Realco Debt and (iv) purchases of real property in accordance with Section 5.3(b); or vi. merge (if Seller is not the surviving entity), sell substantially all of its assets or enter into any other contract involving any other form of business combination or liquidate, wind-up or dissolve (or suffer any liquidation or dissolution) or adopt any plan of liquidation or dissolution; or vii. change the number of Trust Managers or the Board of Directors of any of the Subsidiaries, or admit any additional partners to the Seller Partnerships; or viii. amend the Charter Documents or the charter or organizational documents of the Subsidiaries or Seller Partnerships; or ix. sell, lease, transfer or otherwise dispose of, or mortgage, pledge or otherwise encumber, other than the lease of any Property or space therein in the ordinary course of business consistent with past practices, any of the Properties; or x. cancel, satisfy or prepay any debt, obligation, liability or encumbrance, or waive any claim or right of value of Seller, Subsidiaries or Seller Partnerships except the extinguishment of debt under the Realco Debt through the conversion of the Realco Debt to Common Shares; or xi. (i) increase in any manner the compensation or fringe benefits (including, but not limited to, severance benefits) payable or to become payable by Seller, Subsidiaries, or Seller Partnerships to any officer, Trust Manager, director, partner, consultant or independent contractor as salary or wages or under any bonus, insurance, welfare, severance, deferred compensation, pension, retirement, profit sharing, share option (including, without limitation, the granting of any share option or share appreciation right or performance or restricted share award), share purchase or other -31- 37 employee benefit plan, (ii) except as approved by the Compensation Committee prior to the date of this Agreement or except as approved by the Compensation Committee and approved by a unanimous vote of the Seller's Board of Trust Managers, increase in any manner the compensation or fringe benefits (including, but not limited to, severance benefits) payable or to become payable by Seller, Subsidiaries or Seller Partnerships to any employee who is not an officer, Trust Manager, director or partner of Seller, Subsidiaries or Seller Partnerships as salary or wages or under any bonus, insurance, welfare, severance, deferred compensation, pension, retirement, profit sharing, share option (including, without limitation, the granting of any share option or share appreciation right or performance or restricted share award), share purchase or other employee benefit plan, except for such increase in salary, bonuses or severance benefits to such employees in the ordinary course of business consistent with past practices and provided that all such increases in salary, bonuses or severance benefits do not have a material adverse effect on the business, assets, financial condition or prospects of Seller, Subsidiaries or Seller Partnerships, or (iii) enter into, adopt, amend in any material respect (except as required by law) or terminate any Seller Benefit Plan or any agreement, arrangement, plan or policy between Seller, Subsidiaries or Seller Partnerships, as applicable, and one or more of its Trust Managers, directors, partners, officers, employees or independent contractors; or xii. make any tax election other than in connection with maintaining Seller's qualification as a REIT or take any action that would cause Seller not to qualify as a REIT, or fail to take any reasonable action to preserve Seller's qualification as a REIT; or xiii. make any change in any significant accounting principles or practices used by Seller, Subsidiaries or Seller Partnerships, except as required by the Commission; or xiv. amend, modify or change the terms of any Material Contract other than in the ordinary course of business consistent with past practice and provided that such amendment, modification or change does not have a material adverse effect on the business, assets, financial condition or prospects of Seller, Subsidiaries or Seller Partnerships; or xv. except as provided in Section 5.3(b), acquire any Person (or interest therein) or any material amount of assets, or make any loans, advances or capital contributions to, or investments in, any Person; or -32- 38 xvi. take any action that would, or fail to take any action which failure would, result in any of Seller's representations and warranties set forth in this Agreement not being true; or xvii. agree to or make any commitment to take any action prohibited by this Section 5.3. d. NOTIFICATION OF CERTAIN MATTERS. Seller shall give prompt notice to the Investor, and the Investor shall give prompt notice to Seller, of (a) the occurrence, or failure to occur, of any event that causes any representation or warranty contained in this Agreement to be untrue or inaccurate at any time from the date of this Agreement to the Closing Date and (b) any failure of the Investor or Seller, as the case may be, to comply with or satisfy, in any material respect, any covenant, condition or agreement to be complied with or satisfied by it under this Agreement. e. ADJUSTMENT OF SHARE PRICE. The Share Price will be subject to adjustment from time to time prior to the Closing Date as follows: (a) If Seller shall at any time prior to the Closing Date (i) pay a dividend or make any other distribution payable in Common Shares to holders of any class of Capital Stock of Seller, (ii) subdivide or reclassify the outstanding Common Shares into a greater number of shares or (iii) combine or reclassify the outstanding Common Shares into a smaller number of shares, the Share Price in effect at the time of the record date for such dividend or distribution or the effective date of such subdivision, combination or reclassification will be proportionately adjusted so that the Investor will be entitled to receive upon purchase after such time the number of Common Shares that the Investor would have owned or been entitled to receive had such purchase occurred immediately prior to such time. An adjustment made pursuant to this subsection (a) will become effective immediately after the record date in the case of a dividend or other distribution and will become effective immediately after the effective date of any such subdivision, combination, reclassification or change, provided that, if such dividend or distribution is not ultimately paid or made, the Share Price shall be readjusted to be equal to the Share Price in effect immediately prior to such record date. Such adjustment will be made successively whenever any event listed above occurs. (b) If Seller shall at any time prior to the Closing Date issue rights or warrants to all holders of Common Share entitling them (for a period commencing no earlier than the record date for the determination of holders of Common Shares entitled to receive such rights or warrants and expiring within 45 days after such record date) to subscribe for or purchase Common Shares at a price per share less than the Current Market Price (as defined in subsection (d) below) of Common Shares on such record date, the Share Price will be adjusted effective as of immediately after such record date so that it shall equal the price determined by multiplying the Share Price in effect immediately prior thereto by a fraction, the numerator of which is the number of Common Shares -33- 39 outstanding on such record date plus the number of Common Shares that the aggregate offering price of the Common Shares so offered for subscription or purchase or purchased would purchase at the Current Market Price per Common Share, and the denominator of which is the number of Common Shares outstanding on such record date plus the number of additional Common Shares which may be purchased upon the exercise of the rights or warrants issued, provided that, if such issuance is not ultimately made, the Share Price shall be readjusted to be equal to the Share Price in effect immediately prior to such record date. Common Shares owned by or held for the account of Seller shall not be deemed outstanding for the purpose of any such computation. Such adjustment will be made successively whenever such rights or warrants are issued. (c) If Seller shall at any time prior to the Closing Date distribute to all holders of Common Shares any shares of any class of Capital Stock other than Common Shares, evidences of indebtedness or other assets (other than cash dividends or distributions out of retained earnings), or shall distribute to holders of Common Shares rights or warrants to subscribe to securities (other than those referred to in subsection (b) above), then in each such case the Share Price will be adjusted so that it equals the price determined by multiplying the Share Price in effect immediately prior to the date of such distribution by a fraction, the numerator of which is the Current Market Price per Common Share on the record date mentioned below less the then fair market value (as determined by the Board of Trust Managers, whose determinations shall be conclusive evidences of such fair market value) of said shares, evidences of indebtedness, assets, rights or warrants or distributions applicable to one Common Share, and the denominator of which is such Current Market Price. Such adjustment will become effective immediately after the record date for the determination of the holders of Common Shares entitled to receive such distribution, provided that, if such issuance is not ultimately made, the Share Price shall be readjusted to be equal to the Share Price in effect immediately prior to such record date. Such adjustment will be made successively whenever such a distribution is made. (d) For the purpose of computation under subsections (b) and (c) above, the "Current Market Price" per Common Share at any date will be deemed to be the average of the daily closing price for the Common Shares on the New York Stock Exchange for 20 consecutive trading days commencing 30 trading days before such date. SECTION 6. ADDITIONAL CONTINUING COVENANTS AND AGREEMENTS a. USE OF PROCEEDS. The proceeds from the sale of the Shares to the Investor, net of any costs (including any accounting, legal and fairness opinion costs and expenses) associated with the transactions contemplated by this Agreement, shall be applied by Seller to the purchase of real property as approved by the Investment Committee in accordance with Section 2.2. -34- 40 b. APPOINTMENT OF TRUST MANAGER. i. GENERAL. Effective immediately following the Closing, Seller shall increase the number of its Trust Managers from seven to eight, and Seller shall appoint one individual designated by the Investor as Agent for and on behalf of the Pecuniary Owner and the Other Pecuniary Owners collectively to fill the vacancy caused by the increase in the number of Trust Managers under this Section 6.2(a). Simultaneously with the designee of the Investor becoming a Trust Manager of Seller, Seller and such designee shall enter into an indemnification agreement providing for indemnification of such designee identical in form to the indemnification agreements entered into between Seller and other Trust Managers. In addition, at the first annual meeting and all subsequent annual meetings of shareholders after the number of Trust Managers has been increased to eight under this Section 6.2(a), until Seller achieves the Threshold Equity Capitalization, Seller shall nominate, and use its best efforts to have such person elected (which efforts shall include, without limitation, including the Investor's nominee in management's slate for nomination and election and solicitation of proxies on their behalf), one designee of the Investor (which may be a different person than the person initially appointed as Trust Manager pursuant to the first sentence of this Section 6.2(a) if such initial designee shall have died, resigned, been removed or declined to be nominated) as Trust Manager. During such time as Seller shall have an individual designated by the Investor serving as Trust Manager pursuant to this Section 6.2(a), and except as otherwise provided in Section 6.2(b) hereof, the number of Trust Managers shall consist of not more than eight persons, including the designee of the Investor. Such designee of the Investor shall hold office until resignation, removal, death or expiration of the term for which he or she was appointed and any successive term for which such representative is duly elected as a Trust Manager by the shareholders of Seller. In the event of the death, resignation or removal from office of the designee of the Investor serving as a Trust Manager pursuant to the first sentence of this Section 6.2(a), Seller agrees to promptly appoint a replacement designee selected by the Investor as Trust Manager prior to the date Trust