-----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, MyCbvH6YIFl1ZNeullfPbGPmdvrVyHT2a9aaSkLgc3mxblNsmBp8VOGTm7sxmWEU CPhE70lKK8VGz2vVi5pCJw== 0000950134-98-006339.txt : 19980806 0000950134-98-006339.hdr.sgml : 19980806 ACCESSION NUMBER: 0000950134-98-006339 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19980730 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980805 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: SEC FILE NUMBER: 001-09016 FILM NUMBER: 98677320 BUSINESS ADDRESS: STREET 1: 6210 N BELTLINE RD STREET 2: STE 170 CITY: IRVING STATE: TX ZIP: 75063 BUSINESS PHONE: 9727566000 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 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 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): July 30, 1998 AMERICAN INDUSTRIAL PROPERTIES REIT (Exact Name of Registrant as Specified in its Charter) Texas 1-9016 75-6335572 (State or Other Jurisdiction of (Commission File (I.R.S. Employer Incorporation or Organization) Number) Identification No.) 6210 North Beltline Road, Suite 170, Irving, Texas 75063-2656 (Address of Principal Executive Offices) (ZIP Code) Registrant's telephone number, including area code: (972)756-6000 Not applicable (Former Name or Former Address, if Changed Since Last Report) 2 ITEM 5. OTHER EVENTS. On August 3, 1998, American Industrial Properties REIT (the "Trust") entered into a definitive agreement providing for a strategic investment by Developers Diversified Realty Corporation ("DDR") in the Trust. Under the terms of the Share Purchase and Merger Agreements (the "Agreements"), dated to be effective as of July 30, 1998, DDR will acquire approximately $115 million of newly issued common shares of beneficial interest at $15.50 per share. The investment will be made in two or more fundings. DDR made an initial purchase of 949,147 shares for $14.7 million and additionally acquired 1,258,477 shares in exchange for five properties previously owned by DDR and valued at approximately $19.5 million. The total shares acquired represent 19.9% of the Trust's outstanding shares. DDR will purchase an additional 5,226,583 shares for $81.0 million, increasing its ownership to 40.0% of the Trust's shares on a fully-diluted basis, following shareholder approval at a Special Meeting of Shareholders to be held before the end of 1998, to fund property acquisitions. The funds provided by DDR's investment will be used to continue the Trust's strategy of consolidating the highly fragmented light industrial property sector. The Trust acquired the five industrial properties ("DDR Portfolio") under a merger agreement between the Trust and DDR Office Flex Corporation, a wholly owned subsidiary of DDR. The five properties, consisting of light and bulk industrial space totaling approximately 464,000 square feet, are located in the Cleveland, Ohio area and represent the Trust's entry into the Ohio market. Tenant sizes range from 6,426 square feet to 236,225 square feet, with major tenants including Hardline Services, Reynolds Aluminum, VSA, and Steris. The DDR Portfolio includes the following properties: (1) HARDLINE SERVICES BUILDING. Hardline Services Building ("Hardline") is comprised of one building located on 20.0 acres in Aurora, Ohio and contains 236,225 square feet of bulk industrial space. Hardline is 100% leased to one tenant. Hardline was constructed in 1974 with a 100,000 square foot addition completed in 1993. (2) HERITAGE VSA BUILDING. Heritage VSA Building ("Heritage VSA") is comprised of one building located on 3.9 acres in Twinsburg, Ohio and contains 85,800 square feet of bulk industrial space. Heritage VSA is 100% leased to one tenant. Heritage VSA was constructed in 1989. (3) ALUMAX BUILDING. Alumax Building ("Alumax") is comprised of one building on 5.0 acres in Streetsboro, Ohio and contains 66,200 square feet of bulk industrial space. Alumax is 100% leased to one tenant. Alumax was constructed in 1982. (4) STERIS BUILDING. Steris Building ("Steris") consists of one building located on 5.7 acres in Mentor, Ohio and contains 40,200 square feet of bulk industrial space. Steris is 100% leased to one tenant. Steris was constructed in 1980. (5) HERITAGE BUSINESS CENTER. Heritage Business Center ("Heritage") is comprised of one building located on 6.8 acres in Twinsburg, Ohio and contains 35,502 square feet of light industrial space. Heritage is 100% leased to four tenants. Heritage was constructed in 1990. After the acquisition of the DDR Portfolio, the Trust now owns, directly or through operating partnerships, 52 real estate properties in 13 states. The Trust's industrial properties are concentrated in the Texas market with 23 of the 40 industrial properties located in the Dallas, Austin and Houston areas. The office buildings are primarily located in the west with three of the ten located in California. The two retail properties are located in Colorado and Florida. Concurrent with entering into the Agreements, the Trust increased its Board of Trust Managers by four positions and appointed DDR designees Scott A. Wolstein, Albert T. Adams, Robert H. Gidel and James A. Schoff to the Board. Mr. Wolstein has been named Chairman of the Board of Trust Managers. 3 ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) Financial Statements of Businesses Acquired. Financial statements will be filed within sixty (60) days from the date this report is filed. (b) Pro forma Financial Information. Pro forma financial information will be filed within sixty (60) days from the date this report is filed. (c) Exhibits: *2.1 Agreement and Plan of Merger by and among the Trust, Developers Diversified Realty Corporation ("DDR") and DDR Office Flex Corporation ("DDR Flex") dated July 30, 1998. *3.1 Statement of Designation of Series A Preferred Shares of Beneficial Interest of the Trust dated July 30, 1998. *10.1 Share Purchase Agreement by and between the Trust and DDR dated July 30, 1998. *10.2 Demand Promissory Note dated July 30, 1998. *10.3 Second Amended and Restated Registration Rights Agreement by and among the Trust, MS Real Estate Special Situations, Inc. ("MSRE") and Morgan Stanley Asset Management Inc. ("MSAM") dated July 30, 1998. *10.4 Second Amended and Restated Registration Rights Agreement by and between the Trust and USAA Real Estate Company ("USAA") dated July 30, 1998. *10.5 Registration Rights Agreement by and between the Trust and DDR dated July 30, 1998. *10.6 First Amended and Restated Registration Rights Agreement by and between the Trust and Praedium II Industrial Associates LLC ("Praedium") dated July 30, 1998. *10.7 Second Amended and Restated Registration Rights Agreement by and among the Trust, ABKB/LaSalle Securities Limited Partnership ("ABKB") and LaSalle Advisors Limited Partnership ("LaSalle") dated July 30, 1998. *10.8 Letter Agreement by and between MSRE/MSAM and DDR dated July 30, 1998. *10.9 Letter Agreement by and among ABKB, LaSalle and DDR dated July 30, 1998. *10.10 Letter Agreement by and between Praedium and DDR dated July 30, 1998. *10.11 Letter Agreement by and between USAA and DDR dated July 30, 1998. - -------------------- *Filed herewith. 4 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 By: /s/ Charles W. Wolcott ---------------------------------------- Charles W. Wolcott President and Chief Executive Officer Dated: August 5, 1998 5 EXHIBIT LIST *2.1 Agreement and Plan of Merger by and among the Trust, Developers Diversified Realty Corporation ("DDR") and DDR Office Flex Corporation ("DDR Flex") dated July 30, 1998. *3.1 Statement of Designation of Series A Preferred Shares of Beneficial Interest of the Trust dated July 30, 1998. *10.1 Share Purchase Agreement by and between the Trust and DDR dated July 30, 1998. *10.2 Demand Promissory Note dated July 30, 1998. *10.3 Second Amended and Restated Registration Rights Agreement by and among the Trust, MS Real Estate Special Situations, Inc. ("MSRE") and Morgan Stanley Asset Management Inc. ("MSAM") dated July 30, 1998. *10.4 Second Amended and Restated Registration Rights Agreement by and between the Trust and USAA Real Estate Company ("USAA") dated July 30, 1998. *10.5 Registration Rights Agreement by and between the Trust and DDR dated July 30, 1998. *10.6 First Amended and Restated Registration Rights Agreement by and between the Trust and Praedium II Industrial Associates LLC ("Praedium") dated July 30, 1998. *10.7 Second Amended and Restated Registration Rights Agreement by and among the Trust, ABKB/LaSalle Securities Limited Partnership ("ABKB") and LaSalle Advisors Limited Partnership ("LaSalle") dated July 30, 1998. *10.8 Letter Agreement by and between MSRE/MSAM and DDR dated July 30, 1998. *10.9 Letter Agreement by and among ABKB, LaSalle and DDR dated July 30, 1998. *10.10 Letter Agreement by and between Praedium and DDR dated July 30, 1998. *10.11 Letter Agreement by and between USAA and DDR dated July 30, 1998. - -------------------- *Filed herewith. EX-2.1 2 AGREEMENT & PLAN OF MERGER 1 EXHIBIT 2.1 - -------------------------------------------------------------------------------- AGREEMENT AND PLAN OF MERGER among AMERICAN INDUSTRIAL PROPERTIES REIT, DEVELOPERS DIVERSIFIED REALTY CORPORATION and DDR OFFICE FLEX CORPORATION dated as of July 30, 1998 - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
Page ---- ARTICLE 1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE 2 THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Section 2.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Section 2.2 Closing; Effective Time of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Section 2.3 Certificate of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Section 2.4 Effect of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE 3 MERGER CONSIDERATION; STATUS AND CONVERSION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Section 3.1 Conversion or Cancellation of Shares in the Merger . . . . . . . . . . . . . . . . . . . . 5 Section 3.2 Payment for Buyer Sub Shares in the Merger . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 3.3 No Further Ownership Rights in Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 3.4 Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER AND BUYER SUB . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 4.1 Organization and Qualification; Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . 7 Section 4.2 Authority Relative to Agreements; Board Approval . . . . . . . . . . . . . . . . . . . . . 8 Section 4.3 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 4.4 No Conflicts; No Defaults; Required Filings and Consents . . . . . . . . . . . . . . . . . 9 Section 4.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 4.6 Litigation; Compliance With Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 4.7 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 4.8 Tax Matters; REIT & Partnership Status . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 4.9 Compliance with Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 4.10 Financial Records; Certificate of Incorporation and By-laws; Corporate Records . . . . . . 14 Section 4.11 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 4.12 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 4.13 Employees and Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 4.14 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 4.15 Confirmation of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . 22 Section 4.16 Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 4.17 Affiliate Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 4.18 Knowledge Defined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 ARTICLE 5 REPRESENTATION AND WARRANTY OF THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 5.1 Confirmation of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . 23 ARTICLE 6 JOINT COVENANT OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 6.1 Section 368(a) Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
-i- 3 ARTICLE 7 CERTAIN ADDITIONAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 7.1 Confirmation of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 7.2 Resale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 7.3 Legends; Stop Transfer Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 7.4 Post-Closing Delivery of Preferred Shares . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 7.6 Liability of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 7.7 Title Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE 8 CLOSING DELIVERIES AND CLOSING CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 8.1 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 8.2 Conditions to Closing for Buyer and Buyer Sub . . . . . . . . . . . . . . . . . . . . . . . 26 Section 8.3 Conditions to Closing for the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 ARTICLE 9 SURVIVAL; INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 9.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 9.2 Indemnification by Buyer or the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 9.3 Third-Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 ARTICLE 10 TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 10.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 10.2 Procedure and Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 ARTICLE 11 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 11.1 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 11.2 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 11.3 Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 11.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 11.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 11.6 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 11.7 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 11.8 Interpretation; Absence of Presumption . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 11.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 11.10 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 11.11 Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
-ii- 4 SCHEDULES Schedule 4.3(a) Shareholder List Schedule 4.4(d) Defaults Schedule 4.6(a) Litigation; Compliance with Law Schedule 4.7 Absence of Certain Changes or Events Schedule 4.9(c) Indebtedness; Joint Venture and Partnership Agreements Schedule 4.9(d) Development, Construction, Management and Leasing Arrangements Schedule 4.9(e) Other Material Agreements Schedule 4.10(a) Corporate Records Schedule 4.11(a) Properties Schedule 4.11(b) Property Violations/Engineering Reports Schedule 4.11(c) Property Road Changes Schedule 4.11(f) Material Lease Information Schedule 4.11(g) Property Letters of Intent or Similar Understandings Schedule 4.11(h) Property Rights of First Refusal Schedule 4.11(i) Property Noncompliance and Capital Expenditure Budget and Schedule Schedule 4.12(a) Environmental Permits Schedule 4.12(e) Environmental Concerns Schedule 4.12(f) Environmental Reports Schedule 4.14 Collective Bargaining; Labor Union Agreements Schedule 4.17 Individuals for Knowledge Test Schedule 5.4(d) Conflicts, Violations and Defaults EXHIBITS Exhibit A Trust Declaration Exhibit B Buyer Sub Certificate -iii- 5 THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of July 30, 1998, is made among American Industrial Properties REIT, a Texas real estate investment trust (the "Trust"), Developers Diversified Realty Corporation, an Ohio corporation ("Buyer"), and DDR Office Flex Corporation, a Delaware corporation and a private REIT ("Buyer Sub"). RECITALS: WHEREAS, the Trust wishes to acquire, and Buyer wishes to sell, Buyer Sub in a tax-free merger transaction pursuant to Section 368(a) of the Code in exchange for an aggregate of 1,258,478 of the Trust's common shares of beneficial interest, $0.10 par value ("Trust Common Shares"), having the terms set forth in the Third Amended and Restated Declaration of Trust attached as Exhibit A (the "Trust Declaration"); and WHEREAS, Buyer and the Trust are entering into this Agreement to provide for such merger and to establish various rights and obligations in connection with this Agreement and the Share Purchase Agreement of even date herewith between the Trust and Buyer (the "Purchase Agreement"); NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto hereby agree as follows: ARTICLE 1 DEFINITIONS Capitalized terms used herein, but not defined herein, shall have the meanings ascribed to them in the Purchase Agreement. As used in this Agreement, the following terms have the following respective meanings: "Abstracts" has the meaning set forth in Section 4.11(f). "Buyer" has the meaning set forth in the first paragraph hereof. "Buyer Sub" has the meaning set forth in the first paragraph hereof. "Buyer Sub Board" means the board of directors of Buyer Sub. -1- 6 "Buyer Sub By-laws" means the By-laws of Buyer Sub. "Buyer Sub Certificate" means the Certificate of Incorporation of Buyer Sub in the form attached hereto as Exhibit B. "Buyer Sub Reports" has the meaning set forth in Section 4.10(a). "Buyer Sub Shares" means the Nonvoting Common Shares, the Voting Common Shares and the Preferred Shares of Buyer Sub issued and outstanding immediately prior to the Effective Time. "Capital Expenditure Budget and Schedule" has the meaning set forth in Section 4.11(i). "Certificates" has the meaning set forth in Section 3.2(b). "Certificate of Merger" has the meaning set forth in Section 2.2. "Closing" has the meaning set forth in Section 2.2. "Closing Date" has the meaning set forth in Section 2.2. "Commitment" has the meaning set forth in Section 4.7. "Cure Notice" has the meaning set forth in Section 2.5(b). "DGCL" has the meaning set forth in Section 2.1. "Effective Time" has the meaning set forth in Section 2.2. "Employee Benefit Plans" has the meaning set forth in Section 4.12(h). "Environmental Claim" has the meaning set forth in Section 4.12(g)(ii). "Environmental Laws" has the meaning set forth in Section 4.12(g)(iii). "Environmental Permits" has the meaning set forth in Section 4.12(a). "Environmental Reports" has the meaning set forth in Section 4.12(a). "Executive Summaries of Environmental Reports" has the meaning set forth in Section 4.12(f). -2- 7 "Indemnified Party" has the meaning set forth in Section 9.3. "Insurance Policies" has the meaning set forth in Section 4.5. "Leases" has the meaning set forth in Section 4.11(f). "Loss and Expense" has the meaning set forth in Section 9.2(a). "Material Adverse Effect" means a material adverse effect on the financial condition, results of operations, business or prospects of Buyer Sub, Office Flex I and Office Flex II, taken as a whole. "Material Leases" has the meaning set forth in Section 4.11(f). "Materials of Environmental Concern" has the meaning set forth in Section 4.12(g)(iv). "Merger" has the meaning set forth in Section 2.1. "Merger Shares" has the meaning set forth in Section 3.1(c). "Nonvoting Common Consideration" has the meaning set forth in Section 3.1(a). "Nonvoting Common Shares" has the meaning set forth in Section 3.1(a). "Office Flex I" has the meaning set forth in Section 4.1(b). "Office Flex II" has the meaning set forth in Section 4.1(b). "Permitted Liens" means (i) Liens (other than Liens imposed under ERISA or any Environmental Law or in connection with any Environmental Claim) for taxes or other assessments or charges of Governmental Authorities that are not yet delinquent or that are being contested in good faith by appropriate proceedings in each case, and with respect to which adequate reserves or other appropriate provisions are being maintained by Buyer Sub, Office Flex I or Office Flex II to the extent required by GAAP, (ii) statutory Liens of landlords, carriers, warehousemen, mechanics, materialmen and other Liens (other than Liens imposed under ERISA or any Environmental Law or in connection with any Environmental Claim) imposed by law and created in the ordinary course of business for amounts not yet overdue or which are being contested in good faith by appropriate proceedings, and in each case with respect to which adequate reserves or other appropriate provisions are being maintained by -3- 8 Buyer Sub, Office Flex I or Office Flex II to the extent required by GAAP and which do not exceed $25,000 in the aggregate, (iii) the Leases, (iv) easements, rights-of-way and covenant restrictions which are customary and typical for properties similar to the Properties and which do not (x) interfere materially with the ordinary conduct of any Property or the business of Buyer Sub, Office Flex I and Office Flex II taken as a whole or (y) detract materially from the value or usefulness of the Property to which they apply, (v) the Liens which were granted by Buyer Sub, Office Flex I or Office Flex II to lenders pursuant to credit agreements in existence on the date hereof which are described in Schedule 4.9(c), and (vi) such imperfections of title and encumbrances, if any, as would not individually or in the aggregate reasonably be expected to result in a Material Adverse Effect. "Preferred Shares" has the meaning set forth in Section 3.1(c). "Property" and "Properties" have the meanings set forth in Section 4.11(a). "Property Restrictions" has the meaning set forth in Section 4.11(a). "Purchase Agreement" has the meaning set forth in the second paragraph of the Recitals to this Agreement. "REIT" has the meaning set forth in Section 4.8(b). "Release" has the meaning set forth in Section 4.12(g)(v). "Rent Roll" has the meaning set forth in Section 4.11(f). "Shareholders" means the holders of all of the issued and outstanding shares of capital stock of Buyer Sub. "Surviving Corporation" has the meaning set forth in Section 2.1. "TREITA" has the meaning set forth in Section 2.1. "Trust" has the meaning set forth in the first paragraph of this Agreement. "Trust Declaration" means the Third Amended and Restated Declaration of Trust of the Trust attached hereto as Exhibit A. "Voting Common Consideration" has the meaning set forth in Section 3.1(b). -4- 9 "Voting Common Shares" has the meaning set forth in Section 3.1(b). ARTICLE 2 THE MERGER Section 2.1 The Merger. On the terms and subject to the conditions hereof, at the Effective Time and in accordance with the Texas Real Estate Investment Trust Act (the "TREITA") and the General Corporation Law of the State of Delaware (the "DGCL"), Buyer Sub shall be merged with and into the Trust (the "Merger") which shall be the surviving entity of the Merger (the "Surviving Corporation"). At the Effective Time, the separate existence of Buyer Sub shall cease and the Surviving Corporation shall continue in existence under the TREITA. Section 2.2 Closing; Effective Time of Merger. The closing of the Merger (the "Closing") shall take place at 10:00 a.m., local time, at the offices of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P., 2001 Ross Avenue, Suite 3000, Dallas, Texas 75201, on the Business Day following the satisfaction or waiver of the last to be satisfied or waived of the conditions set forth in Sections 8.2 and 8.3 (other than those conditions that are to be satisfied concurrently with the Closing), or on such other date or at such other time and place as the parties shall agree on in writing (the "Closing Date"). At the Closing the parties hereto shall cause a certificate of merger (the "Certificate of Merger") to be executed and filed with each of the County Recorder of Dallas County, Texas, and the Secretary of State of the State of Delaware in accordance with the DGCL. The Merger shall become effective as of the date and time (the "Effective Time") of the last of such filings or such later time as may be specified in the Certificate of Merger. Section 2.3 Certificate of Incorporation. The Certificate of Merger shall provide that, at the Effective Time, the Trust Declaration of the Trust shall be the Trust Declaration of the Surviving Corporation. Section 2.4 Effect of the Merger. Subject to the foregoing, the effects of the Merger shall be as provided in the applicable provisions of the TREITA and the DGCL. ARTICLE 3 MERGER CONSIDERATION; STATUS AND CONVERSION OF SHARES Section 3.1 Conversion or Cancellation of Shares in the Merger. On the terms and subject to the conditions of this Agreement, at the Effective Time, by virtue of the Merger and without any action on the part of the holders thereof, the shares -5- 10 of Buyer Sub shall automatically be converted or canceled, as the case may be, in the following manner: (a) Each outstanding share of Buyer Sub's Class B Nonvoting Common Stock, $.01 par value per share (the "Nonvoting Common Shares"), shall be converted into the right to receive 2,515.6657 Trust Common Shares from the Trust (the "Nonvoting Common Consideration"). (b) Each outstanding share of Buyer Sub's Class A Voting Common Stock, $.01 par value per share (the "Voting Common Shares"), shall be converted into the right to receive 6.4516 Trust Common Shares from the Trust (the "Voting Common Consideration" and together with the Nonvoting Common Consideration, the "Merger Shares"). (c) Each outstanding share of Buyer Sub's Nonvoting Preferred Stock, $.01 par value per share (the "Preferred Shares"), shall be converted into the right to receive $100.00 in cash or by check from the Trust. (d) At the Effective Time, any share of stock of Buyer Sub held in treasury immediately prior to the Effective Time shall be canceled and retired and no consideration shall be delivered with respect thereto. Section 3.2 Payment for Buyer Sub Shares in the Merger. The manner of making payment for, and conversion of, Buyer Sub Shares in the Merger shall be as follows: Within five Business Days of the Effective Time, Buyer shall surrender and deliver to the Trust the certificates representing the Voting Common Shares and the Nonvoting Common Shares with all necessary stock powers, share transfer and other documentary stamps attached and, within 30 days after the Effective Time, Buyer shall surrender and deliver to the Trust the certificates representing the Preferred Shares with all necessary stock powers, share transfer and other documentary stamps attached (all such certificates for the Nonvoting Common Shares, the Voting Common Shares, and the Preferred Shares together, the "Certificates"). Upon such surrender and delivery, each holder of Certificates shall receive (i) a certificate representing the number of whole Trust Common Shares into which the Nonvoting Common Shares and the Voting Common Shares owned by such Shareholder have been converted pursuant to Section 3.1 and a payment of cash in lieu of any fractional Share otherwise issuable to the Shareholder as provided in Section 3.4, or (ii) a payment in cash representing the consideration into which the Preferred Shares owned by such Shareholder have been converted pursuant to Section 3.1, as applicable. Until so surrendered, each Certificate shall represent solely the right to receive the Trust Common Shares or payment with respect to each of the Buyer Shares represented thereby. No interest will be paid or accrued on the cash payable upon the surrender of the Certificates. No dividends with respect to Trust Common Shares with a record date -6- 11 after the Effective Time shall be paid to the holder of any Certificate with respect to the Trust Common Shares represented thereby and no cash payment in lieu of fractional shares shall be paid to any Shareholder pursuant to Section 3.4, in each case until the surrender of such Certificate in accordance with this Article 3. Section 3.3 No Further Ownership Rights in Shares. All Merger Shares issued, or cash payments made, upon surrender of a Certificate in accordance with the terms hereof shall be deemed to have been issued in full satisfaction of all rights pertaining to the Buyer Sub Shares represented thereby, and there shall be no further registration of transfers on the stock transfer books of Buyer Sub of Buyer Sub Shares outstanding immediately prior to the Effective Time. Section 3.4 Fractional Shares. No fractional Trust Common Shares shall be issued in the Merger and fractional shares shall not entitle the owner thereof to vote or to any rights of a shareholder of the Trust. In lieu of any fractional Trust Common Shares that a Shareholder would otherwise be entitled to receive as a result of the Merger such fractional Trust Common Shares shall be aggregated and if a fractional Trust Common Share results from such aggregation, that Shareholder shall receive an amount in cash determined by multiplying $15.50 by the fraction of a Trust Common Share that such Shareholder would otherwise have been entitled to receive by virtue of the Merger. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER AND BUYER SUB Except for the representation and warranty made in Section 4.15, which is made only by Buyer, Buyer and Buyer Sub hereby severally represent and warrant to the Trust as follows: Section 4.1 Organization and Qualification; Subsidiaries. (a) Buyer Sub is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Buyer Sub has all requisite corporate power and authority to own, operate, lease and encumber its properties and carry on its business as now conducted, and to enter into this Agreement and to perform its obligations hereunder. (b) DDR Office Flex I LLC, an Ohio limited liability company ("Office Flex I"), and DDR Office Flex II LLC, an Ohio limited liability company ("Office Flex II"), are the only subsidiaries of Buyer Sub and each is a limited liability company duly organized, validly existing and in good standing under the laws of Ohio, and has the limited liability company power and authority to own the Properties and carry on its business as it is now being conducted. -7- 12 (c) Each of Buyer Sub, Office Flex I and Office Flex II is duly qualified to do business and in good standing in such jurisdictions in which the ownership of its property or the conduct of its business requires such qualification, except for any jurisdiction in which any failure to be so qualified or to be in good standing would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. (d) All of the issued and outstanding equity interests in each of Office Flex I and Office Flex II are duly authorized, validly issued, fully paid and nonassessable, and are owned by Buyer Sub free and clear of all Liens. Section 4.2 Authority Relative to Agreements; Board Approval. (a) The execution, delivery and performance of this Agreement and of all of the documents and instruments delivered in connection herewith by Buyer Sub are within the corporate power of Buyer Sub. This Agreement is, and the other documents and instruments required hereby will be, when executed and delivered by Buyer Sub, the valid and binding obligations of Buyer Sub, enforceable against Buyer Sub in accordance with their respective terms subject only to bankruptcy, insolvency, reorganization, moratorium or similar laws at the time in effect affecting the enforceability or right of creditors generally and to general equitable principles which may limit the right to obtain equitable remedies. (b) The Buyer Sub Board and the Shareholders with voting rights with respect to this Agreement have approved this Agreement and the transactions contemplated hereby. Section 4.3 Capital Stock. (a) The authorized capital stock of Buyer Sub consists of 100 Voting Common Shares, 500 Nonvoting Common Shares and 1500 Preferred Shares. As of the date hereof, there are 100 Voting Common Shares, 500 Nonvoting Common Shares and 237 Preferred Shares issued and outstanding. Each Shareholder owns the number of and class of Buyer Sub Shares set forth next to that Shareholder's name on Schedule 4.3(a). All such issued and outstanding Buyer Sub Shares are duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights. Buyer Sub has no outstanding bonds, debentures, notes or other obligations the holders of which have the right to vote (or which are convertible into or exercisable for securities the holders of which have the right to vote) with the Shareholders on any matter. There are no existing options, warrants, calls, subscriptions, convertible securities, or other rights, agreements or commitments which obligate Buyer Sub to issue, transfer or sell any shares of capital stock or other equity interests of Buyer Sub. (b) Neither of Office Flex I or Office Flex II has issued or granted securities convertible into interests in Buyer Sub and neither of Office Flex I or Office Flex II is a party to any outstanding commitment of any kind relating to, or any presently effective agreement or understanding with respect to, -8- 13 interests in Buyer Sub or in Office Flex I or Office Flex II, whether issued or unissued. (c) Except for Buyer Sub's interests in Office Flex I and Office Flex II, none of Buyer Sub, Office Flex I or Office Flex II owns directly or indirectly any interest or investment (whether equity or debt) in any corporation, partnership, joint business, trust or other legal entity (other than investments in short-term investment securities). Section 4.4 No Conflicts; No Defaults; Required Filings and Consents. Neither the execution and delivery by Buyer Sub hereof nor the consummation by Buyer Sub of the transactions contemplated hereby in accordance with the terms hereof, will: (a) conflict with or result in a breach of any provisions of the Buyer Sub Certificate or the Buyer Sub By-laws or of any governing instrument of either Office Flex I or Office Flex II; (b) result in a breach or violation of, a default under, or the triggering of any payment or other obligation pursuant to, or accelerate vesting under, any Buyer Sub, Office Flex I or Office Flex II stock option plan, option plan or similar compensation plan or any grant or award made under any of the foregoing; (c) violate or conflict with any statute, regulation, judgment, order, writ, decree