Managers are to be elected at the first annual meeting after the number of Trust Managers has been increased to eight pursuant to this Section 6.2(a). ii. OBSERVATION RIGHTS. In the event that the designee selected by the Investor to serve as Trust Manager is not, for any reason, elected by Seller's shareholders, the Investor shall have full observation rights with respect to Seller's Trust Managers, including the right to obtain full and timely notice of all meetings of the Trust Managers and of each of its -35- 41 committees, to obtain copies of all written and other materials disseminated to Trust Managers and to designate a person to attend in person or by telephone all meetings of the Trust Managers or their committees. If the Investor receives observation rights pursuant to the provisions of this paragraph, the Investor and its designees in respect of such rights shall each execute a confidentiality agreement in form and substance reasonably satisfactory to Seller. iii. RESIGNATIONS. At such time as Seller achieves Threshold Equity Capitalization, the Investor shall cause its designee to not seek re-election at the next annual meeting, or at Seller's option, to immediately resign. iv. QUALIFICATIONS. Each of the representatives designated by the Investor in accordance with this Section 6.2 shall be a Person selected by the Investor in its sole discretion; provided, however, that any such person may not have been involved in any of the events described in Item 401(f)(1)-(4) of Regulation S-K promulgated under the Exchange Act. v. COMMITTEES. At any time that the Investor shall have exercised its rights under this Section 6.2 to appoint a designee as Trust Manager, Seller shall appoint the Investor's designee on each committee of the Trust Managers, and each such committee shall contain no more than four members until expiration of the latest term of office of any designee of the Investor pursuant to Section 6.2(a) or 6.2(b). c. ENVIRONMENTAL MATTERS. Seller will advise the Investor promptly (a) upon obtaining knowledge that a Release has occurred at or upon the Properties and/or (b) upon receipt of a Notification pertaining to the Properties. d. STATUS FOR REIT OWNERSHIP AND INCOME TESTS. Following the Closing Date, and at all subsequent times during which the Investor or the Pecuniary Owner owns any of the Shares, applying the stock ownership rules of Section 856(h) of the Code, the representation set forth in Section 4.8 will remain true and correct. e. PROHIBITED TRANSACTIONS. Seller shall not effect any business transactions, or agree to effect any business transactions, with Affiliates, Trust Managers or employees of Seller except in the ordinary course of business and unless the consideration paid by Seller in any such business transaction is fair value at market rates, or approved by Seller's shareholders in accordance with applicable state law. -36- 42 f. SELLER/BUYER REGISTRATION RIGHTS AGREEMENT. On the Closing Date, the Investor, as agent for and on behalf of the Pecuniary Owner and certain Other Pecuniary Owners, and Seller shall enter into a Registration Rights Agreement substantially in the form of Exhibit A. g. REIT QUALIFICATION. Seller shall take all actions necessary to maintain Seller's qualification as a REIT and, without the written consent of the Investor shall take no action that would cause Seller not to qualify as a REIT or fail to take any action that would preserve Seller's qualification as a REIT. Seller covenants and agrees that (i) it will duly and promptly notify the Investor upon becoming aware that any "qualified trust" holds or is expected to hold, directly or indirectly, more than 10% of the interests in Seller, and (ii) it will provide the Investor such information and/or verification as the Investor shall reasonably request in order to verify whether Seller constitutes a "pension-held REIT" as defined under Section 856(h)(3)(C) of the Code. h. PREEMPTIVE RIGHTS. In the event that Seller shall at any time subsequent to the date of this Agreement issue any Common Shares to any Person or Persons (other than (i) Common Shares issued to Realco in connection with the conversion of the Realco Debt to Common Shares, (ii) Common Shares issued pursuant to an employee share option, share purchase, share incentive or compensation plan or (iii) Common Shares issued to any partners in Affiliates of Realco in connection with the merger of such Affiliates with and into Seller) (each such issuance, a "Subsequent Offering")), the Investor shall have the right to purchase, on the same terms and conditions as the other purchasers in the Subsequent Offering, Common Shares in an amount not to exceed, in the aggregate, such number of Common Shares as is equal to the total number of Common Shares offered in the Subsequent Offering times a fraction, the numerator of which is the number of Common Shares then owned by the Investor in the aggregate and the denominator of which is the total number of Common Shares outstanding immediately prior to such Subsequent Offering. Notwithstanding the foregoing, with respect to each Subsequent Offering by Seller in the amount of $10 million or more, the amount of shares the Investor may purchase in the aggregate pursuant to such Preemptive Rights shall be reduced by 5% of the total Common Shares outstanding (on a fully-diluted basis) after each such Subsequent Offering. The Investor's Preemptive Rights will immediately terminate once Seller achieves a Minimum Equity Capitalization. The Investor or the Pecuniary Owner, as applicable, shall have the right to assign the preemptive right to buy additional Common Shares pursuant to this Section 6.8 to any of the Other -37- 43 Pecuniary Owners or to any other client of the Investor who can make the representation to Seller set forth in Section 4.8. i. DEBT. Neither Seller, any Subsidiary or any Seller Partnership shall, without the prior written consent of the Investor (i) incur, create, assume, guarantee or in any way become liable for, or permit to exist, any Debt prior to such time as the Seller achieves a Minimum Equity Capitalization, except to the extent the proceeds of such Debt is to be used to acquire real property, and such acquisition occurs within 90 days of the date such Debt is incurred; or (ii) issue or have outstanding any Preferred Shares, or any warrants, options, conversion rights or other rights to subscribe for, purchase or acquire any Preferred Shares, prior to such time as the Seller achieves Minimum Equity Capitalization. j. FURNISH DOCUMENTS. Seller shall furnish or cause to be furnished to the Investor within five Business Days after Seller is required to file the same with the Commission , copies of the periodic information, documents and other reports which Seller is required to file with the Commission pursuant to Section 13(a) of the Exchange Act. If Seller ceases to be required to file information, documents and other reports pursuant to Section 13 of the Exchange Act, it shall remain obligated to furnish the same information, documents and reports otherwise required under Section 13(a) of the Exchange Act to the Investor within five Business Days after Seller would have been required to file the same with the Commission; and i. Seller shall furnish or cause to be furnished to the Investor, within five Business Days after the effective date thereof, copies of any amendment or modification to its Charter Documents. k. TAXES. Seller shall, and shall cause each Subsidiary and Seller Partnership to, pay, when due, all taxes, assessments and governmental charges or levies imposed upon it and all claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and any other like person or entity which, if unpaid, might result in the creation of a lien upon the income of Seller or its assets; provided that items of the foregoing description need not be paid while being contested in good faith and by appropriate proceedings and adequate reserves with respect thereto have been provided on the books of Seller, such Subsidiary of such Seller Partnership, as the case may be. -38- 44 l. ADDITIONAL INFORMATION Seller shall execute and deliver or cause to be executed and delivered to the Investor upon the Investor's reasonable request such other and further instruments or documents as in the reasonable judgment of the Investor and Seller are necessary to conform, create, evidence, preserve or maintain the Pecuniary Owner's rights in the Shares, and Seller shall do all such additional acts, give such assurances and execute such instruments as the Investor may reasonably require to vest more completely in and assure to the Pecuniary Owner its rights in the Shares. m. MSRE AND MSAM CLOSING. If MSRE and MSAM, as agent and attorney-in-fact on behalf of certain clients, do not purchase additional Common Shares of Seller for an aggregate purchase price of at least $4,500,000 within seven days of the Closing Date, Seller shall rescind the sale of Shares hereunder and promptly repay to the Investor the full purchase price for the Shares purchased hereby. SECTION 7. GENERAL CONDITIONS OF PURCHASE The obligations of the parties to effect each Closing shall be subject to the following conditions unless waived in writing by all parties: a. NO ORDERS. No Law or Order shall have been enacted, entered, issued, promulgated or enforced by any Governmental Entity which prohibits or restricts the transactions contemplated by this Agreement. No Governmental Entity shall have notified any party to this Agreement that consummation of the transactions contemplated by this Agreement would constitute a violation of any Law of any jurisdiction or that it intends to commence proceedings to restrain or prohibit such transactions or force divestiture or rescission, unless such Governmental Entity shall have withdrawn such notice and abandoned any such proceedings prior to the time which otherwise would have been the applicable Closing Date. b. APPROVALS. To the extent required by applicable Law, all Permits and Approvals required to be obtained in connection with each Closing from any Governmental Entity or any consent from a third party material to Seller or its business shall have been received or obtained on or prior to the applicable Closing Date. c. ABSENCE OF LITIGATION. No Action before any Governmental Entity pertaining to the transactions contemplated by this Agreement shall have been instituted on or before the applicable Closing Date whether or not any of the parties hereto or its Affiliates is a party. -39- 45 d. NEW YORK STOCK EXCHANGE. The Shares shall have been approved for listing, upon official notice of issuance, on the New York Stock Exchange. Seller will use its best efforts to maintain the listing of its Common Shares on the New York Stock Exchange. e. SHAREHOLDER APPROVAL. Seller shall have received Shareholder Approval. SECTION 8. CONDITIONS TO OBLIGATIONS OF THE INVESTOR The obligations of the Investor, as agent for and on behalf of the Pecuniary Owner, to effect the Closing shall be subject to the following conditions except to the extent waived in writing by the Investor: a. ACCURACY OF SELLER'S REPRESENTATIONS AND WARRANTIES. All representations and warranties of Seller set forth in this Agreement shall be true and correct in all material respects on the applicable Closing Date as if made on and as of such Closing Date. b. PERFORMANCE BY SELLER. Seller shall have in all material respects performed, satisfied and complied with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by Seller on or before the applicable Closing Date, including the covenants set forth in Section 5. c. NO MATERIAL ADVERSE CHANGE. During the period from December 31, 1996 to the applicable Closing Date, (i) there shall not have been any material adverse change or any development involving a material adverse change in the condition (financial or otherwise) of Seller, any Subsidiary or any Seller Partnership, taken as a whole, or in the earnings, business, prospects or operations of Seller, any Subsidiary or any Seller Partnership, taken as a whole, and (ii) there shall not have occurred any material adverse change in the financial markets in the United States, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, in each case the effect of which is such as to, in the judgment of the Investor, significantly impair the marketability or value of the Shares, (iii) the trading in any securities of Seller shall not have been suspended or limited by the Commission or the New York Stock Exchange, trading generally on the American Stock Exchange or the New York Stock Exchange or in the -40- 46 Nasdaq National Market shall not have been suspended or limited, minimum or maximum prices for trading shall not have been fixed, and maximum ranges for prices shall not have been required, by any of said exchanges or by such system or by order