or injunction applicable to Buyer Sub, Office Flex I or to Office Flex II; (d) except as described in Schedule 4.4(d), violate or conflict with or result in a breach of any provision of, or constitute a default (or any 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 upon any of the properties of Buyer Sub, Office Flex I or Office Flex II 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 franchise, permit, lease, contract, agreement or other instrument, commitment or obligation to which Buyer Sub, Office Flex I or Office Flex II is a party, or by which Buyer Sub, Office Flex I or Office Flex II or any of their properties is bound or affected; or (e) require any consent, approval or authorization of, or declaration, filing or registration with, any Government Authority, other than any required Filings, and any filings required to be made with the Delaware Department of Taxation. -9- 14 Section 4.5 Insurance. Buyer Sub maintains insurance policies covering the assets, business, equipment, properties, operations, employees, officers and managers of Buyer Sub, Office Flex I and Office Flex II (collectively, the "Insurance Policies") which are of a type and in amounts customarily carried by Persons similar in size to Buyer Sub conducting businesses similar to those of Buyer Sub. There is no material claim by Buyer Sub, Office Flex I or Office Flex II pending under any of the Insurance Policies as to which coverage has been questioned, denied or disputed by the underwriters of such policies. Section 4.6 Litigation; Compliance With Law. (a) Except as disclosed in Schedule 4.6(a), there are no Actions pending or, to Buyer's knowledge, threatened against Buyer Sub, Office Flex I or Office Flex II that would, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect, or which question the validity of this Agreement or of any action taken or to be taken in connection herewith. Except as disclosed in Schedule 4.6(a), there are no continuing orders, injunctions or decrees of any Government Authority to which Buyer Sub, Office Flex I or Office Flex II is a party or by which any of its properties or assets are bound. (b) None of Buyer Sub, Office Flex I or Office Flex II is in material violation of any statute, rule, regulation, order, writ, decree or injunction of any Government Authority or any body having jurisdiction over it or any of its properties which, if enforced, would, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. Section 4.7 Absence of Certain Changes or Events. Except as disclosed in Schedule 4.7 or in any Buyer Sub Report, since the date of formation of each of Buyer Sub, Office Flex I and Office Flex II, each has conducted its business only in the ordinary course of such business and has not acquired any real estate or entered into any financing arrangement in connection therewith, and there has not been (a) any change, circumstance or event that would reasonably be expected to result in a Material Adverse Effect, (b) any declaration, setting aside or payment of any dividend or other distribution with respect to the Buyer Sub Shares, (c) any commitment, contractual obligation, borrowing, capital expenditure or transaction (each, a "Commitment") entered into by it other than Commitments which would not, individually or in the aggregate, be expected to result in a Material Adverse Effect, or (d) any change in its accounting principles, practices or methods. Section 4.8 Tax Matters; REIT & Partnership Status. (a) Each of Buyer Sub, Office Flex I and Office Flex II has timely filed with the appropriate taxing authority all Tax Returns required to be filed by it or has timely requested extensions and any such request has been granted and has not expired. Each such Tax Return is complete and accurate in all material respects. All information shown on any Tax Return is -10- 15 correct in all material respects, and all Taxes shown as owed by Buyer Sub, Office Flex I or Office Flex II on any Tax Return have been paid or accrued, except for Taxes contested in good faith and for which adequate reserves have been taken. Each of Buyer Sub, Office Flex I and Office Flex II has properly accrued all material Taxes for periods subsequent to the periods covered by such Tax Returns as required by GAAP. None of Buyer Sub, Office Flex I or Office Flex II 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 Tax. None of Buyer Sub, Office Flex I or Office Flex II is a party to any pending action or proceeding by any taxing authority for assessment or collection of any Tax, and no claim for assessment or collection of any Tax has been asserted against it. No claim has been made by any authority in a jurisdiction where any of Buyer Sub, Office Flex I or Office Flex II does not file Tax Returns that it is or may be subject to taxation or reporting in that jurisdiction. There is no dispute or claim concerning any information, reporting or tax liability of Buyer Sub, Office Flex I or Office Flex II (i) claimed or raised by any taxing authority in writing or (ii) as to which Buyer, Buyer Sub, Office Flex I or Office Flex II has knowledge. Buyer Sub is a "domestically-controlled" REIT within the meaning of Code Section 897(h)(4)(B). No Person or entity which would be treated as an "individual" for purposes of Section 542(a)(2) of the Code (as modified by Section 856(h) of the Code) owns or would be considered to own (taking into account the ownership attribution rules under Section 544 of the Code, as modified by Section 856(h) of the Code) in excess of 9.8% of the value of the outstanding equity interests in Buyer Sub. (b) Buyer Sub (i) intends in its federal income tax return (separate from the tax return of Buyer) for the tax year that will end on December 31, 1998, or for any shorter period for which Buyer Sub will be required to file a federal income tax return because of the transactions contemplated by this Agreement, to elect to be taxed as a real estate investment trust within the meaning of Section 856 of the Code ("REIT") and has complied (or will comply) with all applicable provisions of the Code relating to a REIT, from the date of its formation through the date hereof, (ii) has operated, and will to continue to operate, in such a manner as to qualify as a REIT for 1998, (iii) has not taken or omitted to take any action which would reasonably be expected to result in a challenge to its status as a REIT, and, no such challenge is pending or threatened, and (iv) will not be rendered unable to qualify as a REIT for federal income tax purposes as a consequence of the transactions contemplated hereby and by the Purchase Agreement. (c) No amount or other entitlement that could be received (whether in cash or property or the vesting of property) as a result of any of the transactions contemplated hereby by any employee, officer or manager of Buyer Sub, Office Flex I or Office Flex II or of any of their Affiliates who is a "disqualified individual" (as such term is defined in proposed -11- 16 Treasury Regulation Section 1.28OG-1) under any employment, severance or termination agreement, other compensation arrangement or plan currently in effect would be characterized as an "excess parachute payment" (as such term is defined in Section 280G(b)(2) of the Code). (d) The disallowance of a deduction under Section 162(m) of the Code for employee remuneration will not apply to any amount paid or payable by Buyer Sub, Office Flex I or by Office Flex II under any contract, stock plan, program, arrangement or understanding currently in effect. (e) Buyer Sub is eligible to and intends to validly elect to be taxed as a REIT for federal income tax purposes for calendar year 1998. Each of Office Flex I and Office Flex II was and continues to be classified as a partnership for federal income tax purposes for all tax years. (f) For each taxable year beginning with Buyer Sub's first taxable year that ends December 31, 1998, the dividends paid by Buyer Sub on the Buyer Sub Shares have been and will continue to be paid pro rata, with no preference to any Buyer Sub Shares as compared with other Buyer Sub Shares of the same class. (g) Buyer Sub has not actively conducted a business (i) from which it earns fees for services it performs and (ii) that would cause (a) Buyer Sub's REIT status to be lost or (b) rents from real property to be treated as not rent under the Code. (h) As required by Treasury Regulation Section 1.857-8, Buyer Sub has maintained and will continue to maintain the necessary records regarding the actual ownership of its shares, and will timely make (i.e., by January 30 of each calendar year) the requisite information requests of its shareholders regarding share ownership and will maintain a list of the Persons failing or refusing to comply in whole or in part with Buyer Sub's demand for statements regarding share ownership. Buyer Sub will continue to maintain such records for all tax years that it is in existence, as required by law. (i) Buyer Sub has never owned and will never own more than ten percent (10%) of the common shares of any corporation other than a "Qualified REIT Subsidiary," i.e., (i) before 1998, a corporation, all of whose shares were always owned by Buyer Sub, and (ii) after January 1, 1998, a corporation (a) all of whose shares are owned by Buyer Sub, and (b) all of whose earnings and profits existing at the time Buyer Sub acquired all of its shares are distributed before the end of the tax year in which all of the shares are acquired. With respect to Buyer Sub, Office Flex I and Office Flex II, none has ever had "earnings and profits," as defined in the Code. Section 4.9 Compliance with Agreements. (a) None of Buyer Sub, Office Flex I or Office Flex II is in default under or -12- 17 in violation of any provision of the Buyer Sub Certificate, the Buyer Sub By-laws, or the operating agreement of either Office Flex I or Office Flex II. (b) Each of Buyer Sub, Office Flex I and Office Flex II has filed all reports, registrations and statements, together with any amendments required to be made with respect thereto, that it was required to file with any Government Authority and all other reports and statements required to be filed by it, including any report or statement required to be filed pursuant to the laws, rules or regulations of the United States, and has paid all fees or assessments due and payable in connection therewith. There is no unresolved violation asserted by any regulatory agency of which Buyer Sub, Office Flex I or Office Flex II has received any written notice which, if resolved in a manner unfavorable to Buyer Sub, Office Flex I or Office Flex II would, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. (c) Schedule 4.9(c) sets forth (i) a description of all material indebtedness of Buyer Sub, Office Flex I and Office Flex II, whether unsecured or secured or collateralized by mortgages, deeds of trust or other security interests in Property or any other assets of Buyer Sub, Office Flex I or Office Flex II, or otherwise and (ii) each Commitment currently in effect entered into by Buyer Sub, Office Flex I or Office Flex II (including any guarantees of any third party's debt or any obligations in respect of letters of credit issued for Buyer Sub's, Office Flex I's or Office Flex II's account) which may result in total payments or liability in excess of $100,000, excluding Commitments that are terminable on 30 days or less notice, and excluding Commitments the breach of which would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. None of Buyer Sub, Office Flex I or Office Flex II is in default, and, to Buyer's knowledge, no event has occurred which, with the giving of notice or the lapse of time or both, would constitute a default, under any of the documents described in clause (i) or (ii) of the first sentence of this paragraph or in respect of any payment obligations thereunder. All joint venture and partnership agreements to which any of Buyer Sub, Office Flex I or Office Flex II is a party as of the date hereof are described in Schedule 4.9(c), all of which are in full force and effect as against Buyer Sub, Office Flex I or Office Flex II and, to Buyer's knowledge, as against the other parties thereto, and none of Buyer Sub, Office Flex I or Office Flex II is in default, and, to Buyer's knowledge, no event has occurred which, with the giving of notice or the lapse of time or both, would constitute a default, with respect to any obligations thereunder, except as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. To Buyer's knowledge, the other parties to such agreements are not in breach of any of their respective obligations thereunder, except as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. To Buyer's -13- 18 knowledge, there is no condition with respect to Buyer Sub, Office Flex I or Office Flex II that would, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. (d) Except as disclosed in any other Schedule hereto, Schedule 4.9(d) sets forth a complete and accurate list of all material agreements to which Buyer Sub, Office Flex I or Office Flex II is a party as of the date hereof relating to the development or construction of, additions or expansions to, or management or leasing services for, light industrial properties or office buildings or other real properties which are currently in effect and under which Buyer Sub, Office Flex I or Office Flex II currently has, or expects to incur, any material obligation. (e) Except for (i) agreements made in the ordinary course of business with a maturity of less than one year or that are terminable on 30 days or less notice, and (ii) agreements the breach or nonfulfillment of which would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect, Schedule 4.9(e) sets forth a complete and accurate list of all material agreements to which either Buyer Sub, Office Flex I or Office Flex II is a party as of the date hereof which are not listed in any other Schedule hereto. Each agreement listed in Schedule 4.9(e) is in full force and effect as against Buyer Sub, Office Flex I or Office Flex II and, to Buyer's knowledge, as against the other parties thereto, no payments, if any, are delinquent, no notice of default thereunder has been sent or received by Buyer Sub, Office Flex I or Office Flex II, and, to Buyer's knowledge, no event has occurred which, with notice or lapse of time or both, would constitute such a default, except for any default that would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. (f) Buyer Sub has no agreements or written policies in effect on the date hereof relating to transactions with Affiliates and potential conflicts of interest. Section 4.10 Financial Records; Certificate of Incorporation and By-laws; Corporate Records. (a) The books of account and other financial records, if any, of Buyer Sub, Office Flex I and Office Flex II, are in all respects true and complete, have been maintained in accordance with good business practices, and are accurately reflected in all respects in all financial statements related to Buyer Sub provided to the Trust, and such financial statements provided to the Trust are listed in Schedule 4.10(a) (the "Buyer Sub Reports"). (b) Buyer Sub has delivered or made available to the Trust true and complete copies of the Buyer Sub Certificate and the Buyer Sub By-laws, as amended to date, and the operating agreement of each of Office Flex I and Office Flex II. -14- 19 (c) The minute books and other records of corporate or limited liability company proceedings of Buyer Sub, Office Flex I and Office Flex II contain accurate records of all meetings of the directors, equity holders, members, managers and other governing bodies thereof and accurately reflect in all material respects all other corporate action of the directors, shareholders and any committees of the Buyer Sub Board, and all actions of the members and managers of each of Office Flex I and Office Flex II. Section 4.11 Properties. (a) Schedule 4.11(a) sets forth a complete and accurate list and the address of all real property owned or leased by Buyer Sub, Office Flex I or Office Flex II or otherwise used by Buyer Sub, Office Flex I or Office Flex II in the conduct of their business or operations. That real property, together with the land at each address referenced in Schedule 4.11(a) and all buildings, structures and other improvements and fixtures located on or under such land and all easements, rights and other appurtenances to such land (each such property individually, a "Property" and collectively, the "Properties"). To Buyer's knowledge Office Flex I or Office Flex II owns good and indefeasible fee simple title to each of the Properties, in each case free and clear of any Liens, title defects, common restrictions or covenants, laws, ordinances or regulations affecting use or occupancy (including zoning regulations and building codes) or reservations of interests in title (collectively, "Property Restrictions"), except for (i) Permitted Liens and (ii) Property Restrictions imposed or promulgated by law or by any Government Authority which are customary and typical for similar properties. To Buyer's knowledge, none of the Permitted Liens interferes with, impairs, or is violated by the present use, occupancy or operation (or if applicable, development) of any Property and none of the Property Restrictions interferes with, impairs, or is violated by, the existence of any building or other structure or improvement which constitutes a part of, or the present use, occupancy or operation (or, if applicable, development) of, any Property, except, in each such case, to the extent that any interference, impairment or violation would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (b) Except as described in Schedule 4.11(b), Buyer has no knowledge (i) that any currently required certificate, permit or license (including building permits and certificates of occupancy for tenant spaces) from any Government Authority having jurisdiction over any Property or any agreement, easement or other right that is necessary to permit the lawful use, occupancy or operation of the existing buildings, structures or other improvements that constitute a part of any of the Properties or which are necessary to permit the lawful use and operation of any existing driveways, roads or other areas of ingress and egress to and from any of the Properties has not been obtained or is not in full force and effect, or of any pending threat of modification or cancellation of any of same, or (ii) of any violation by any Property of any federal, state or municipal law, ordinance, -15- 20 order, regulation or requirement, including any applicable zoning law or building code, arising from the use or occupancy of such Property or otherwise. Except as described in Schedule 4.11(b), Buyer has no knowledge of any current uninsured physical damage to any Property in excess of $100,000. To Buyer's knowledge, except for repairs identified in the Capital Expenditure Budget and Schedule, each Property: (i) is in good operating condition and repair and is structurally sound and free of defects, with no material alterations or repairs being required thereto under applicable law or insurance company requirements, and (ii) consists of sufficient land areas, driveways and other improvements and lawful means of access and utility service and capacity to permit the use thereof in the manner and for the purposes to which it is presently devoted, except, in each such case, to the extent that failure to meet such standards would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (c) Buyer has no knowledge (i) that any condemnation, eminent domain or rezoning proceedings are pending or threatened with respect to any of the Properties, (ii) except as described in Schedule 4.11(c), that any road widening or change of grade of any road adjacent to any Property is underway or has been proposed, (iii) of any proposed change in the assessed valuation of any Property other than customarily scheduled revaluations, (iv) of any special assessment made or threatened against any Property, or (v) that any of the Properties is subject to any so-called "impact fee" or to any agreement with any Government Authority to pay for sewer extension, oversizing utilities, lighting or like expenses or charges for work or services by such Government Authority, except, in the case of each of the foregoing, to the extent that same would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (d) To Buyer's knowledge, each of the Properties is an independent unit that does not rely on any facilities located on any property not included in such Property to fulfill any municipal or governmental requirement or for the furnishing to such Property of any essential building systems or utilities, other than facilities the benefit of which inures to the Properties pursuant to one or more valid easements. Each of the Properties is served by public water and sanitary systems and all other utilities, and, to Buyer's knowledge, each of the Properties has lawful access to public roads, in all cases sufficient for the current use and occupancy of that Property. To Buyer's knowledge, all parcels of land included in each Property that purport to be contiguous are contiguous and are not separated by strips or gores. To Buyer's knowledge, no portion of any Property lies in any flood plain area (as defined by the U.S. Army Corps of Engineers or otherwise) or includes any wetlands or vegetation or species protected by any applicable laws. To Buyer's knowledge, no improvements constituting a part of any Property encroach on real property not constituting a part of such Property. -16- 21 (e) Except for matters addressed in the Capital Expenditure Budget and Schedule, no Property fails to comply with the requirements of the ADA except for such noncompliance as Buyer Sub reasonably believes will not, individually or in the aggregate, have a Material Adverse Effect. (f) Buyer Sub has provided to Buyer an accurate rent roll for each Property for the month ended June 30, 1998 (the "Rent Roll"), which identifies and accurately describes each lease of space in each Property (collectively, the "Leases"). Buyer Sub has delivered to Buyer an abstract of each Lease (the "Abstracts") which accurately describes the material terms thereof. With respect to each Lease for premises larger than 20,000 square feet of rentable space (collectively, the "Material Leases"), except as described in Schedule 4.11(f) and except for matters that are not, individually or in the aggregate, reasonably expected to have a material effect on any Property, (i) each of the Material Leases is valid and subsisting and in full force and effect as against each party thereto, and has not been amended, modified or supplemented, other than by any amendment, modification or supplement that has been provided to Buyer, (ii) the tenant under each of the Material Leases is in actual possession of the premises leased thereunder, (iii) no tenant under any Material Lease is more than 30 days in arrears in the payment of rent, (iv) none of Buyer Sub, Office Flex I or Office Flex II has received any written notice from any tenant under any Material Lease of its intention to vacate, (v) none of Buyer Sub, Office Flex I or Office Flex II has collected payment of rent under any Material Lease (other than security deposits) for a period which is more than one month in advance, (vi) no notice of default has been sent or received by the landlord under any Material Lease with respect to any defect that remains uncured as of the date hereof, no default has occurred under any Material Lease and, to Buyer's knowledge, no event has occurred and is continuing which, with notice or lapse of time or both, would constitute a default under any Material Lease, (vii) no tenant under any Material Lease has any purchase option or kick-out right or is entitled to any concession, allowance, abatement, set-off, rebate or refund, (viii) none of the Material Leases and none of the rents or other amounts payable thereunder has been assigned, pledged or encumbered except in connection with financing secured by the applicable Property, which is described in Schedule 4.9(c), (ix) no brokerage or leasing commission or other compensation is due or payable to any Person with respect to or on account of any of the Material Leases or any extensions or renewals thereof, (x) except as set forth in the Abstracts, no space of a material size in any Property is occupied by a tenant rent-free, (xi) no tenant under any of the Material Leases has asserted any claim which is likely to affect the collection of rent from such tenant, and (xii) the landlord under each Material Lease has fulfilled all of its obligations thereunder in respect of tenant improvements and capital expenditures. Other than the tenants identified in the Rent Roll and the Abstracts and parties to easement agreements which constitute Permitted Liens, no third party has any right to occupy or use any portion of any Property. -17- 22 The Rent Roll or the Abstracts include a budget for all material tenant improvements and similar material work required to be performed by the lessor under each of the Material Leases. (g) Schedule 4.11(g) sets forth a complete and accurate list of all material commitments, letters of intent or written understandings made or entered into by Buyer Sub, Office Flex I or Office Flex II as of the date hereof (x) to lease any space larger than 20,000 rentable square feet at any of the Properties, (y) to sell, mortgage, or pledge any Property or to otherwise enter into a material transaction or arrangement in respect of the ownership or financing of any Property, or (z) to purchase or acquire an option, right of first refusal or similar right in respect of any real property, which, in any such case has not yet been reduced to a written lease or contract, and sets forth with respect to each such commitment, letter of intent or other understanding the principal terms thereof. (h) Except as set forth in the Rent Roll or the Abstracts, none of Buyer Sub, Office Flex I or Office Flex II has granted any outstanding options or has entered into any outstanding contracts with others for the sale, mortgage, pledge, hypothecation, assignment, sublease, lease or other transfer of all or any part of any Property, and no Person has any right or option to acquire, or right of refusal with respect to, Buyer Sub's, Office Flex I's or Office Flex II's interest in any Property or any part thereof. Except as described in Schedule 4.11(h), none of Buyer Sub, Office Flex I or Office Flex II has any outstanding options or rights of first refusal or has entered into any outstanding contracts with others for the purchase of any real property. (i) Schedule 4.11(i) contains a complete and accurate description of any material noncompliance by any Property, to Buyer's knowledge, with any law, ordinance, code, health and safety regulation or insurance requirement (except for the ADA, which is addressed in this respect in Section 4.11(e) above) other than such noncompliance as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Schedule 4.11(i) also sets forth Buyer Sub's, Office Flex I's and Office Flex II's capital expenditure budget and schedule for each Property (the "the Capital Expenditure Budget and Schedule"), which describes the capital expenditures which Buyer Sub, Office Flex I or Office Flex II has budgeted for such Property for the period from December 31, 1997 through December 31, 1999. To Buyer's knowledge, the costs and time schedules for 1998 and 1999 set forth in the Capital Expenditure Budget and Schedule are reasonable estimates and projections. Except as described in Schedule 4.11(i), there are no outstanding, or to Buyer's knowledge, threatened requirements of any insurance company which has issued an insurance policy covering any Property, or of any board of fire underwriters or other body exercising similar functions, requiring any repairs or alterations to be made to any Property. -18- 23 (j) Buyer Sub has disclosed to the Trust all adverse matters known to Buyer Sub with respect to or in connection with the Properties, including the Leases, which would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (k) Each of Buyer Sub, Office Flex I and Office Flex II has good and sufficient title to all the personal and other property and assets reflected in its books and records as being owned by it, free and clear of all liens, except for Permitted Liens which are not, individually or in the aggregate, reasonably expected to have a material adverse effect on any Property. Section 4.12 Environmental Matters. (a) To Buyer's knowledge, each of Buyer Sub, Office Flex I and Office Flex II has obtained and now maintains as currently valid and effective all permits required under Environmental Laws (the "Environmental Permits") in connection with the operation of its businesses and properties, all of which are listed in Schedule 4.12(a). To Buyer's knowledge, except as disclosed in the Executive Summaries of Environmental Reports, each of Buyer Sub, Office Flex I and Office Flex II, and each Property, is and has been in compliance with all terms and conditions of the Environmental Permits and all Environmental Laws, except for any noncompliance that would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on any Property. Buyer has no knowledge of any circumstances that may prevent or interfere with such compliance in the future. (b) Each of Buyer Sub, Office Flex I and Office Flex II has provided to Buyer all material written information and written communications (whether from a Government Authority, citizens' group, employee or other Person) in its possession or control regarding (i) alleged or suspected noncompliance of any of Properties with any Environmental Laws or Environmental Permits or (ii) alleged or suspected liability of Buyer Sub, Office Flex I or Office Flex II under any Environmental Law. (c) There are no environmental liens or encumbrances on any of the Properties and, to Buyer's knowledge, no government actions have been taken or are in process which are reasonably likely to subject any Property to such liens or other encumbrances. (d) No Environmental Claim with respect to the operations or the businesses of Buyer Sub, Office Flex I or Office Flex II, or with respect to the Properties, has been asserted or, to Buyer's knowledge, threatened, and, to Buyer's knowledge, no circumstances exist with respect to Buyer Sub, Office Flex I or Office Flex II or the Properties that would reasonably be expected to result in any Environmental Claim being asserted, in any such case, against (i) Buyer Sub, Office Flex I or Office Flex II, or (ii) any Person whose liability for any Environmental Claims Buyer Sub, Office Flex I or Office Flex II -19- 24 has or may have retained or assumed either contractually or by operation of law. (e) Except as disclosed in Schedule 4.12(e) or set forth in the Executive Summaries of Environmental Reports: (i) none of Buyer Sub, Office Flex I or Office Flex II has been notified or has any reason to anticipate being notified of potential responsibility in connection with any site that has been placed on, or proposed to be placed on, the National Priorities List or its state or foreign equivalent pursuant to CERCLA, or analogous state or foreign laws, (ii) to Buyer's knowledge, no Materials of Environmental Concern are present on, in or under any Property in a manner or condition that is reasonably likely to give rise to an Environmental Claim which would reasonably be expected to result in a Material Adverse Effect, (iii) to Buyer's knowledge, none of Buyer Sub, Office Flex I, Office Flex II or any tenant of any Property has Released or arranged for the Release of any Materials of Environmental Concern at any location to an extent or in a manner which would reasonably be expected to result in a material effect on any Property, (iv) to Buyer's knowledge, no underground storage tanks, surface disposal areas, pits, ponds, lagoons, open trenches or equipment is present at any Property, (v) to Buyer's knowledge, no transformers, capacitors or other equipment containing fluid with more than 50 parts per million polychlorinated biphenyls are present at any Property, except for any such transformers, capacitation or other equipment owned by any utility company, and (vi) to Buyer's knowledge, no employee, agent, contractor, subcontractor or tenant of Buyer Sub, Office Flex I or Office Flex II is now or has in the past been exposed to friable asbestos or asbestos-containing material at any Property. (f) Schedule 4.12(f) contains a list of the most recent Phase I environmental reports prepared for Buyer Sub, Office Flex I or Office Flex II or otherwise in the possession of any of them with respect to the environmental condition of any Property (collectively, the "Environmental Reports"). True and complete copies of the executive summaries or conclusions included in Environmental Reports (collectively, the "Executive Summaries of Environmental Reports") have been delivered or made available by Buyer Sub to the Trust. To Buyer's knowledge, none of the matters disclosed by the Executive Summaries of Environmental Reports would, individually or in the aggregate, be reasonably likely to have a Material Adverse Effect. (g) For purposes of this Section 4.12, the terms listed below have the following meanings: (i) "claim" means any action, cause of action, suit, debt, dues, account, reckoning, bond, bill, covenant, contract, controversy, promise, trespass, damage, judgment, execution, claim, liability or demand whatsoever, in law or equity. -20- 25 (ii) "Environmental Claim" means any Claim investigation or notice (written or oral) by any Person alleging potential liability (including potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries or fatalities, or penalties) arising out of, based on or resulting from (A) the presence, generation, transportation, treatment, use, storage, disposal or Release of Materials of Environment Concern or the threatened Release of Materials of Environmental Concern at any location, or (B) activities or conditions forming the basis of any violation, or alleged violation of, or liability or alleged liability under, any Environmental Law. (iii) "Environmental Laws" means federal, state, local, provincial, municipal and foreign laws, ordinances, principles of common law, rules, by-laws, orders, governmental policies, statutes, regulations, agreements, treaties, customary law, and international principles relating to the pollution or protection of the environment or of flora or fauna or their habitat or of human health and safety, or to the cleanup or restoration of the environment, including, but not limited to, any laws relating to (A) generation, treatment, storage, disposal or transportation of wastes, emissions or discharges or protection of the environment from the same, (B) exposure of Persons to, or Release or threat of Release of, Materials of Environmental Concern, (C) noise, (D) repetitive motion, and (E) the safety and health of workers and employees. (iv) "Materials of Environmental Concern" means all chemicals, pollutants, contaminants, wastes, toxic substances, petroleum or any fraction thereof, petroleum products and hazardous substances (as defined in Section 101(14) of CERCLA, 42 U.S.C. Section 6601(14)), or solid or hazardous wastes as now defined and regulated under any Environmental Laws. (v) "Release" means any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration. -21- 26 Section 4.13 Employees and Benefit Plans. Buyer Sub, Office Flex I and Office Flex II have, and have had since their respective dates of formation, no employees. Section 4.14 Labor Matters. Except as described in Schedule 4.14, neither of Buyer Sub, Office Flex I or Office Flex II 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. Except for the matters described in Schedule 4.14 (none of which matters would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect), there is no unfair labor practice or labor arbitration proceeding pending or, to the knowledge of Buyer, threatened against Buyer Sub, Office Flex I or Office Flex II. To the knowledge of Buyer, there are no organizational efforts with respect to the formation of a collective bargaining unit presently being made or threatened involving employees of Buyer Sub, Office Flex I or Office Flex II. Section 4.15 Confirmation of Representations and Warranties. Buyer hereby confirms that each of the representations and warranties contained in Sections 4.1 through 4.8 of the Purchase Agreement are accurate as of the date of this Agreement and incorporates those representations and warranties herein by reference for the benefit of the Trust under this Agreement. Section 4.16 Brokers and Finders. No agent, broker, investment banker or other Person, including any of the foregoing that is an Affiliate of Buyer Sub, is or will be entitled to any broker's or finder's fee or any other commission or similar fee from Buyer, Buyer Sub, Office Flex I or Office Flex II or in connection with this Agreement or any of the transactions contemplated hereby for which Buyer Sub, Office Flex I, Office Flex II or the Trust will be responsible. The Trust acknowledges that Buyer is obligated to pay a fee to Chadwick & Saylor in connection with the transactions contemplated hereby and by the Purchase Agreement. Section 4.17 Affiliate Transactions. Schedule 4.17 sets forth a complete and accurate list of all agreements and transactions or currently proposed agreements and transactions or series of agreements and related transactions with an aggregate value in excess of $60,000 entered into by Buyer and any of its Affiliates, other than Buyer Sub, on the one hand, and Buyer Sub, Office Flex I or Office Flex II, on the other hand, since January 1, 1996. Section 4.18 Knowledge Defined. As used herein, the phrase "to Buyer's knowledge" (or words of similar import) means the knowledge of those individuals identified in Schedule 4.17, and includes any facts, matters or circumstances set forth in any written notice to Buyer, Buyer Sub, Office Flex I or Office Flex II from any Government Authority or any other material notice received by Buyer, Buyer Sub, Office Flex I or Office Flex II and -22- 27 also includes any matter of which Buyer informs the Trust in writing. ARTICLE 5 REPRESENTATION AND WARRANTY OF THE TRUST The Trust hereby represents and warrants to Buyer and Buyer Sub as follows: Section 5.1 Confirmation of Representations and Warranties. The Trust hereby confirms that each of the representations and warranties contained in Sections 3.1 through 3.20 of the Purchase Agreement are accurate as of the date of this Agreement and incorporates those representations and warranties herein by reference for the benefit of Buyer and the Buyer Sub under this Agreement. ARTICLE 6 JOINT COVENANT OF THE PARTIES Section 6.1 Section 368(a) Reorganization. The parties hereto agree to consummate the Merger pursuant to Texas and Delaware state laws, and to treat the Merger for Federal income tax purposes as a Merger pursuant to Section 368(a) of the Code. No party hereto shall take any action on or after the date of the Merger that might preclude such treatment. This Section 6.1 shall survive until the second anniversary of the Effective Time. ARTICLE 7 CERTAIN ADDITIONAL COVENANTS Section 7.1 Confirmation of Covenants. Buyer agrees to perform, and to cause Buyer Sub to perform, and the Trust agrees to perform, each of the covenants contained in Sections 6.1 through 6.12 of the Purchase Agreement which are incorporated by reference herein as if Buyer Sub were Buyer for purposes of these Sections. Section 7.2 Resale. Buyer acknowledges and agrees that the Merger Shares will not, as of the Closing Date, be registered under the Securities Act or the securities laws of any state and that they may be sold or otherwise disposed of only in one or more transactions registered under the Securities Act and, where applicable, such state securities laws or as to which an exemption from the registration requirements of the Securities Act and, where applicable, such state securities laws is available. Buyer acknowledges and agrees that the Merger Shares -23- 28 are subject to the standstill provision set forth in Section 6.11 of the Purchase Agreement. Section 7.3 Legends; Stop Transfer Orders. (a) The certificates for the Merger 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 SHARES ARE SUBJECT TO A STANDSTILL PROVISION SET FORTH IN SECTION 6.11 OF THAT CERTAIN SHARE PURCHASE AGREEMENT DATED JULY 30, 1998, BY AND BETWEEN THE ISSUER AND DEVELOPERS DIVERSIFIED REALTY CORPORATION. The legend set forth in the first paragraph shall be removed from any such certificate at the request of the holder thereof at such times as the shares represented thereby are registered under the Securities Act or become eligible for resale under Rule 144 promulgated under the Securities Act. The legend set forth in the second paragraph shall be removed upon expiration of the Standstill Period. (b) The certificates for the Merger Shares may also bear any legend required by any applicable state blue sky law. (c) Any certificates for the Merger Shares will also bear a legend relating to restrictions on transfer imposed pursuant to the percentage ownership limitation contained in the Trust Declaration. (d) The Trust may impose appropriate stop-transfer instructions relating to the restrictions set forth herein. Section 7.4 Post-Closing Delivery of Preferred Shares. Within 30 days after the Closing, Buyer agrees to deliver certificates representing the Preferred Shares, free and clear of all Liens, with all necessary stock powers, letters of transmittal, share transfer and other documentary stamps attached, in exchange for the payments described in Section 3.1. Section 7.5 Reimbursement of Expenses. Within 10 days after the Closing, the Trust shall reimburse Buyer, by wire transfer of immediately available funds, for all third-party expenses, except for the fees of Baker & Hostetler LLP, incurred by Buyer in connection with this Agreement and the transactions contemplated hereby. -24- 29 Section 7.6 Liability of Buyer. Buyer agrees that for the purpose of determining liability for any breach of the representations and warranties made under this Agreement, each of the representations and warranties made by Buyer Sub, Office Flex I or Office Flex II shall be treated as if such representations and warranties were made by Buyer. Section 7.7 Title Insurance. At the Closing or within 10 Business Days after the Closing, Buyer agrees to provide evidence reasonably satisfactory to the Trust of payment for American Land Title Association owners title policies with extended coverage insuring the fee simple title of the Trust to each of Property in amounts having an aggregate value of at least $19,506,408. ARTICLE 8 CLOSING DELIVERIES AND CLOSING CONDITIONS Section 8.1 Closing Deliveries. (a) Buyer Deliveries. At the Closing, Buyer shall deliver, or cause to be delivered, to the Trust the following: (i) certificates representing the Nonvoting Common Shares and Voting Common Shares, free and clear of all Liens, with all necessary stock powers, letters of transmittal, share transfer and other documentary stamps attached; (ii) the certificate, dated the Closing Date and validly executed on behalf of Buyer and Buyer Sub, required by Section 8.3(a); (iii) resolutions of the Board of Directors of Buyer Sub, certified by the Secretary of Buyer Sub, authorizing the execution and delivery of this Agreement and the transactions contemplated hereby; (iv) evidence or copies of any consents, approvals, orders, qualifications or waivers required on behalf of Buyer or Buyer Sub by Section 8.3; (v) if not theretofore delivered to the Trust, all other certificates, documents, instruments and writings required pursuant to this Agreement to be delivered by or on behalf of Buyer or Buyer Sub at or before the Closing; (vi) the Merger Certificate, validly executed on behalf of Buyer Sub; (vii) each of the legal opinions of Buyer's counsel required by Sections 8.3(c) and 8.3(d); and -25- 30 (viii) such other instruments reasonably requested by the Trust as may be necessary or appropriate to confirm or carry out the provisions of this Agreement. (b) Trust Deliveries. At the Closing, the Trust shall deliver, or cause to be delivered, to Buyer the following: (i) certificates representing the number of Merger Shares, bearing the legends described in Section 7.3, issued to Buyer and Scott A. Wolstein, as appropriate, free and clear of all Liens (unless created by Buyer or any of its Affiliates), with all necessary stock powers, share transfer and other documentary stamps attached; (ii) the certificate, dated the Closing Date and validly executed on behalf of the Trust, required by Section 8.2(a); (iii) resolutions of the Board of Managers, certified by the Secretary of the Trust, authorizing the execution and delivery of this Agreement, the Purchase Agreement and the Registration Rights Agreement, and the transactions contemplated hereby and thereby, including the creation and issuance of the Buyer Preferred Shares; (iv) resolutions of the Board of Directors of the Trust, certified by the Secretary of the Trust, authorizing the execution and delivery of this Agreement and the transactions contemplated hereby; (v) the legal opinion of the Trust's counsel required by Section 8.2(c); (vi) evidence or copies of any consents, approvals, orders, qualifications or waivers required by Section 8.1; (vii) all other certificates and instruments and documents required pursuant this Agreement to be delivered by the Trust to Buyer at or prior to the Closing; (vii) a supplemental listing application executed by the Trust and the NYSE authorizing the listing of the Merger Shares (subject to official notice of issuance); and (viii) such other instruments reasonably requested by Buyer as may be necessary or appropriate to confirm or carry out the provisions of this Agreement. -26- 31 Section 8.2 Conditions to Closing for Buyer and Buyer Sub. The obligations of Buyer and Buyer Sub to consummate the transactions contemplated hereby at the Closing are subject to the satisfaction or waiver of each of the following conditions precedent: (a) Representations and Warranties; Covenants. The representations and warranties that are not qualified as to materiality of the Trust contained herein shall have been true and correct in all material respects on and as of the date hereof, and shall be true and correct in all material respects on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date (except for representations and warranties that speak as of a specific date or time other than the Closing Date (which need only be materially true and correct in all respects as of such date or time)), and the representations and warranties already qualified with respect to materiality shall have been true and correct in all respects at each such date without regard to the materiality qualification contained in this Section 8.2(a). The covenants and agreements of the Trust to be performed on or before the Closing Date in accordance with this Agreement shall have been duly performed in all material respects. The Trust shall have delivered to Buyer and Buyer Sub at the Closing a certificate of an appropriate officer in form and substance satisfactory to Buyer dated the Closing Date to such effect. (b) No Limitation. There shall not be in effect any order, decree or injunction of a court or agency of competent jurisdiction which enjoins or prohibits consummation of the transactions contemplated hereby and there shall be no pending Action which would reasonably be expected to have a material adverse effect on the ability of Buyer and Buyer Sub to consummate the transactions contemplated hereby or to acquire the Merger Shares. (c) Opinion of Counsel. Buyer shall have received a legal opinion from Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P., counsel to the Trust, dated the Closing Date concerning, among other things, the organization, authority, capitalization, SEC filings, contractual relationships, compliance with law and other legal matters of each of the Trust, and confirming that all shares issued pursuant to this Agreement will be validly issued, fully paid and nonassessable, in form and substance reasonably satisfactory to Buyer. (d) Conditions and Deliveries Under the Purchase Agreement. Except for Section 8.1(b)(i) of the Purchase Agreement (related to the consummation of the transactions contemplated hereby), each of the conditions precedent to Buyer's obligations and each of the deliveries required to be made at the Initial Closing under the Purchase Agreement shall have been satisfied, waived or made, as applicable. -27- 32 Section 8.3 Conditions to Closing for the Trust. The obligations of the Trust to consummate the transactions contemplated hereby at the Closing are subject to the satisfaction or waiver of each of the following conditions precedent: (a) Representations and Warranties; Covenants. The representations and warranties of Buyer and Buyer Sub contained herein that are not otherwise qualified as to materiality shall have been true and correct in all material respects on and as of the date hereof, and shall be true and correct in all material respects on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date (except for representations and warranties that speak as of a specific date or time other than the Closing Date (which need only be materially true and correct in all respects as of such date or time)), and the representations and warranties already qualified with respect to materiality shall have been true and correct in all respects at each such date without regard to the materiality qualification contained in this Section 8.3(a). The covenants and agreements of Buyer and Buyer Sub to be performed on or before the Closing Date in accordance with this Agreement shall have been duly performed in all material respects. Buyer and Buyer Sub shall have delivered to the Trust at the Closing a certificate of an appropriate officer in form and substance reasonably satisfactory to the Trust dated the Closing Date to such effect. (b) No Limitation. There shall not be in effect any order, decree or injunction of a court or agency of competent jurisdiction which enjoins or prohibits consummation of the transactions contemplated hereby and there shall be no pending Action which would reasonably be expected to have a material adverse effect on the ability of the Trust to consummate the actions contemplated hereby or to issue the Merger Shares. (c) Opinion of Counsel. The Trust shall have received a legal opinion from Baker & Hostetler LLP, counsel to Buyer and Buyer Sub, dated the Closing Date, concerning, among other things, the organization, authority, capitalization, SEC filings, contractual relationships, compliance with law and other legal matters of each of Buyer and Buyer Sub, in form and substance reasonably satisfactory to the Trust. (d) Tax Opinion. The Trust shall have received the opinion of Baker & Hostetler LLP, counsel for Buyer, in form and substance reasonably satisfactory to the Trust, and dated the Closing Date, that (i) commencing with its initial taxable year that will end December 31, 1998, Buyer Sub has met the requirements under the Code for qualification and taxation as a real estate investment trust and that, after giving effect to the transactions contemplated hereby, Buyer Sub's proposed method of operation will enable it to continue to meet the requirements for qualification and taxation as a real estate investment trust under the Code and (ii) each subsidiary of Buyer Sub has been, -28- 33 since its formation, and continues to be, treated for federal income tax purposes (a) as a partnership, and not as a corporation or an association taxable as a corporation or (b) as an entity disregarded as separate from its owner (in the case of (i) and (ii) above with customary assumptions and qualifications). (e) Conditions and Deliveries Under the Purchase Agreement. Each of the conditions precedent to the Trust's obligation and each of the deliveries required to be made at the Closing under the Purchase Agreement shall have been satisfied, waived or made, as applicable. ARTICLE 9 SURVIVAL; INDEMNIFICATION Section 9.1 Survival. All representations, warranties and (except as provided in the last sentence of this Section 9.1) covenants and agreements of the parties contained herein, including indemnity or indemnification agreements contained herein, or in any Schedule or Exhibit hereto, or any certificate, document or other instrument delivered in connection herewith shall survive until the first anniversary of the Closing. No Action or proceeding may be brought with respect to any of the representations and warranties or any of the covenants or agreements which so survive unless written notice thereof, setting forth in reasonable detail the claimed misrepresentation or breach of warranty or breach of covenant or agreement, shall have been delivered to the party alleged to have breached such representation or warranty or such covenant or agreement on or prior to the first anniversary of the Closing and the party alleged to have breached such representation or warranty has not cured the alleged breach within 30 days after the receipt of such notice. Those covenants or agreements that contemplate or may involve actions to be taken or obligations to be in effect after the Closing shall survive in accordance with their terms, and any action or proceeding with respect to any such covenant or agreement may be brought until the statute of limitations applicable thereto expires. Section 9.2 Indemnification by Buyer or the Trust. (a) Subject to Section 9.1, from and after the Closing Date, Buyer shall indemnify and hold harmless the Trust, its successors and assigns, from and against any and all damages, claims, losses, expenses, costs, obligations and liabilities, including liabilities for all reasonable attorneys' fees and expenses (including attorney and expert fees and expenses incurred to enforce the terms of this Agreement) (collectively, "Loss and Expense") suffered, directly or indirectly, by the Trust by reason of, or arising out of, (i) any breach as of the date made or deemed made or required to be true of any representation or warranty made by Buyer or Buyer Sub in or pursuant to this -29- 34 Agreement and the failure to cure such breach within the applicable cure period, or (ii) any failure by Buyer or Buyer Sub to perform or fulfill any of its covenants or agreements set forth herein. (b) Subject to Section 9.1, from and after the Closing Date, the Trust shall indemnify and hold harmless Buyer, its successors and assigns, from and against any and all Loss and Expense, suffered, directly or indirectly, by Buyer by reason of, or arising out of, (i) any breach as of the date made or deemed made or required to be true of any representation or warranty made by the Trust in or pursuant to this Agreement or in any certificate delivered pursuant to this Agreement and the failure to cure such breach within the applicable cure period, or (ii) any failure by the Trust to perform or fulfill any of its covenants or agreements set forth herein. (c) Notwithstanding the foregoing, neither Buyer nor the Trust shall be responsible for any Loss and Expense as provided in paragraphs (a) and (b), respectively, of this Section 9.2, until the cumulative aggregate amount of such Loss and Expense suffered by Buyer and Buyer Sub, on one hand, or the Trust, on the other hand, as the case may be, exceeds $50,000, in which case Buyer or the Trust, as the case may be, shall then be liable for all such Loss and Expense. Except with respect to third-party claims being defended in good faith or claims for indemnification with respect to which there exists a good faith dispute, the indemnifying party shall satisfy its obligations hereunder within 30 days of receipt of a notice of claim under this Article 9. The liability of Buyer or the Trust, as applicable, under this Article 9 and Article 9 of the Purchase Agreement, collectively, shall not exceed $58,000,000. Section 9.3 Third-Party Claims. If a claim by a third party is made against a party and if such party intends to seek indemnity with respect thereto under this Article 9, such party (the "Indemnified Party") shall promptly notify the indemnifying party in writing of such claim setting forth such claim in reasonable detail. The indemnifying party shall have 20 days after receipt of such notice to undertake, through counsel of its own choosing and at its own expense, the settlement or defense thereof, and the Indemnified Party shall cooperate with it in connection therewith, but the Indemnified Party may participate in such settlement or defense through counsel chosen by such Indemnified Party, so long as the fees and expenses of such counsel are borne by that Indemnified Party. The Indemnified Party shall not pay or settle any claim which the indemnifying party is contesting. Notwithstanding the foregoing, the Indemnified Party shall have the right to pay or settle any such claim, but in such event it shall waive any right to indemnity therefor by the indemnifying party. If the indemnifying party does not notify the Indemnified Party within 20 days after the receipt of the Indemnified Party's notice of a claim of indemnity hereunder that it elects to undertake the defense thereof, the Indemnified Party shall have the right to -30- 35 contest or compromise the claim and no such contesting or compromise will constitute a waiver of any right to indemnity therefor pursuant to this Agreement. ARTICLE 10 TERMINATION Section 10.1 Termination. This Agreement may be terminated at any time prior to the Closing in accordance with the terms and conditions of Article 10 of the Purchase Agreement which are incorporated by reference herein and shall be given effect as if Buyer Sub were Buyer for purposes of that Article. Section 10.2 Procedure and Effect of Termination. In the event of termination of this Agreement by the Trust or Buyer pursuant to Section 10.1, written notice thereof shall forthwith be given by the terminating party to the other party hereto, and this Agreement shall thereupon be and become void and have no effect, and the transactions contemplated hereby shall be abandoned without further action by the parties hereto, except that the provisions of Sections 6.1, as it relates to the Section 5.2 of the Purchase Agreement (Public Announcements), 11.4 (Notices) and, the provisions of Article 10 of the Purchase Agreement, as such provisions apply to this Agreement, shall survive the termination of this Agreement, and no termination of this Agreement shall relieve any party hereto of any liability for any breach of this Agreement. In addition, the Confidentiality Agreements executed by each of the parties hereto prior to the date hereof shall survive any termination of this Agreement in accordance with their terms. ARTICLE 11 MISCELLANEOUS Section 11.1 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other party. Copies of executed counterparts transmitted by telecopy, telefax or other electronic transmission service shall be considered original executed counterparts for purposes of this Section, provided receipt of copies of such counterparts is confirmed. Section 11.2 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE THE LAWS OF THE STATE OF TEXAS WITHOUT REFERENCE TO THE CHOICE OF LAW PRINCIPLES THEREOF. Section 11.3 Jurisdiction. Each party to this Agreement hereby irrevocably agrees that any legal action or proceeding -31- 36 arising out of or relating to this Agreement or any agreements or transactions contemplated hereby may be brought only in a federal district court of the United States of America and hereby expressly submits to the personal jurisdiction and venue of any such court of proper jurisdiction for the purposes thereof and expressly waives any claim of improper venue and any claim that such court is an inconvenient forum. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH PARTY HEREBY WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE SUBJECT MATTER HEREOF, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING OR WHETHER IN CONTRACT OR TORT OR OTHERWISE. Section 11.4 Entire Agreement. This Agreement (including the agreements incorporated herein) and the Schedules and Exhibits hereto contain the entire agreement between the parties with respect to the subject matter hereof and there are no agreements, understandings, representations or warranties between the parties other than those set forth or referred to herein. This Agreement is not intended to confer upon any Person not a party hereto (and their successors and assigns) any rights or remedies hereunder. Section 11.5 Notices. All notices and other communications hereunder shall be sufficiently given for all purposes hereunder if in writing and delivered personally, sent by documented overnight delivery service or, to the extent receipt is confirmed, telecopy, telefax or other electronic transmission service to the appropriate address or number as set forth below, unless and until either of such parties notifies the other in accordance with this section of a change of address or change of telecopy number: If to Buyer or Buyer Sub: Developers Diversified Realty Corporation 34555 Chagrin Blvd. Moreland Hills, Ohio 44022 Attention: Scott A. Wolstein Telecopy Number: (440) 247-0434 with a copy to: Baker & Hostetler LLP 3200 National City Center 1900 East 9th Street Cleveland, Ohio 44114-3485 Attention: Albert T. Adams Telecopy Number: (216) 696-0740 -32- 37 If to the Trust: American Industrial Properties REIT 6210 North Beltline, Suite 170 Irving, Texas 75063 Attention: Charles W. Wolcott Telecopy Number: (972) 756-0704 with a copy to: Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. 2001 Ross Avenue, Suite 3000 Dallas, Texas 75201 Attention: Bryan L. Goolsby Telecopy Number: (214) 849-5599 Section 11.6 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder may be assigned by either of the parties hereto without the prior written consent of the other party. Section 11.7 Amendments and Waivers. This Agreement may not be modified or amended except by an instrument in writing signed by the party against whom enforcement of any such modification or amendment is sought. Either party hereto may, only by an instrument in writing, waive compliance by the other party hereto with any term or provision hereof on the part of such other party hereto to be performed or complied with. The waiver by any party hereto of a breach of any term or provision hereof shall not be construed as a waiver of any subsequent breach thereof. Section 11.8 Interpretation; Absence of Presumption. (a) For the purposes hereof, (i) words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other gender as the context requires, (ii) the terms "hereof," "herein," and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole (including all of the Schedules and Exhibits hereto) and not to any particular provision of this Agreement, and Article, Section, paragraph, Exhibit and Schedule references are to the Articles, Sections, paragraphs, Exhibits and Schedules to this Agreement unless otherwise specified, (iii) the word "including" and words of similar import when used in this Agreement shall mean "including, without limitation," unless otherwise specified, and (iv) the word "or" shall not be exclusive. (b) This Agreement will be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting or causing any instrument to be drafted. -33- 38 Section 11.9 Severability. Any provision hereof which is invalid or unenforceable shall be ineffective to the extent of such invalidity or unenforceability then such invalid or unenforceable provision shall be revised by a court of competent jurisdiction to make that provision valid or enforceable. Section 11.10 Further Assurances. The Trust and Buyer agree that, from time to time, whether before, at or after the Closing Date, each of them will execute and deliver such further instruments and take such other actions as may be necessary to carry out the purposes and intents hereof. Section 11.11 Specific Performance. Buyer, Buyer Sub and the Trust each acknowledge that, in view of the uniqueness of the Merger Shares and the properties to be acquired by the Trust pursuant to the Merger Agreement, the parties hereto would not have an adequate remedy at law for money damages if this Agreement were not performed in accordance with its terms, and therefore agree that the parties hereto shall be entitled to specific enforcement of the terms hereof in addition to any other remedy to which the parties hereto be entitled at law or in equity. -34- 39 IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of each of the parties hereto as of the date first above written. BUYER: DEVELOPERS DIVERSIFIED REALTY CORPORATION, an Ohio corporation By: /s/ Scott A. Wolstein --------------------------------- Name: Scott A. Wolstein ------------------------------- Title: President ------------------------------ BUYER SUB: DDR OFFICE FLEX CORPORATION, a Delaware corporation By: /s/ Scott A. Wolstein --------------------------------- Name: Scott A. Wolstein ------------------------------- Title: President ------------------------------ THE TRUST: AMERICAN INDUSTRIAL PROPERTIES REIT, a Texas real estate Investment trust By: /s/ Charles W. Wolcott --------------------------------- Name: Charles W. Wolcott ------------------------------- Title: President & CEO ------------------------------ EX-3.1 3 STATEMENT OF DESIGNATION OF SERIES A PREFERRED 1 EXHIBIT 3.1 STATEMENT OF DESIGNATION OF SERIES A CONVERTIBLE PREFERRED SHARES OF BENEFICIAL INTEREST OF AMERICAN INDUSTRIAL PROPERTIES REIT ARTICLE ONE AMERICAN INDUSTRIAL PROPERTIES REIT (the "Trust"), pursuant to the provisions of Section 3.30 of the Texas Real Estate Investment Trust Act (the "TREITA"), hereby files this Statement of Designation of Series A Convertible Preferred Shares of Beneficial Interest of the Trust (the "Statement") prior to the issuance of any shares of Series A Convertible Preferred Shares of Beneficial Interest, such series of unissued shares having been established by a resolution duly adopted by all necessary action on the part of the Trust and the Board of Trust Managers, as provided for in the Third Amended and Restated Declaration of Trust, as amended (the "Declaration of Trust"). ARTICLE TWO The name of the Trust is American Industrial Properties REIT. ARTICLE THREE Pursuant to the authority conferred upon the Board of Trust Managers by the Declaration of Trust and Section 3.30 of the TREITA, the Board of Trust Managers, pursuant to Section 10.20 of the TREITA, adopted a resolution establishing the Series A Preferred Shares of Beneficial Interest of the Trust and designating the series and fixing and determining the preferences, limitations, and relative rights thereof, as set forth in the true and correct copy of the resolution attached hereto as Exhibit A (the "Designating Resolution"). ARTICLE FOUR The Designating Resolution was adopted effective as of July 29, 1998. ARTICLE FIVE The Designating Resolution was duly adopted by all necessary action on the part of the Trust. 