of the Commission, the National Association of Securities Dealers, Inc. or any other Governmental Entity, and (iv) a banking moratorium shall not have been declared by Federal, Texas or New York authorities. d. CERTIFICATION BY SELLER. The Investor shall have received a certificate, addressed to the Investor and dated as of the applicable Closing Date, signed by the President of Seller, certifying, in such detail as the Investor and its counsel reasonably may request, that all of the conditions specified in Section 8 have been fulfilled. e. OPINION OF SELLER'S COUNSEL. The Investor shall have received from counsel for Seller an opinion, addressed to the Investor and dated as of the applicable Closing Date, in form and substance reasonably satisfactory to the Investor as to the matters set forth in Schedule 8.5. f. SCHEDULES. Seller shall have delivered to the Investor updated Schedules, if any, to this Agreement. g. REALCO, MSRE AND MSAM CONSENT. Seller shall have received all necessary consents or waivers from Realco, MSRE and MSAM in connection with the matters contemplated by this Agreement. h. ADDITIONAL INFORMATION. Seller's Fourth Amended and Restated Bylaws shall have been amended to provide for a maximum of eight (8) Trust Managers. i. CLOSING OF MSRE AND MSAM PURCHASE TRANSACTIONS. Seller shall have closed on the sale of the Common Shares to MSRE and MSAM, as agent and attorney-in-fact on behalf of the MSAM Purchasers, pursuant o the MSAM Purchase Agreement whereby Seller shall have received an aggregate purchase price of at least $12,500,00 from such purchasers from the issuance and sale of its Common Shares. SECTION 9. CONDITIONS TO OBLIGATIONS OF SELLER The obligations of Seller to effect each Closing shall be subject to the following conditions, except to the extent waived in writing by Seller: -41- 47 a. ACCURACY OF THE INVESTOR'S REPRESENTATIONS AND WARRANTIES. All representations and warranties of the Investor set forth in this Agreement shall be true and correct in all material respects on the applicable Closing Date as if made on and as of such Closing Date. b. BUYERS' PERFORMANCE. The Investor shall have in all material respects performed, satisfied and complied with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Investor on or before the applicable Closing Date. c. CERTIFICATION. Seller shall have received a certificate, dated as of the applicable Closing Date, signed by a Managing Director of the Investor, certifying, in such detail as Seller and its counsel reasonably may request, that the conditions specified in Section 9 have been fulfilled. d. OPINION OF COUNSEL. Seller shall have received from counsel to the Investors an opinion, dated as of the applicable Closing Date, in form and substance reasonably satisfactory to Seller as to the matters set forth in Schedule 9.4. e. REIT STATUS. The purchase of Shares by the Investor, as agent for and on behalf of the Pecuniary Owner, will not cause Seller to lose its status as a REIT under the Code. SECTION 10. TERMINATION OF OBLIGATIONS; SURVIVAL a. TERMINATION OF AGREEMENT. This Agreement and the transactions contemplated by this Agreement may be terminated at any time before the Closing Date, as follows and in no other manner: i. MUTUAL CONSENT. By mutual consent in writing of the Investor and Seller. ii. MISREPRESENTATION OR MATERIAL BREACH. By the Investor or Seller with written notice to the other parties if there has been a misrepresentation or material breach on the part of Seller or the Investor, in their respective representations, warranties and covenants set forth herein, which, with respect to a breach of a covenant, if curable, has not been cured within 10 business days after receipt of notice from the Investor or Seller of the terminating party's intention to terminate. iii. ENVIRONMENTAL NONCOMPLIANCE. By the Investor in the event of the discovery of any Release or other matter prior to any Closing Date -42- 48 which, if known to Seller as of the date of this Agreement, would have constituted a breach of the representations and warranties contained in Section 3.17. iv. CLOSING. This Agreement shall terminate if the Closing does not occur on or before July 11, 1997. b. EFFECT OF TERMINATION. In the event that this Agreement shall be terminated pursuant to Section 10.1 all further obligations of the parties under this Agreement shall terminate; provided that the obligations of the parties contained in this Section 10.2, Section 11, and Section 12 (other than Sections 12.3 and 12.8) shall survive any such termination. A termination under Section 10.1 shall not relieve any party of any liability for a breach of, or for any misrepresentation under, this Agreement, or be deemed to constitute a waiver of any available remedy (including specific performance if available) for any such breach or misrepresentation. c. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. (a) The representations and warranties contained in or made pursuant to this Agreement shall expire on the third anniversary of the Closing Date except that (a) the representations and warranties contained in Section 3.2 shall continue forever (subject to all defenses of Seller available under applicable Law, including the expiration of the applicable statute of limitations period), (b) the representations and warranties contained in Section 3.14 shall continue through the applicable statute of limitations, (c) representations and warranties which are intentionally misrepresented shall continue through the later of the first anniversary of the Closing Date and one year following the date of actual discovery of such intentional misrepresentation, and (d) if a claim or notice is given under Section 12 with respect to the breach of any representation or warranty prior to the applicable expiration date, such representation or warranty shall continue indefinitely until such claim is finally resolved. (b) All covenants and agreements of the parties hereto shall be continuing and shall survive each Closing Date pursuant to the terms thereof. (c) The provisions of Section 11.1 through Section 11.5 and Section 12.12 shall survive and remain in full force and effect with respect to the Investor notwithstanding any termination of the Investor's appointment as agent on behalf of the Pecuniary Owner. -43- 49 SECTION 11. INDEMNIFICATION a. INDEMNIFICATION. In partial consideration of the commitment of the Investors as agent for and on behalf of the Pecuniary Owner hereunder, Seller agrees to indemnify and hold harmless the Investor and the Pecuniary Owner and any of their respective affiliates, directors, officers, agents and employees and each other person, if any, controlling the Investor or the Pecuniary Owner or any of their respective affiliates (each an "Investor Indemnified Person") from and against any Losses (or actions in respect thereof) to which such Investor Indemnified Person may become subject in connection with the matters which are the subject of the commitment made hereunder (including any use or proposed use of the proceeds from the sale of the Common Shares) including without limitation any and all Losses of the Investor Indemnified Person as a result of, or based upon or arising out of, directly or indirectly any inaccuracy in, breach or nonperformance of, any of the representations, warranties, covenants or agreements made by Seller in, or pursuant to this Agreement, and will reimburse any Investor Indemnified Person for all reasonable expenses (including the reasonable fees of counsel) as they are incurred by any such Investor Indemnified Person in connection with investigating, preparing or defending any such action or claim pending or threatened, whether or not such Investor Indemnified Person is a party hereto. Seller shall not be responsible for any losses, claims, damages, liabilities or expenses resulting from such Investor Indemnified Person's gross negligence or willful misconduct. Seller also agrees that no Investor Indemnified Person shall have any liability (whether direct or indirect, in contract or tort or otherwise) to Seller for or in connection with this Agreement except for losses, claims, damages, liabilities or expenses to the extent that a court of competent jurisdiction or arbitration panel shall have finally determined that such losses, claims, damages, liabilities or expenses resulted from such Investor Indemnified Persons's gross negligence or willful misconduct. In the event that the foregoing indemnity is unavailable or insufficient to hold Investor Indemnified Person harmless, Seller shall contribute to amounts paid or payable by such Investor Indemnified Person in respect of such losses, claims, damages, liabilities and expenses in such proportion as appropriately reflects the relative benefits received by, and fault of Seller, on the one hand, and the Investor and the Pecuniary Owner on the other hand, in connection with the matters as to which such losses, claims, damages, liabilities or expenses relate. The agreement of Seller in this paragraph shall be in addition to any other liability that Seller may otherwise have. -44- 50 b. OBLIGATIONS OF THE INVESTOR AND THE PECUNIARY OWNER. The Investor and the Pecuniary Owner, severally and not jointly, agree to indemnify, defend and hold harmless Seller and its Trust Managers, officers, employees, agents, directors and Affiliates (collectively, the "SELLER INDEMNIFIED PARTIES") from and against any and all Losses of the Seller Indemnified Parties as a result of, or based upon or arising out of, directly or indirectly, (a) any material inaccuracy in, or material breach or material nonperformance of, any of the representations, warranties, covenants or agreements made by the Investor as agent for and on behalf of the Pecuniary Owner in, or pursuant to, this Agreement, or (b) any pending or threatened Action brought by the Investor's or the Pecuniary Owner's shareholders or creditors relating to, or arising out of or in connection with, directly or indirectly, the transactions contemplated under this Agreement; provided, however, that the Investor or the Pecuniary Owner, as applicable, shall not be obligated to indemnify, defend or hold harmless any of the Seller Indemnified Parties for any claims based solely on actions taken by any of the Seller Indemnified Parties other than the performance of the covenants and agreements to be undertaken by Seller pursuant to the terms and conditions of this Agreement and any other action authorized in writing by the Investor or the Pecuniary Owner, as applicable. As a condition to the rights of any of the Seller Indemnified Parties under this Section 11, the Investor may require that any such Person provide a written undertaking that such Person will repay to the Investor or the Pecuniary Owner, as applicable, any amount expended by the Investor or the Pecuniary Owner, as applicable, to indemnify, defend or hold harmless such Person in the event and to the extent a court determines that such Investor's or Pecuniary Owner's indemnification or defense of such Person is prohibited by applicable Law. The agreement of the Investor and the Pecuniary Owner in this paragraph shall be in addition to any other liability that the Investor and the Pecuniary Owner may otherwise have. c. PROCEDURE. i. NOTICE. Any party seeking indemnification with respect to any Loss shall give notice to the party required to provide indemnity hereunder (the "INDEMNIFYING PARTY") on or before the date specified in Section 11.4. ii. DEFENSE OF CLAIM. If any claim, demand or liability is asserted by any third party against any Indemnified Party, the Indemnifying Party shall have the right, unless otherwise precluded by applicable law, to conduct and control the defense, compromise or settlement of any Action or threatened Action brought against the Indemnified Party in respect of matters embraced by the indemnity set forth in this Section 11. The -45- 51 Indemnified Party shall have the right to employ counsel separate from counsel employed by the Indemnifying Party in connection with any such Action or threatened Action and to participate in the defense thereof, but the fees and expenses of such counsel employed by the Indemnified Party shall be at the sole expense of the Indemnified Party unless (i) the Indemnifying Party shall have elected not, or, after reasonable written notice of any such Action or threatened Action, shall have failed, to assume or participate in the defense thereof, (ii) the employment thereof has been specifically authorized by the Indemnifying Party in writing, or (iii) the parties to any such Action or threatened Action (including any impleaded parties) include both the Indemnifying Party and the Indemnified Party and the Indemnified Party shall have been advised in writing by counsel for the Indemnified Party that there may be one or more