2 IN WITNESS WHEREOF, the undersigned officer has executed this Statement effective as of July 30, 1998. AMERICAN INDUSTRIAL PROPERTIES REIT By: /s/ Charles W. Wolcott --------------------------------------- Charles W. Wolcott President and Chief Executive Officer /s/ Joan A. Rose ------------------------------------------------ Notary Public, State of Texas Joan A. Rose ------------------------------------------------ Printed Name of Notary: My Commission Expires: April 1, 2000 ------------------------------------------------ STATE OF TEXAS ) ) COUNTY OF DALLAS ) The foregoing instrument was acknowledged before me this 30th day of July, 1998, by Charles W. Wolcott, President and Chief Executive Officer of American Industrial Properties REIT, a Texas real estate investment trust, on behalf of said corporation. /s/ Joan A. Rose ------------------------------------------------ Notary Public, State of Texas Joan A. Rose ------------------------------------------------ Printed Name of Notary: My Commission Expires: April 1, 2000 ------------------------------------------------ 2 3 EXHIBIT A DESIGNATING RESOLUTION BOARD OF TRUST MANAGERS AMERICAN INDUSTRIAL PROPERTIES REIT JULY 29, 1998 AUTHORIZATION OF SERIES A CONVERTIBLE PREFERRED SHARES OF BENEFICIAL INTEREST WHEREAS, the Board of Trust Managers of American Industrial Properties REIT (the "Trust") has deemed it to be in the best interest of the Trust and its shareholders for the Trust to establish a series of preferred shares pursuant to the authority granted to the Board of Trust Managers in the Third Amended and Restated Declaration of Trust, as amended (the "Declaration of Trust"), of the Trust: NOW, THEREFORE, BE IT RESOLVED, that, pursuant to the authority vested in the Board of Trust Managers by the Declaration of Trust, a series of preferred shares is hereby established, and the terms of the same shall be as follows: Section 1. Number of Shares and Designation. This series of Preferred Shares of Beneficial Interest shall be designated as Series A Convertible Preferred Shares of Beneficial Interest (the "Series A Preferred Shares") and up to 14,285,715 shall be the number of such Preferred Shares of Beneficial Interest constituting such series. Section 2. Definitions. For purposes of the Series A Preferred Shares, the following terms shall have the meanings indicated: "Act" shall mean the Securities Act of 1933, as amended. "Trust Managers" shall mean the Trust Managers of the Trust or any committee authorized by such Trust Managers to perform any of its responsibilities with respect to the Series A Preferred Shares. "Common Shares" shall mean Common Shares of Beneficial Interest, $.10 par value per share, of the Trust or such shares of the Trust's capital shares into which such Common Shares of Beneficial Interest shall be reclassified. "Conversion Rate" shall mean the conversion rate, as adjusted pursuant to paragraph (d) of Section 6. The initial Conversion Rate shall be one Common Share for each Series A Preferred Share. "Current Market Price" of publicly traded Common Shares or any other class or series of capital shares or other security of the Trust or of any similar security of any other issuer for 1 4 any day shall mean the last reported sales price, regular way on such day, or, if no sale takes place on such day, the average of the reported closing bid and asked prices regular way on such day, in either case as reported on the New York Stock Exchange ("NYSE") or, if such security is not listed or admitted for trading on the NYSE, on the principal national securities exchange on which such security is listed or admitted for trading or, if not listed or admitted for trading on any national securities exchange, on the National Market of the National Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or, if such security is not quoted on such National Market, the average of the closing bid and asked prices on such day in the over-the-counter market as reported by NASDAQ or, if bid and asked prices for such security on such day shall not have been reported through NASDAQ, the average of the bid and asked prices on such day as furnished by any NYSE member firm regularly making a market in such security selected for such purpose by the Chief Executive Officer or the Trust Managers or if any class or series of securities are not publicly traded, the fair value of the shares of such class as determined reasonably and in good faith by the Trust Managers. "Declaration of Trust" shall mean the Third Amended and Restated Declaration of Trust, as amended, of the Trust. "Funds Available for Distribution" shall mean funds from operations (net income, computed in accordance with generally accepted accounting principles excluding gains or losses from debt restructuring and sales of property, plus depreciation and amortization) minus non-revenue generating capital expenditures and debt principal amortization, as determined by the Trust Managers on a basis consistent with the policies and practices adopted by the Trust for reporting publicly its results of operations and financial condition. "Issue Date" shall mean the actual date of issuance of any Series A Preferred Shares. "Junior Shares" shall mean the Common Shares and any other class or series of capital shares of the Trust over which the Series A Preferred Shares have preference or priority in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Parity Shares" shall have the meaning set forth in paragraph (b) of Section 7 hereof. "Person" shall mean any individual, firm, partnership, corporation or other entity and shall include any successor (by merger or otherwise) of such entity. "Series A Preferred Shares" shall have the meaning set forth in Section 1 hereof. "Standstill Period" shall have the meaning set forth in that certain Share Purchase Agreement dated July 30, 1998, by and between the Trust and Developers Diversified Realty Corporation. 2 5 "Trading Day", as to any Common Shares, shall mean any day on which such Common Shares are traded on the NYSE or, if such Common Shares are not listed or admitted for trading on the NYSE, on the principal national securities exchange on which such Common Shares are listed or admitted or, if such Common Shares are not listed or admitted for trading on any national securities exchange, on the National Market of NASDAQ or, if such Common Shares are not quoted on such National Market, in the Common Shares market in which such Common Shares are traded. "Transaction" shall have the meaning set forth in paragraph (e) of Section 6 hereof. "Transfer Agent" means Boston EquiServe, Bank of Boston (or its affiliates) or any U.S. bank with aggregate capital, surplus and undivided profits, as shown on its last published report, of at least $30,000,000 as may be designated by the Trust Managers or their designee as the transfer agent for the Series A Preferred Shares. "Voting Preferred Shares" shall have the meaning set forth in paragraph (b) of Section 8 hereof. Section 3. Dividends. The holders of each Series A Preferred Share shall be entitled to receive dividends and distributions in an amount equal to the amount of dividends and distributions paid on each Common Share, when, as and if declared by the Board of Trust Managers of the Trust. Section 4. Liquidation Preference. (a) In the event of any liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary, before any payment or distribution of the assets of the Trust (whether capital or surplus) shall be made to or set apart for the holders of Junior Shares, the holders of Series A Preferred Shares shall be entitled to receive $0.001 per Series A Preferred Share plus an amount equal to all accrued and unpaid dividends thereon to the date fixed for distribution; but such holders shall not be entitled to any further payment. Until the holders of the Series A Preferred Shares have been paid the liquidation preference in full, no payment will be made to any holder of Junior Shares upon the liquidation, dissolution or winding up of the Trust. If, upon any liquidation, dissolution or winding up of the Trust, the assets of the Trust, or proceeds thereof, distributable among the holders of Series A Preferred Shares shall be insufficient to pay in full the preferential amount aforesaid and liquidating payments on any other shares of any class or series of Parity Shares, then such assets, or the proceeds thereof, shall be distributed among the holders of Series A Preferred Shares and any such other Parity Shares ratably in the same proportion as the respective amounts that would be payable on such Series A Preferred Shares and any such other Parity Shares if all amounts payable thereon were paid in full. For the purposes of this Section 4, (i) a consolidation or merger of the Trust with one or more corporations, (ii) a sale or transfer of all or substantially all of the Trust's assets, or (iii) a statutory share exchange shall not be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary, of the Trust. 3 6 (b) Subject to the rights of the holders of any Parity Shares, upon any liquidation, dissolution or winding up of the Trust, after payment shall have been made in full to the holders of Series A Preferred Shares and any Parity Shares, as provided in this Section 4, any other series or class or classes of Junior Shares shall, subject to the respective terms thereof, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Series A Preferred Shares and any Parity Shares shall not be entitled to share therein. Section 5. Shares To Be Retired. All Series A Preferred Shares which shall have been issued and reacquired in any manner by the Trust shall be restored to the status of authorized, but unissued Preferred Shares, without designation as to series. The Trust may also retire any unissued Series A Preferred Shares, and such shares shall then be restored to the status of authorized but unissued Preferred Shares, without designation as to series. Section 6. Conversion. Holders of Series A Preferred Shares shall have the right to convert all or a portion of such shares into Common Shares, as follows: (a) Subject to and upon compliance with the provisions of this Section 6, a holder of Series A Preferred Shares shall have the right, at such holder's option, at any time after the end of the Standstill Period to convert such shares, in whole or in part, into the number of fully paid and nonassessable shares of authorized but previously unissued Common Shares obtained by multiplying the Conversion Rate (as in effect at the time and on the date provided for in the last clause of paragraph (b) of this Section 6) by the number of Series A Preferred Shares to be converted by surrendering such shares to be converted, such surrender to be made in the manner provided in paragraph (b) of this Section 6. (b) In order to exercise the conversion right, the holder of each Series A Preferred Share to be converted shall surrender the certificate representing such shares, duly endorsed or assigned to the Trust or in blank, at the office of the Transfer Agent, accompanied by written notice to the Trust that the holder thereof elects to convert such Series A Preferred Shares. Unless the shares issuable on conversion are to be issued in the same name as the name in which such Series A Preferred Shares are registered, each share surrendered for conversion shall be accompanied by instruments of transfer, in form satisfactory to the Trust, duly executed by the holder or such holder's duly authorized attorney and an amount sufficient to pay any transfer or similar tax (or evidence reasonably satisfactory to the Trust demonstrating that such taxes have been paid). As promptly as practicable after the surrender of certificates for Series A Preferred Shares as aforesaid, the Trust shall issue and shall deliver at such office to such holder, or send on such holder's written order, a certificate or certificates for the number of full Common Shares issuable upon the conversion of such Series A Preferred Shares in accordance with provisions of this Section 6, and any fractional interest in respect of a Common Share arising upon such conversion shall be settled as provided in paragraph (c) of this Section 6. 4 7 Each conversion shall be deemed to have been effected immediately prior to the close of business on the date on which the certificates for Series A Preferred Shares shall have been surrendered and such notice received by the Trust as aforesaid, and the person or persons in whose name or names any certificate or certificates for Common Shares shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby at such time on such date and such conversion shall be at the Conversion Rate in effect at such time on such date unless the share transfer books of the Trust shall be closed on that date, in which event such person or persons shall be deemed to have become such holder or holders of record at the close of business on the next succeeding day on which such transfer books are open, but such conversion shall be at the Conversion Rate in effect on the date on which such shares shall have been surrendered and such notice received by the Trust. (c) No fractional Common Share or scrip representing fractions of a Common Share shall be issued upon conversion of the Series A Preferred Shares. Instead of any fractional interest in a Common Share that would otherwise be deliverable upon the conversion of Series A Preferred Shares, the Trust shall pay to the holder of such share an amount in cash based upon the Current Market Price of the Common Shares on the Trading Day immediately preceding the date of conversion. If more than one share shall be surrendered for conversion at one time by the same holder, the number of full Common Shares issuable upon conversion thereof shall be computed on the basis of the aggregate number of Series A Preferred Shares so surrendered. (d) The Conversion Rate shall be adjusted from time to time as follows: (i) If the Trust shall after the Issue Date (A) subdivide its outstanding Common Shares into a greater number of shares, (B) combine its outstanding Common Shares into a smaller number of shares, or (C) issue any capital shares by reclassification of its Common Shares, the Conversion Rate in effect at the opening of business on the day following the day on which such subdivision, combination or reclassification becomes effective, as the case may be, shall be adjusted so that the holder of any Series A Preferred Share thereafter surrendered for conversion shall be entitled to receive the number of Common Shares (or fraction of a Common Share) that such holder would have owned or have been entitled to receive after the happening of any of the events described above had such Series A Preferred Share been converted immediately prior to the effective date of the subdivision, combination or reclassification. An adjustment made pursuant to this paragraph (d)(i) of this Section 6 shall become effective immediately after the opening of business on the day next following the effective date of the subdivision, combination or reclassification. (ii) No adjustment in the Conversion Rate shall be required unless such adjustment would require a cumulative increase or decrease of at least 1% in such rate; provided, however, that any adjustments that by reason of this paragraph (d)(ii) are not required to be made shall be carried forward and taken into account in any subsequent adjustment until made. Notwithstanding any other provisions of this Section 6, the Trust shall not be required to make any adjustment of the Conversion Rate for the issuance of any Common Shares pursuant to any plan providing for the reinvestment of dividends or interest payable on securities of the Trust and the investment of additional optional amounts in 5 8 Common Shares under such plan. Anything in this paragraph (d) of this Section 6 to the contrary notwithstanding, the Trust shall be entitled, to the extent permitted by law, to make such adjustments in the Conversion Rate, in addition to those required by this paragraph (d), as the Trust in its discretion shall determine to be advisable in order that any share dividends, subdivision of shares, reclassification or combination of shares, distribution of rights or warrants to purchase shares or securities, or a distribution of other assets (other than cash dividends) hereafter made by the Trust to its shareholders shall not be taxable, or if that is not possible, to diminish any income taxes that are otherwise payable because of such event. (e) If the Trust shall be a party to any transaction (including without limitation a merger, consolidation, statutory share exchange, issuer or self tender offer for all or a substantial portion of the Common Shares outstanding, sale of all or substantially all of the Trust's assets or recapitalization of the Common Shares, but excluding any transaction as to which paragraph (d)(i) of this Section 6 applies) (each of the foregoing being referred to herein as a "Transaction"), in each case as a result of which Common Shares shall be converted into