defenses available to the Indemnified Party that are not available to the Indemnifying Party or legal conflicts of interest pursuant to applicable rules of professional conduct between the Indemnifying Party and the Indemnified Party (in any which case, the Indemnifying Party shall not have the right to assume the defense of such Action on behalf of the Indemnified Party), in either of which events referred to in clauses (i), (ii) and (iii) the fees and expenses of such counsel employed by the Indemnified Party shall be at the expense of the Indemnifying Party. The Indemnifying Party shall not, without the written consent of the Indemnified Party, settle or compromise any such Action or threatened Action or consent to the entry of any judgment which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the Indemnified Party a release from all liability in respect of such Action or threatened Action. Unless the Indemnifying Party shall have elected not, or shall have after reasonable written notice of any such Action or threatened Action failed, to assume or participate in the defense thereof, the Indemnified Party may not settle or compromise any Action or threatened Action without the written consent of the Indemnifying Party. If, after reasonable written notice of any such Action or threatened Action, the Indemnifying Party neglects to defend the Indemnified Party, a recovery against the latter suffered by it in good faith, is conclusive in its favor against the Indemnifying Party; provided, however, that no such conclusive presumption shall be made if the Indemnifying Party has not received reasonable written notice of the Action against the Indemnified Party. d. SURVIVAL. The indemnity set forth in this Section 11 shall survive each Closing or any termination of this Agreement and shall remain in effect for a period of (a) with respect to a breach of a representation or warranty, for the period through which such representation or warranty shall continue pursuant to Section 10.3 (including such period of time through which such representation or warranty shall be extended until resolution of a claim with respect thereto) and (b) with respect to a breach of a covenant or agreement or an Action referred to in Sections 11.1 or 11.2(b), forever. -46- 52 e. NOTICE BY SELLER. Seller and the Investor agree to notify in writing the other parties of any liabilities, claims or misrepresentations, breaches or other matters covered by this Section 11 upon discovery or receipt of notice thereof (other than from such other parties), whether before or after any Closing Date. SECTION 12. GENERAL a. AMENDMENTS; WAIVERS. This Agreement and any Schedule or Exhibit attached hereto or referenced herein may be amended only by agreement in writing of all parties. No waiver of any provision nor consent to any exception to the terms of this Agreement shall be effective unless in writing and signed by the party to be bound and then only to the specific purpose, extent and instance so provided. b. SCHEDULES; EXHIBITS; INTEGRATION. Each Exhibit and Schedule delivered pursuant to the terms of this Agreement shall be in writing and shall constitute a part of the Agreement. This Agreement, together with such Exhibits and Schedules, constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior agreements and understandings of the parties in connection therewith. c. BEST EFFORTS; FURTHER ASSURANCES. Each party will use its best efforts to cause all conditions to its obligations to be timely satisfied and to perform and fulfill all obligations on its part to be performed and fulfilled under this Agreement. The parties shall cooperate with each other in such actions and in securing requisite Approvals. Each party shall execute and deliver such further certificates, agreements and other documents and take such other actions as the other party may reasonably request to consummate or implement the transactions contemplated hereby or to evidence such events or matters, including the seeking of any necessary shareholder approvals. d. GOVERNING LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF MARYLAND, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION (WHETHER OF THE STATE OF MARYLAND OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK. -47- 53 e. NO ASSIGNMENT. Except as otherwise specifically provided herein, neither this Agreement nor any rights or obligations under it are assignable by any party, except that the Investor may assign the commitment of any Pecuniary Owner to purchase Shares hereunder, and the related rights and remedies of such Pecuniary Owner, to any other client on behalf of whom it or any of its Affiliates acts as investment advisor, whether or not such client is initially the Pecuniary Owner hereunder and (ii) the Pecuniary Owner may at any time subsequent to the date hereof appoint a successor agent to act on its behalf in connection with the matters contemplated herein. f. HEADINGS. The descriptive headings of the Sections and subsections of this Agreement are for convenience only and do not constitute a part of this Agreement. g. COUNTERPARTS. This Agreement and any other agreement or document delivered pursuant hereto may be executed in one or more counterparts and by different parties in separate counterparts. All of such counterparts shall constitute one and the same agreement or other document and shall become effective when one or more counterparts of this Agreement have been signed by each party and delivered to the other parties. h. PUBLICITY AND REPORTS. Seller and the Investor shall coordinate all publicity relating to the transactions contemplated by this Agreement and no party shall issue any press release, publicity statement or other public notice relating to this Agreement, or the transactions contemplated by this Agreement, without obtaining the prior consent of the other parties, except to the extent that independent legal counsel to Seller or the Investor, as the case may be, shall advise the other parties in writing that a particular action is required by applicable Law (in which event the party taking such action shall cooperate with the other party in connection with any disclosure or publicity resulting from such action). i. CONFIDENTIALITY. All information disclosed by any party (or its representatives) to the other party whether before or after the date hereof, in connection with the transactions contemplated by, or the discussions and negotiations preceding, this Agreement to any other party (or its representatives) shall be kept confidential by such other party and its representatives and shall not be used by any such Persons other than as contemplated by this Agreement, except (a) to the extent that such information (i) was known by the recipient when received, (ii) is or hereafter becomes lawfully obtainable from other public sources or (iii) is necessary or appropriate to be disclosed to a Governmental Entity having jurisdiction over the parties, (b) as may otherwise be required by Law to be -48- 54 disclosed or (c) to the extent such duty as to confidentiality is waived in writing by the other parties. Notwithstanding the foregoing, the Investor shall be entitled to disclose information relating to this Agreement and the transactions contemplated hereby to any client on behalf of whom it or any of its Affiliates acts as investment advisor, in connection with a contemplated investment by such client in Seller as described herein. If this Agreement is terminated in accordance with its terms, each party shall use all reasonable efforts to return upon written request from the other parties all documents (and reproductions thereof) received by it or its representatives from such other parties (and, in the case of reproductions, all such reproductions made by the receiving party) that include information not within the exceptions contained in the first sentence of this Section 12.9, unless the recipients provide assurances reasonably satisfactory to the requesting party that such documents have been destroyed. j. PARTIES IN INTEREST. This Agreement shall be binding upon and inure to the benefit of each party, and nothing in this Agreement, express or implied, is intended to confer upon any other Person any rights or remedies of any nature whatsoever under or by reason of this Agreement. Nothing in this Agreement is intended to relieve or discharge the obligation of any third Person to or to confer any right of subrogation or action over or against any party to this Agreement. k. NOTICES. Any notice or other communication hereunder must be given in writing and (a) either delivered in person, (b) transmitted by telex, telefax or telecopy mechanism, (c) mailed by first class mail, return receipt requested, or (d) delivered by overnight mail or courier service, as follows: If to the Investor, addressed to: LaSalle Advisors Limited Partnership 100 East Pratt Street Baltimore, Maryland 21202 Attention: Stanley J. Kraska, Jr. Telecopy: (410) 347-0612 With a copy to: Elizabeth Grieb, Esquire Piper & Marbury L.L.P. 36 S. Charles Street Baltimore, Maryland 21201 Telecopy: (410) 576-1710 -49- 55 If to Seller, addressed to: American Industrial Properties REIT 6220 North Beltline Road, Suite 205 Irving, Texas 75063-2656 Attention: Mr. Charles W. Wolcott President and Chief Executive Officer Telecopy: (972)550-6037 or to such other address or to such other person as any party shall have last designated by such notice to the other parties. Each such notice or other communication shall be effective (i) if given by telecommunication, when transmitted to the applicable number so specified in this Section 12.11 and an appropriate answer back is received, (ii) if given by mail, three days after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, when actually delivered at such address. l. EXPENSES. Except as set forth in the next sentence, each of the parties hereto shall pay its own respective expenses incident to the negotiation, preparation and performance of this Agreement and the transactions contemplated hereby, including but not limited to the fees, expenses and disbursements of its respective financial advisers, accountants and counsel. Seller shall reimburse the Investors for all legal fees incurred by the Investor relating to the transactions contemplated by this Agreement and the Registration Rights Agreement up to a maximum of $25,000. m. REMEDIES; WAIVER. All rights and remedies existing under this Agreement and any related agreements or documents are cumulative to and not exclusive of any rights or remedies otherwise available under applicable Law. No failure on the part of any party to exercise or delay in exercising any right hereunder shall be deemed a waiver thereof, nor shall any single or partial exercise preclude any further or other exercise of such or any other right. Each of the parties hereto shall be entitled to seek any equitable remedy to the extent such remedy is available under applicable Law. n. REPRESENTATION BY COUNSEL; INTERPRETATION. Each of the parties hereto acknowledges that each party to this Agreement has been represented by counsel in connection with this Agreement and the transactions contemplated by this Agreement. Accordingly, any rule of Law or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the party that drafted it has no application and is expressly waived. The provisions of this Agreement shall be interpreted in a reasonable manner to effect the intent of the parties hereto, and no rule of strict construction shall be applied against any party to this Agreement. -50- 56 o. SEVERABILITY. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any current or future law, and if the rights or obligations of the parties under this Agreement would not be materially and adversely affected thereby, such provision shall be fully separable, and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part thereof, and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance therefrom. In lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as a part of this Agreement, a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible, and the parties hereto request the court or any arbitrator to whom disputes relating to this Agreement are submitted to reform the otherwise illegal, invalid or unenforceable provision in accordance with this Section 12.15. p. ARBITRATION. In the event of a dispute hereunder which cannot be resolved by the parties, such dispute shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association and judgment on the award rendered by the arbitration panel may be entered in any court or tribunal of competent jurisdiction. Any arbitration occurring under this Section 12.16 shall be held in Baltimore, Maryland in the first instance, in Dallas, Texas in the second instance, and continuing in that order with respect to each dispute occurring hereunder. q. AGENTS. (a) Seller acknowledges and agrees that the Investor is acting as agent for and on behalf of the Pecuniary Owner and that the Investor shall not have any liability to Seller, and shall not be obligated to purchase securities hereunder with respect to which the Pecuniary Owner was obligated to but did not purchase. (b) In the event that the Investor shall no longer act as agent for and on behalf of the Pecuniary Owner in connection with the matters contemplated by this Agreement, then (i) any agent(s) appointed by the Pecuniary Owner as successor agent(s) to the Investor shall be entitled to, and to exercise on behalf of the Pecuniary Owner, all of the rights and remedies provided for herein with respect to the Investor and (ii) at any such time as no successor agent(s) shall have been appointed by the Pecuniary Owner, the Pecuniary Owner shall be entitled to exercise all of the rights and remedies provided for herein in its individual capacity, including the right to obtain, upon request, copies of all documents and notices as specified herein. In the event that the Investor shall no longer act as agent on behalf of the Pecuniary Owner hereunder, all consents or waivers of the Investor necessary to effect any action hereunder shall be required to be given by any successor agent(s) appointed by the Pecuniary Owner or, if no successor(s) has been appointed, by the Pecuniary Owner, prior to the consummation of such action. -51- 57 (c) Until such time as Seller shall have received a written notice from the Pecuniary Owner that the Investor is no longer acting as the Pecuniary Owner's agent hereunder, Seller shall be entitled to rely on any instructions and any notices received from the Investor on behalf of the Pecuniary Owner as if received from the Pecuniary Owner directly. "INVESTOR" LASALLE ADVISORS LIMITED PARTNERSHIP, as Agent and for and on behalf of the Pecuniary Owner By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- "SELLER" AMERICAN INDUSTRIAL PROPERTIES REIT -------------------------------------- Charles W. Wolcott President and Chief Executive Officer -52- EX-10.10 11 REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 10.10 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "AGREEMENT") is made and entered into as of July 10, 1997, by and among American Industrial Properties REIT, a Texas real estate investment trust (the "COMPANY"), and LaSalle Advisors Limited Partnership, a registered investment advisor (the "Investor"), acting as agent for and on behalf of certain clients (the "Pecuniary Owners"). WITNESSETH: WHEREAS, pursuant to certain Common Share Purchase Agreements, each dated as of July 3, 1997, among the Company and the Investor, as agent for and on behalf of each of the Pecuniary Owners (the "PURCHASE AGREEMENTS"), the Investor, agreed that it may purchase up to 6,122,449 Common Shares (the "SHARES") of the Company as agent for and on behalf of the Pecuniary Owners; and WHEREAS, pursuant to the terms of the Purchase Agreements, the Company and the Investor agreed that the Company would grant certain registration rights to the Investor with respect to the Shares; NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Definitions. As used in this Agreement, the following capitalized terms shall have the following meanings: Closing Date: The closing date as defined in the Purchase Agreements. Common Shares: The common shares of beneficial interest, $.10 par value per share, of the Company. Exchange Act: The Securities Exchange Act of 1934, as amended from time to time. Person: An individual, partnership corporation, limited liability company, trust or unincorporated organization, or a government or agency or political subdivision thereof. Preemptive Rights: As defined in the Purchase Agreements. 2 Prospectus: The prospectus included in any Registration Statement, as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement and by all other amendments and supplements to the prospectus, including post-effective amendments and all material incorporated by reference in such prospectus. Purchase Agreements: As defined in the Recitals to this Agreement. Purchasers: See Section 2(b) hereof. Registrable Securities: (a) The Shares, (b) any securities issued or issuable with respect to the Shares by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise and (c) any additional Common Shares of the Company purchased by the Investor (as agent for and on behalf of the Pecuniary Owners or on behalf of any other client of the Investor that was assigned preemptive rights under the Purchase Agreements) pursuant to the exercise of Preemptive Rights. Any Registrable Security will cease to be a Registrable Security when (i) a registration statement covering such Registrable Security has been declared effective by the SEC and the Registrable Security has been disposed of pursuant to such effective registration statement, (ii) the Registrable Security is sold under circumstances in which all of the applicable conditions of Rule l44 (or any similar provisions then in force) under the Securities Act are met, or (iii) the Registrable Security has been otherwise transferred, the Company has delivered a new certificate or other evidence of ownership for it not bearing a legend restricting further transfer, and it may be resold without subsequent registration under the Securities Act. Registration Expenses: See Section 5 hereof. Registration Statement: The Registration Statement of the Company that covers any of the Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus included therein, all amendments and supplements to such Registration Statement, including post-effective amendments, all exhibits and all material incorporated by reference in such Registration Statement. SEC: The Securities and Exchange Commission or any successor entity. Securities Act: The Securities Act of 1933, as amended from time to time. Shares: As defined in the Recitals to this Agreement. Shelf Registration: See Section 2(a) hereof. Underwritten Registration or Underwritten Offering: A registration in which securities of the Company are sold to an underwriter for reoffering to the public. 3 2. Registration Rights. (a) Shelf Registration. Upon the written request of the Investor, holding, in the aggregate not less than (i) 25% of the aggregate Registrable Securities outstanding, (ii) Registerable Securities having a fair market value of at least $2 million whichever is less, that the Company effect the registration under the Securities Act of such Registrable Securities pursuant to a "shelf" registration statement, the Company will file such a "shelf" registration statement on any appropriate form pursuant to Rule 415 (or similar rule that may be adopted by the SEC) under the Securities Act (a "SHELF REGISTRATION"), which Shelf Registration will cover (1) the Registrable Securities that the Company has been so requested to register by the Investor, and (2) all other Registrable Securities that the Company has been requested to register by any other Pecuniary Owners by written request given to the Company within 15 days after the Company's giving of written notice of the requesting Investor's requested registration. Pursuant to this Section 2(a), the Investor, upon execution hereof, is making a written request of the Company to file a shelf registration statement on its behalf to register certain Registrable Securities and the Company acknowledges that this provision shall constitute the written request required hereby to initiate the filing of the shelf registration statement pursuant to this Section 2(a). Investor agrees, during the 10 day period following execution of this Agreement, to consider withdrawing its request for registration in the preceding sentence. The Company shall not be required to commence preparation of such shelf registration statement until after expiration of such 10 day period. If the Investor does not withdraw its request, the Company shall commence preparation of the shelf registration statement. The Company hereby agrees to file such registration statement as promptly as practicable following the request therefor, and in any event within 60 days following the date such request is received by the Company, and thereafter to use its commercially reasonable efforts to cause such Shelf Registration to become effective and thereafter to keep it continuously effective, and to prevent the happening of any event of the kind described in Section 4(c)(3), (4), (5) or (6) hereof that requires the Company to give notice pursuant to the last paragraph of Section 4 hereof, for a period terminating on the third year anniversary of the date on which the SEC declares the Shelf Registration effective, or such shorter period as shall terminate on the date on which all the Registrable Securities covered by the Shelf Registration have been sold pursuant to such Shelf Registration. The Company shall be obligated to file only one Shelf Registration and shall not be obligated to file a Shelf Registration if three Demand Registrations (hereinafter defined) have been effected under Section 2(b). The Company further agrees to promptly supplement or make amendments to the Shelf Registration, if required by the rules, regulations or instructions applicable to the registration form utilized by the Company or by the Securities Act or rules and regulations thereunder for shelf registration or if requested by the Investor holding in the aggregate in excess of 50% of the Registrable Securities covered by the Shelf Registration or any underwriter of the Registrable Securities. If the Investor holding in the aggregate in excess of 50% of the Registrable Securities covered by the Shelf Registration so elects, the offering of Registrable Securities pursuant to such registration shall be in the form of an Underwritten Offering. 4 (b) Demand Registration. At any time during the five year period following the Closing Date, the Investor, holding in the aggregate not less than (i) 25% of the aggregate Registrable Securities outstanding or (ii) Registrable Securities having a fair market value of at least $2 million, whichever is less, may make a written request (the "DEMAND NOTICE") for registration under the Securities Act (a "DEMAND REGISTRATION") of such Registrable Securities. The Demand Notice will specify the number of shares of Registrable Securities proposed to be sold and will also specify the intended method of disposition thereof. Following receipt of a Demand Notice from the Investor, the Company promptly will file a registration statement on any appropriate form which will cover the Registrable Securities that the Company has been so requested to register by the Investor. Unless the Investor shall consent in writing, no party (including the Company) other than a Pecuniary Owner, USAA Real Estate Company ("Realco"), MS Real Estate Special Situations Inc. ("MRSE") or certain clients of Morgan Stanley Asset Management Inc. who have purchased Common Shares of the Company (such clients together with MRSE, the "Purchasers") shall be permitted to offer securities under any such Demand Registration. The Company shall not be required to effect more than three Demand Registrations under this Section 2(b). A registration requested pursuant to this Section 2(b) will not be deemed to have been effected (and it shall not count as one of the three Demand Registrations) unless the Registration Statement relating thereto has become effective under the Securities Act; provided, however that if, after such Registration Statement has become effective, the offering of the Registrable Securities pursuant to such registration is interfered with by any stop order, injunction or other order or requirement of the SEC or other governmental agency or court, such registration will be deemed not to have been effected (and it shall not count as one of the three Demand Registrations). The Investor, holding in excess of 50% of the Registrable Securities covered by a Demand Registration may at any time prior to the effective date of the Registration Statement relating to such registration revoke a Demand Notice by providing a written notice to the Company (in which case such Demand Registration shall not count as one of the three Demand Registrations). If the Investor, holding in the aggregate in excess of 50% of the Registrable Securities covered by the Demand Registration so elects, the offering of Registrable Securities pursuant to such registration shall be in the form of an Underwritten Offering. If the managing underwriter or underwriters of such offering advise the Company and the Investor in writing that in their opinion the number of shares of Registrable Securities and shares of Realco or the Purchasers, if any, requested to be included in such offering is sufficiently large to materially and adversely affect the success of such offering, the Company will include in such registration the aggregate number of Registrable Securities and shares of Realco or the Purchasers, if any, requested to be included, which in the opinion of such managing underwriter or underwriters can be sold without any such material adverse effect; provided, however, that no Registrable Securities or shares of Realco or the Purchasers, if any, may be excluded before all shares proposed to be sold by other parties, including the Company, have been excluded. If any Registrable Securities are excluded, such registration shall not count as one of the three Demand Registrations. If more than 5% of the amount of Registrable Securities proposed to be registered hereunder are required to be excluded pursuant to this paragraph, the number of Registrable Securities of the Investor and the number of shares of Realco or each Purchaser, if any, to be included in such Registration shall be reduced pro rata (according to the total number of Registrable Securities or shares, as the case may be, beneficially 5 owned by each such holder), to the extent necessary to reduce the total amount necessary to be included in the Offering to the amount recommended by such managing underwriter or underwriters. No registration pursuant to a request or requests referred to in this subsection 2(b) shall be deemed to be a Shelf Registration. (c) Incidental Registration. If at any time during the five year period following the Closing Date, the Company proposes to file a registration statement under the Securities Act (other than in connection with a Registration Statement on Form S-4 or S-8, or any form that is substituting therefor or is a successor thereto) with respect to an offering of any class of security by the Company for its own account or for the account of any of its security holders, then the Company shall give written notice of such proposed filing to the Investor as soon as practicable (but in no event less than thirty days before the anticipated filing date), and such notice shall (i) offer the Investor the opportunity to register such number of Registrable Securities as it may request and (ii) describe such securities and specifying the form and manner and other relevant facts involved in such proposed registration (including, without limitation, (x) whether or not such registration will be in connection with an Underwritten Offering and, if so, the identity of the managing underwriter and whether such Underwritten Offering will be pursuant to a "best efforts" or "firm commitment" underwriting and (y) the price (net of any underwriting commissions, discounts and the like) at which the Registrable Securities are reasonably expected to be sold, if such disclosure is acceptable to the managing underwriter). The Investor shall advise the Company in writing within twenty (20) days after the date of receipt of such notice from the Company of the number of Registrable Securities for which registration is requested. The Company shall include in such Registration Statement all such Registrable Securities so requested to be included therein, and, if such registration is an Underwritten Registration, the Company shall use its commercially reasonable efforts to cause the managing underwriter or underwriters to permit the Registrable Securities requested to be included in the registration statement for such offering to be included (on the same terms and conditions as similar securities of the Company included therein to the extent appropriate); provided, however, that if the managing underwriter or underwriters of such offering deliver a written opinion to the Investor that either because of (i) the kind of securities which the Investor, the Company, or any other Persons intend to include in such offering or (ii) the size of the offering which the Investor, the Company, or such other Persons intend to make, the success of the offering would be materially and adversely affected by inclusion of the Registrable Securities requested to be included, then (A) in the event that the size of the offering is the basis of such managing underwriter's opinion, the amount of securities to be offered for the account of the Investor and other holders registering securities of the Company pursuant to similar incidental registration rights shall be reduced pro rata (according to the Registrable Securities beneficially owned by each such holder) to the extent necessary to reduce the total amount of securities to be included in such offering to the amount recommended by such managing underwriter or underwriters; and (B) in the event that the combination of securities to be offered is the basis of such managing underwriter's opinion, (x) the Registrable Securities and other securities to be included in such offering shall be reduced as described in clause (A) above or, (y) if the actions described in clause (A) would, in the judgment of the managing underwriter, be insufficient to substantially eliminate the adverse effect that inclusion of the Registrable Securities requested to be included would have on such offering, such 6 Registrable Securities will be excluded from such offering. Notwithstanding the foregoing, if the Investor exercises an incidental registration in connection with Realco's or the Purchasers' demand registration rights, then the managing underwriter's cutback provision under such demand registration right shall govern with respect to the Investor and not the managing underwriter's cutback provision in this Section 2(c). No registration pursuant to a request or requests referred to in this subsection 2(c) shall be deemed to be a Shelf Registration. 3. Hold-Back Agreements. (a) Restrictions on Public Sale by Holder of Registrable Securities. The Investor agrees, if reasonably requested by the managing underwriters in an Underwritten Offering, not to effect any public sale or distribution of securities of the Company of the same class as the securities included in the Registration Statement relating to such Underwritten Offering, including a sale pursuant to Rule 144 under the Securities Act (except as part of such Underwritten Offering), during the 10-day period prior to the filing of such Registration Statement, and during the 90-day period beginning on the closing date of each Underwritten Offering made pursuant to such Registration Statement, to the extent timely notified in writing by the Company or the managing underwriters. (b) Restrictions on Sale of Securities by the Company. The Company agrees not to effect any public sale or distribution of any securities similar to those being registered, or any securities convertible into or exchangeable or exercisable for such securities (except pursuant to a registration statement on Form S-4 or S-8, or any substitute form that may be adopted by the SEC) during the ten days prior to the filing of a registration statement with respect to an Underwritten Offering, and during the 90-day period beginning on the effective date of such Registration Statement (except as part of such registration statement (x) where the Investor participating in such registration statement consents, (y) where the Investor is participating in such registration statement pursuant to Section 2(c) hereof, such registration statement was filed by the Company with respect to the sale of securities by the Company, and the Investor is not simultaneously participating in a registration statement pursuant to Section 2(b) hereof), or (z) with respect to Realco or the Purchasers, if such parties are participating in a Demand Registration pursuant to Section 2(b) hereof), or the commencement of a public distribution of Registrable Securities pursuant to such registration statement. 4. Registration Procedures. In connection with the Company's registration obligations pursuant to Section 2 hereof, the Company will use its commercially reasonable efforts to effect such registration to permit the sale of such Registrable Securities in accordance with the intended method or methods of distribution thereof, and pursuant thereto the Company will use commercially reasonable efforts to as expeditiously as possible: (a) prepare and file with the SEC, as soon as practicable, and in any event within 60 days from the date of request, a Registration Statement relating to the applicable registration on any appropriate form under the Securities Act, which forms shall be available for the sale of the Registrable Securities in accordance with the intended method or methods of distribution thereof and 7 shall include all financial statements of the Company, and use its commercially reasonable efforts to cause such Registration Statement to become effective; provided that before filing a Registration Statement or Prospectus or any amendments or supplements thereto, including documents incorporated by reference after the initial filing of the Registration Statement, the Company will furnish the Investor and the underwriters, if any, copies of all such documents proposed to be filed, which documents will be subject to the review of the Investor and the underwriters, if any, and the Company will not file any Registration Statement or amendment thereto or any Prospectus or any supplement thereto (including such documents incorporated by reference) to which the Investor holding in the aggregate in excess of 50% of the Registrable Securities covered by such Registration Statement or the underwriters, if any, shall reasonably object (except in the case of a filing pursuant to Section 2(c) hereof); (b) prepare and file with the SEC such amendments and post-effective amendments to the Registration Statement as may be necessary to keep the Registration Statement effective for the applicable period, or such shorter period which will terminate when all Registrable Securities included in such Registration Statement have been sold; cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Securities Act; and comply with the provisions of all securities included in such Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the sellers thereof set forth in such Registration Statement or supplement to the Prospectus; the Company shall not be deemed to have used commercially reasonable efforts to keep a Registration Statement effective during the applicable period if it voluntarily takes any action that would result in the Investor not being able to sell its Registrable Securities during that period unless such action is required under applicable law; provided that the foregoing shall not apply to actions taken by the Company in good faith and for valid business reasons, including without limitation the acquisition or divestiture of assets, so long as the Company promptly thereafter complies with the requirements of Section 4(1) hereof, if applicable; (c) notify the Investor and the managing underwriters, if any, promptly, and (if requested by any such Person) confirm such advice in writing, (l) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to the Registration Statement or any post-effective amendment, when the same has become effective, (2) of any request by the SEC for amendments or supplements to the Registration Statement or the Prospectus or for additional information, (3) of the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose, (4) if at any time the representations and warranties of the Company contemplated by paragraph (n) below cease to be true and correct, (5) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose and (6) of the happening of any event which makes any statement made in the Registration Statement, the Prospectus or any document incorporated therein by reference untrue or which requires the making of any changes in the Registration Statement, the Prospectus or any document incorporated therein by reference in order to make the statements therein not misleading; 8 (d) make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of the Registration Statement at the earliest possible moment; (e) if reasonably requested by the managing underwriter or underwriters or by the Investor holding in the aggregate in excess of 50% of the Registrable Securities covered by the Registration Statement, promptly incorporate in a Prospectus supplement or post-effective amendment such information as the managing underwriters and the Investor agree should be included therein relating to the sale of the Registrable Securities, including, without limitation, information with respect to the number of Registrable Securities being sold to such underwriters, the purchase price being paid therefor by such underwriters and with respect to any other terms of the Underwritten (or best efforts underwritten) Offering of the Registrable Securities to be sold in such offering; and make all required filings of such Prospectus supplement or post-effective amendment as soon as notified of the matters to be incorporated in such Prospectus supplement or post-effective amendment; (f) furnish to the Investor and each managing underwriter, if any, without charge, at least one signed copy of the Registration Statement and any post-effective amendment thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits (including those incorporated by reference); (g) deliver to the Investor and the underwriters, if any, without charge, as many copies of the Prospectus (including each preliminary prospectus) and any amendment or supplement thereto as such Persons may reasonably request; the Company consents to the use of the Prospectus or any amendment or supplement thereto by the Investor and the underwriters, if any, in connection with the offering and sale of the Registrable Securities covered by the Prospectus or any amendment or supplement thereto; (h) prior to any public offering of Registrable Securities, register or qualify or cooperate with the Investor, the underwriters, if any, and their respective counsel in connection with the registration or qualification of such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions as the Investor or any underwriter reasonably requests in writing and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by the Registration Statement; (i) cooperate with the Investor and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends; and enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriters may request at least two business days prior to any sale of Registrable Securities to the underwriters; (j) cause the Registrable Securities covered by the applicable Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the Investor or the underwriters, if any, to consummate the disposition of such Registrable Securities; 9 (k) upon the occurrence of any event contemplated by Section 4(c)(6) above, prepare a supplement or post-effective amendment to the Registration Statement or the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading; (l) cause all Registrable Securities covered by the Registration Statement to be listed on each securities exchange on which similar securities issued by the Company are then listed; (m) enter into such agreements (including an underwriting agreement) and take all such other actions in connection therewith in order to expedite or facilitate the disposition of such Registrable Securities and in connection therewith, whether or not an underwriting agreement is entered into and whether or not the registration is an Underwritten Registration, (1) make such representations and warranties to the Investor and each Pecuniary Owner, as applicable, and the underwriters, if any, in form, substance and scope as are customarily made by issuers to underwriters in primary underwritten offerings; (2) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the Investor and the managing underwriters, if any, covering the matters customarily covered in opinions requested in Underwritten Offerings and such other matters as may be reasonably requested by the Investor and the underwriters, if any; (3) obtain "cold comfort" letters and updates thereof from the Company's independent certified public accountants addressed to the Investor and the underwriters, if any, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters by underwriters in connection with primary Underwritten Offerings; (4) if an underwriting agreement is entered into, the same shall set forth in full the indemnification provisions and procedures of Section 6 hereof with respect to all parties to be indemnified pursuant to said Section; and (5) deliver such documents and certificates as may be reasonably requested by the Investor and the managing underwriters, if any, to evidence compliance with clause (1) above and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company. The above shall be done at each closing under such underwriting or similar agreement or as and to the extent required thereunder; (n) make available for inspection by a representative of the Investor, any underwriter participating in any disposition pursuant to such registration, and any attorney or accountant retained by the Investor or any underwriter, all financial and other records, pertinent corporate documents and properties of the Company and cause the Company's officers, trust managers and employees to supply all information reasonably requested by any such representative, underwriter, attorney or accountant in connection with such registration; provided that any records, information or documents that the Company designates in writing as confidential shall be kept confidential by such Persons unless disclosure of such records, information or documents is required by court or administrative order; (o) otherwise use its commercially reasonable efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering a period of 12 months, beginning within three 10 months after the effective date of the registration statement, which earnings statement shall satisfy the provisions of section 11(a) of the Securities Act; and (p) cooperate with the Investor and each underwriter participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc. (the "NASD"). The Company may require the Investor or each Pecuniary Owner, as applicable, to furnish to the Company such information regarding the distribution of Registrable Securities as the Company may from time to time reasonably request in writing. The Investor agrees by acquisition of the Registrable Securities that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 4(1) hereof, the Investor will forthwith discontinue disposition of Registrable Securities until the Investor's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 4(1) hereof, or until it is advised in writing (the "ADVICE") by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in the Prospectus, and, if so directed by the Company, the Investor will deliver to the Company (at the Company's expense), all copies, other than permanent file copies then in the Investor's possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice. In the event the Company shall give any such notice, the time periods regarding the effectiveness of Registration Statements set forth in Section 2 hereof and Section 4(b) hereof shall be extended by the number of days during the period from and including the date of the giving of such notice pursuant to Section 4(c)(6) hereof to the date when the Investor shall receive copies of the supplemented or amended prospectus contemplated by Section 4(1) hereof or the Advice. 5. Registration Expenses. All expenses incident to the Company's performance of or compliance with this Agreement, including without limitation: all registration and filing fees; fees with respect to filings required to be made with the NASD; fees and expenses of compliance with securities or blue sky laws (including reasonable fees and disbursements of counsel for the underwriters or the Investor in connection with blue sky qualifications of the Registrable Securities and determination of their eligibility for investment under the laws of such jurisdictions as the managing underwriters and the Investor may designate); printing expenses, messenger, telephone and delivery expenses; fees and disbursements of counsel for the Company and fees and expenses for independent certified public accountants retained by the Company (including the expenses of any comfort letters or costs associated with the delivery by independent certified public accountants of a comfort letter or comfort letters requested pursuant to Section 4(n) hereof); securities acts liability insurance, if the Company so desires; all internal expenses of the Company (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties); the expense of any annual audit; the fees and expenses incurred in connection with the listing of the securities to be registered on each securities exchange on which similar securities issued by the Company are then listed; and the fees and expenses of any Person, including special experts, retained by the Company (all such expenses being herein called "REGISTRATION EXPENSES") will be borne by the Company regardless of whether the Registration Statement becomes effective. The 11 Company shall also reimburse the Investor for the fees and expenses of counsel incurred in connection with the transactions contemplated in the Purchase Agreement and the preparation of this Agreement, up to a maximum aggregate amount of $25,000. The Company shall not have any obligation to pay any underwriting fees, discounts or commissions attributable to the sale of Registrable Securities, or any legal fees and expenses of counsel to the Investor, except as expressly provided herein. 6. Indemnification: Contribution. (a) Indemnification by Company. The Company agrees to indemnify and hold harmless the Investor and each Pecuniary Owner and their respective partners, officers, directors, employees and agents, and each Person who controls any such Persons (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) against all losses claims, damages, liabilities and expenses arising out of or based upon any untrue or alleged untrue statement of a material fact contained in any Registration Statement, Prospectus or preliminary prospectus or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same are caused by or contained in any information furnished in writing to the Company by the Investor or such Pecuniary Owner, as the case may be, expressly for use therein. The Company will also indemnify underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, their officers and trust managers and each Person who controls such Persons (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) to the same extent as provided above with respect to the indemnification of the Investor, and each Pecuniary Owner, if requested. (b) Indemnification By Holder of Registrable Securities. The Investor and each Pecuniary Owner, severally and not jointly, agrees to indemnify and hold harmless the Company and its trust managers, officers, employees and agents, and each Person who controls the Company (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue statement of a material fact or any omission of a material fact required to be stated in the Registration Statement or Prospectus or preliminary prospectus or necessary to make the statements therein not misleading, to the extent, but only to the extent, that such untrue statement or omission is contained in any information or affidavit so furnished in writing by the Investor, as agent for and on behalf of each Pecuniary Owner, to the Company specifically for inclusion in such Registration Statement or Prospectus. In no event shall the liability of the Investor or any Pecuniary Owner hereunder be greater in amount than the dollar amount of the proceeds received by such Person upon the sale of the Registrable Securities giving rise to such indemnification obligation. The Company shall be entitled to receive indemnities from underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, to the same extent as provided above with respect to information so furnished in writing by such Persons specifically for inclusion in any Prospectus or Registration Statement. (c) Conduct of Indemnification Proceedings. Any Person entitled to indemnification hereunder will (i) give prompt notice to the indemnifying party of any claim with 12 respect to which it seeks indemnification and (ii) permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided, however that any Person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such Person unless (a) the indemnifying party has agreed to pay such fees or expenses, (b) the indemnifying party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory to such Person or (c) based upon written advice of counsel to such Person, there shall be one or more defenses available to such Person that are not available to the indemnifying party or there shall exist conflicts of interest pursuant to applicable rules of professional conduct between such Person and the indemnifying party (in which case, if the Person notifies the indemnifying party in writing that such Person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such claim on behalf of such Person), in each of which events the fees and expenses of such counsel shall be at the expense of the indemnifying party. The indemnifying party will not be subject to any liability for any settlement made without its consent (but such consent will not be unreasonably withheld), but if settled with its written consent, or if there be a final judgment for the plaintiff in any such action or proceeding, the indemnifying party shall indemnify and hold harmless the indemnified parties from and against any loss or liability (to the extent stated above) by reason of such settlement or judgment. No indemnified party will be required to consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. (d) Contribution. If for any reason the indemnification provided for in the preceding clauses (a) and (b) is unavailable to an indemnified party or insufficient to hold it harmless as contemplated by the preceding clauses (a) and (b), then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect not only the relative benefits received by the indemnified party and the indemnifying party, but also the relative fault of the indemnified party and the indemnifying party, as well as any other relevant equitable considerations, provided, that neither the Investor nor any Pecuniary Owner shall be required to contribute an amount greater than the dollar amount of the proceeds received by such Person with respect to the sale of the Registrable Securities giving rise to such indemnification obligation. The relative fault of the Company on the one hand and of the Investor and each Pecuniary Owner on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such party, and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 10(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentations. 7. Rule 144. The Company hereby agrees that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder (or, if the Company is not required to file such reports, it will, upon the request of the Investor, make publicly available other information so long as necessary to permit sales pursuant 13 to Rule 144 under the Securities Act), and it will take such further action as the Investor may reasonably request, all to the extent required from time to time to enable the Investor to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the SEC. Upon the request of the Investor, the Company will deliver to the Investor a written statement as to whether it has complied with such information and requirements. 8. Participation in Underwritten Registrations. (a) If any of the Registrable Securities covered by the Shelf Registration are to be sold in an Underwritten Offering (excluding under Section 2(c)), the investment banker or investment bankers and manager or managers that will administer the offering will be selected by the Investor holding in the aggregate in excess of 50% of the Registrable Securities covered thereby; provided that such investment bankers and managers must be reasonably satisfactory to the Company. (b) No Person may participate in any Underwritten Registration hereunder unless such Person (i) agrees to sell such Person's securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. Nothing in this Section 8 shall be construed to create any additional rights regarding the registration of Registrable Securities in any Person otherwise than as set forth herein. 9. Miscellaneous. (a) Remedies. Each party hereto, in addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement to the extent available under applicable law. Each party hereto agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. (b) Third Party Registration Rights. The Company will not on or after the date of this Agreement, enter into any agreement granting registration rights to any other Person with respect to the securities of the Company that are not junior or subordinate to the rights granted to the Investor hereunder without the written consent of the Investor. The Company has not previously entered into any agreement with respect to its securities granting any registration rights to any Person, other than the Registration Rights Agreement, dated as of December 19, 1996, between the Company and Realco and the Registration Rights Agreement dated as of July 8, 1997, between the Company and the Purchasers. The Company hereby represents and warrants to the Investor that it has obtained all necessary consents or waivers of Realco and the Purchasers in connection with the execution of this Agreement and the consummation of the transactions contemplated hereby. 14 (c) Investor as Agent. (i) The Company acknowledges and agrees that each of the Pecuniary Owners has initially appointed the Investor to act as its agent and on its behalf in connection with the matters contemplated by this Agreement. Until such time as the Company shall have received a written notice from any Pecuniary Owner or the Investor that the Investor is no longer acting as such Pecuniary Owner's agent hereunder, the Company shall be entitled to rely on any instructions and notices received from the Investor on behalf of Pecuniary Owner as if received from such Pecuniary Owner directly. The parties hereto further acknowledge and agree that Investor shall act solely as agent for and on behalf of the Pecuniary Owners in connection with the matters set forth in this Agreement, and that the Investor shall not, under any circumstances, have any liability to the Company in its individual capacity arising out of or in connection with this Agreement or the transactions contemplated hereby. (ii) In the event that any Pecuniary Owner shall at anytime subsequent to the date hereof appoint a successor agent to the Investor in connection with the matters set forth in this Agreement, such successor shall be entitled to, and to exercise on behalf of such Pecuniary Owner, all of the rights and remedies provided for herein with respect to the Investor or such Pecuniary Owner, as the case may be, and the rights and remedies of such Pecuniary Owner hereunder shall not in any way be modified, limited, delayed or impaired as a consequence of such appointment. (iii) The provisions of Sections 5, 6 and of this Section 9(c) shall remain in full force and effect with respect to the Investor notwithstanding any termination of the Investor's appointment as agent for and on behalf of any or all of the Pecuniary Owners hereunder. (iv) Reference herein to the Investor "holding" Registrable Securities shall mean holding such securities, as agent for and on behalf of the Pecuniary Owners. (d) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given without the written consent of the Company, Pecuniary Owners and, for so long as the Investor shall act as agent for and on behalf of any of the Pecuniary Owners, the Investor; provided, that the provisions of Sections 5, 6, and 9(c) may not, under any circumstances and notwithstanding any termination of the Investor's appointment as agent for and on behalf of any or all of the Pecuniary Owners hereunder, be amended, modified, supplemented or waived without the written consent of the Investor. (e) Notices. The notice provisions contained in Section 12.11 of the Purchase Agreements shall be incorporated herein and shall be governing under this Agreement. (f) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent holders of Registrable Securities, provided further, that the Company cannot assign its rights hereunder except pursuant to a merger. (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall 15 be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) Governing Law. THIS AGREEMENT, AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO, SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL SUBSTANTIVE LAWS OF THE STATE OF MARYLAND, WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAWS. (j) Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any current or future law, and if the rights or obligations of the parties under this Agreement would not be materially and adversely affected thereby, such provision shall be fully separable, and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part thereof, and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance therefrom. In lieu of such illegal, invalid or unenforceable provision, there shall be added simultaneously as a part of this Agreement, a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible, and the parties hereto request the court or any arbitrator to whom disputes relating to this Agreement are submitted to reform the otherwise illegal, invalid or unenforceable provision in accordance with this Section 9(j). (k) Arbitration. In the event of a dispute hereunder which cannot be resolved by the parties, such dispute shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association and judgment on the award rendered by the arbitration panel may be entered in any court or tribunal of competent jurisdiction. Any arbitration occurring under this Section 9(k) shall be held in Baltimore, Maryland in the first instance, in Dallas, Texas in the second instance, and continuing in that order with respect to each dispute occurring hereunder. (l) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. In any proceeding brought to enforce any provision of this Agreement the successful party shall be entitled to recover reasonable attorneys' fees in addition to its costs and expenses and any other available remedy. 16 IN WITNESS WHEREOF, the parties hereto have executed this Registration Rights Agreement as of the date first written above. "COMPANY" AMERICAN INDUSTRIAL PROPERTIES REIT By: ------------------------------------- Charles W. Wolcott President and Chief Executive Officer "INVESTOR" LaSalle Advisors Limited Partnership as agent for and on behalf of the Pecuniary Owners ---------------------------------------- Stanley J. Kraska, Jr. Managing Director EX-99.1 12 FINAL REPORT OF INSPECTORS OF ELECTION 1 EXHIBIT 99.1 AMERICAN INDUSTRIAL PROPERTIES REIT CERTIFICATE OF INSPECTOR The undersigned Inspector of Election for the Annual Meeting of shareholders of American Industrial properties REIT held on June 30, 1997, does hereby certify: 1. A total of 10,000,000 shares of common stock of the company were entitled to vote at the meeting. 2. The holders of at least 8,164,759 shares of common stock of the Company entitled to vote were present, in person or by proxy, at the meeting, constituting a quorum for the transaction of all business considered at the meeting. 3. Authorization of additional Common Shares. FOR: 6,981,043 AGAINST: 1,100,958 ABSTAIN: 82,758 4. Adoption of the Third Amended and Restated Declaration of Trust which includes provisions limiting share ownership, dealing with business combinations, allowing dividends to be paid in cash or shares and allowing the Board to take any action necessary to preserve the Trust's REIT status. FOR: 7,109,419 AGAINST: 949,729 ABSTAIN: 105,611 ---------- ---------- --------- 5. Authorization of Preferred Shares. FOR: 6,736,036 AGAINST: 1,317,008 ABSTAIN: 111,715 ---------- ---------- --------- 6. Elimination of Cumulative Voting. FOR: 6,801,305 AGAINST: 1,236,479 ABSTAIN: 126,974 ---------- ---------- --------- 7. Conversion of debt to USAA REALCO into Common Shares and, if proposal one is not approved, authorization of additional Common Shares to permit such conversion. FOR: 7,206,715 AGAINST: 867,272 ABSTAIN: 90,772 ---------- ---------- --------- 8. Conversion of debt to Morgan Stanley affiliates and clients into Common Shares and, if proposal one is not approved, authorization of additional Common Shares to permit such conversion. FOR: 7,193,272 AGAINST: 867,532 ABSTAIN: 103,955 ---------- ---------- --------- 9. Issuance of up to $15 million of convertible debt securities and, if proposal one is not approved, authorization of additional Common Shares to permit such conversion. FOR: 6,915,641 AGAINST: 1,142,203 ABSTAIN: 103,955 ---------- ---------- --------- 10. Adoption of Employee and Trust Manager Incentive Plan. FOR: 6,751,846 AGAINST: 1,281,834 ABSTAIN: 131,080 ---------- ---------- --------- 2 11. Election of Trust Managers.
Withhold Withhold For All Authority Authority Nominees Nominees All Nominees Individual Total - -------------------------------------------------------------------------------- William H. Bricker 9,215,881 338,965 68,779 9,623,625 - -------------------------------------------------------------------------------- T. Patrick Duncan 9,256,995 338,965 27,665 9,623,625 - -------------------------------------------------------------------------------- Robert E. Giles 9,240,266 338,965 44,394 9,623,625 - -------------------------------------------------------------------------------- Edward B. Kelly 9,257,670 338,965 26,990 9,623,625 - -------------------------------------------------------------------------------- Charles W. Wolcott 9,208,841 338,965 75,819 9,623,625 - --------------------------------------------------------------------------------
12. Ratification of selection of Ernst & Young LLP as independent auditors. FOR: 9,479,693 AGAINST: 90,315 ABSTAIN: 53,219 ----------- ---------- ---------- 13. Postponement or adjournment of the Annual Meeting for the solicitation of additional votes if necessary. FOR: 8,367,838 AGAINST: 1,133,297 ABSTAIN: 122,089 ---------- ---------- ---------- IN WITNESS WHEREOF, I have hereunto set my hand this 30th day of June 1997. /s/ HARRIET C. YATES -------------------------- Harriet C. Yates, Inspector -----END PRIVACY-ENHANCED MESSAGE-----