the right to receive shares, securities or other property (including cash or any combination thereof), each Series A Preferred Share which is not converted into the right to receive shares, securities or other property in connection with such Transaction shall thereupon be convertible into the kind and amount of shares, securities and other property (including cash or any combination thereof) receivable upon such consummation by a holder of that number of Common Shares into which one Series A Preferred Share was convertible immediately prior to such Transaction. The Trust shall not be a party to any Transaction unless the terms of such Transaction are consistent with the provisions of this paragraph (e), and it shall not consent or agree to the occurrence of any Transaction until the Trust has entered into an agreement with the successor or purchasing entity, as the case may be, for the benefit of the holders of the Series A Preferred Shares that will contain provisions enabling the holders of the Series A Preferred Shares that remain outstanding after such Transaction to convert into the consideration received by holders of Common Shares at the Conversion Rate in effect immediately prior to such Transaction. The provisions of this paragraph (e) shall similarly apply to successive Transactions. (f) If: (i) there shall be any reclassification of the Common Shares or any consolidation or merger to which the Trust is a party and for which approval of any shareholders of the Trust is required, or a statutory share exchange, or an issuer or self tender offer by the Trust for all or a substantial portion of its outstanding Common Shares (or an amendment thereto changing the maximum number of shares sought or the amount or type of consideration being offered therefor) or the sale or transfer of all or substantially all of the assets of the Trust as an entirety; or (ii) there shall occur the voluntary or involuntary liquidation, dissolution or winding up of the Trust, 6 9 then the Trust shall cause to be filed with the Transfer Agent and shall cause to be mailed to each holder of Series A Preferred Shares at such holder's address as shown on the records of the Trust, as promptly as possible, but at least 15 days prior to the applicable date hereinafter specified, a notice stating (A) the date on which such reclassification, consolidation, merger, statutory share exchange, sale, transfer, liquidation, dissolution or winding up is expected to become effective, and the date as of which it is expected that holders of Common Shares of record shall be entitled to exchange their Common Shares for securities or other property, if any, deliverable upon such reclassification, consolidation, merger, statutory share exchange, sale, transfer, liquidation, dissolution or winding up or (B) the date on which such tender offer commenced, the date on which such tender offer is scheduled to expire unless extended, the consideration offered and the other material terms thereof (or the material terms of any amendment thereto). Failure to give or receive such notice or any defect therein shall not affect the legality or validity of the proceedings described in this Section 6. (g) Whenever the Conversion Rate is adjusted as herein provided, the Trust shall promptly file with the Transfer Agent an officer's certificate setting forth the Conversion Rate after such adjustment and setting forth a brief statement of the facts requiring such adjustment which certificate shall be conclusive evidence of the correctness of such adjustment absent manifest error. Promptly after delivery of such certificate, the Trust shall prepare a notice of such adjustment of the Conversion Rate setting forth the adjusted Conversion Rate and the effective date such adjustment becomes effective and shall mail such notice of such adjustment of the Conversion Rate to each holder of Series A Preferred Shares at such holder's last address as shown on the share records of the Trust. (h) In any case in which paragraph (d) of this Section 6 provides that an adjustment shall become effective on the day next following the record date for an event, the Trust may defer until the occurrence of such event (A) issuing to the holder of any Series A Preferred Share converted after such record date and before the occurrence of such event the additional Common Shares issuable upon such conversion by reason of the adjustment required by such event over and above the Common Shares issuable upon such conversion before giving effect to such adjustment and (B) paying to such holder any amount of cash in lieu of any fraction pursuant to paragraph (c) of this Section 6. (i) There shall be no adjustment of the Conversion Rate in case of the issuance of any capital shares of the Trust in a reorganization, acquisition or other similar transaction except as specifically set forth in this Section 6. If any action or transaction would require adjustment of the Conversion Rate pursuant to more than one paragraph of this Section 6, only one adjustment shall be made and such adjustment shall be the amount of adjustment that has the highest absolute value. (j) If the Trust shall take any action affecting the Common Shares, other than an action described in this Section 6, that in the opinion of the Trust Managers would materially adversely affect the conversion rights of the holders of Series A Preferred Shares, the Conversion Rate for the Series A Preferred Shares may be adjusted, to the extent permitted by law, in such manner, if any, and at such time as the Board of Trust Managers, in its sole discretion, may determine to be equitable under the circumstances. 7 10 (k) The Trust shall at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Common Shares solely for the purpose of effecting conversion of the Series A Preferred Shares, the full number of Common Shares deliverable upon the conversion of all outstanding Series A Preferred Shares not theretofore converted into Common Shares. For purposes of this paragraph (k), the number of Common Shares that shall be deliverable upon the conversion of all outstanding Series A Preferred Shares shall be computed as if at the time of computation all such outstanding shares were held by a single holder. The Trust covenants that any Common Shares issued upon conversion of the Series A Preferred Shares shall be validly issued, fully paid and non-assessable. The Trust shall use its commercially reasonable efforts to list the Common Shares required to be delivered upon conversion of the Series A Preferred Shares, prior to such delivery, upon each national securities exchange, if any, upon which the outstanding Common Shares are listed at the time of such delivery. (l) The Trust will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of Common Shares or other securities or property on conversion of Series A Preferred Shares pursuant hereto; provided, however, that the Trust shall not be required to pay any tax that may be payable in respect of any transfer involved in the issue or delivery of Common Shares or other securities or property in a name other than that of the holder of the Series A Preferred Shares to be converted, and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Trust the amount of any such tax or established, to the reasonable satisfaction of the Trust, that such tax has been paid. Section 7. Ranking. Any class or series of capital shares of the Trust shall be deemed to rank: (a) prior or senior to the Series A Preferred Shares, as to the payment of dividends and as to distribution of assets upon liquidation, dissolution or winding up, if the holders of such class or series shall be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution or winding up, as the case may be, in preference or priority to the holders of Series A Preferred Shares; (b) on a parity with the Series A Preferred Shares, as to the payment of dividends and as to distribution of assets upon liquidation, dissolution or winding up, whether or not the dividend rates, dividend payment dates or redemption or liquidation prices per share thereof be different from those of the Series A Preferred Shares, if the holders of such class of Shares or series and the Series A Preferred Shares shall be entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Parity Shares"); and 8 11 (c) junior to the Series A Preferred Shares, as to the payment of dividends or as to the distribution of assets upon liquidation, dissolution or winding up, if such Shares or series shall be Common Shares or if the holders of Series A Preferred Shares shall be entitled to receipt of dividends or of amounts distributable upon liquidation, dissolution or winding up, as the case may be, in preference or priority to the holders of shares of such class or series ("Junior Shares"). Section 8. Voting. (a) Except as otherwise provided in Section 8(b) below, the holders of Series A Preferred Shares shall have no right to vote on any matter to be voted on by the shareholders of the Trust (including, without limitation, any election or removal of a Trust Manager), and the Series A Preferred Shares shall not be included in the number of shares voting or entitled to vote on such matters. (b) So long as any Series A Preferred Shares are outstanding, in addition to any other vote or consent of shareholders required by law or by the Declaration of Trust, the affirmative vote of at least 66 2/3% of the votes entitled to be cast by the holders of the Series A Preferred Shares, together with the holders of every other series of Parity Shares (any such other series, the "Voting Preferred Shares"), at the time outstanding, acting as a single class regardless of series, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating any amendment, alteration or repeal of any of the provisions of this Statement of Designation, the Declaration of Trust or the Bylaws of the Trust that materially adversely affects the voting powers, rights or preferences of the holders of the Series A Preferred Shares or the Voting Preferred Shares; provided, however, that the amendment of the provisions of the Declaration of Trust so as to authorize or create, or to increase the authorized amount of, any Junior Shares or any shares of any class ranking prior to or on a parity with the Series A Preferred Shares or the Voting Preferred Shares shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Series A Preferred Shares. Section 10. Record Holders. The Trust and the Transfer Agent may deem and treat the record holder of any Series A Preferred Share as the true and lawful owner thereof for all purposes, and neither the Trust nor the Transfer Agent shall be affected by any notice to the contrary. Ratification and Authorization RESOLVED, that any and all acts and deeds of any officer or Trust Manager taken prior to the date hereof on behalf of the Trust with regard to the foregoing resolutions are hereby approved, ratified and confirmed in all respects as and for the acts and deeds of the Trust. FURTHER RESOLVED, that the officers of the Trust be, and each of them hereby is, severally and without the necessity for joinder of any other person, authorized, empowered and directed to execute and deliver any and all such further documents and instruments and to do and perform any and all such further acts and deeds that may be necessary or advisable to effectuate and carry out the purposes and intents of the foregoing resolutions, including, but not limited to, the filing of a statement with the County Clerk of Dallas County, Texas, setting forth the designations, 9 12 preferences, limitations and rights of Series A Preferred Shares pursuant to Section 3.30 of TREITA, all such actions to be performed in such manner, and all such documents and instruments to be executed and delivered in such form, as the officer performing or executing the same shall approve, the performance or execution thereof by such officer to be conclusive evidence of the approval thereof by such officer and by the Board of Trust Managers. 10 EX-10.1 4 SHARE PURCHASE AGREEMENT 1 EXHIBIT 10.1 - -------------------------------------------------------------------------------- SHARE PURCHASE AGREEMENT between AMERICAN INDUSTRIAL PROPERTIES REIT and DEVELOPERS DIVERSIFIED REALTY CORPORATION dated as of July 30, 1998 - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
Page ---- ARTICLE 1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE 2 PURCHASE AND SALE OF SHARES; CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 2.1 Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 2.2 Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 2.3 Closings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 3.1 Organization and Qualification; Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . 10 Section 3.2 Authority Relative to Agreements; Board Approval . . . . . . . . . . . . . . . . . . . . . 11 Section 3.3 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 3.4 No Conflicts; No Defaults; Required Filings and Consents . . . . . . . . . . . . . . . . . 12 Section 3.5 SEC Matters and Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . 13 Section 3.6 Litigation; Compliance With Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 3.7 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 3.8 Tax Matters; REIT & Partnership Status . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 3.9 Compliance with Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 3.10 Financial Records; Trust Declaration and By-Laws; Corporate Records . . . . . . . . . . . . 19 Section 3.11 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 3.12 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 3.13 Employees and Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 3.14 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 3.15 Affiliate Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 3.16 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 3.17 Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 3.18 Takeover Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 3.19 Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 3.20 Knowledge Defined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 4.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 4.2 Due Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 4.3 Conflicting Agreements and Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 4.4 Acquisition for Investment; Sophistication . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 4.5 Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 4.6 Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 4.7 REIT Qualification Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 4.8 Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 4.9 Legends; Stop-Transfer Orders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 ARTICLE 5 COVENANTS RELATING TO THE CLOSINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 5.1 Taking of Necessary Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 5.2 Public Announcement; Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Section 5.3 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
-i- 3 Section 5.4 No Solicitation of Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Section 5.5 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 5.6 Provision of Certain Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 5.7 Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 5.8 Merger Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 5.9 Compensation of Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 ARTICLE 6 CERTAIN ADDITIONAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 6.1 Resale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 6.2 REIT Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 6.3 Board Representation; Chairmanship; Visitation Rights; Voting Agreements . . . . . . . . . 38 Section 6.4 Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 6.5 Acknowledgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 6.6 Additional Purchased Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 6.7 Anti-Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Section 6.8 No Repurchase Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 6.9 Excess Securities Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 6.10 Disinterested Managers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 6.11 Standstill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 6.12 Funding Prior to Second Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 ARTICLE 7 CLOSING DELIVERIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 7.1 Initial Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 7.2 Second Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Section 7.3 Additional Closings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 ARTICLE 8 CONDITIONS TO CLOSINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 8.1 Conditions to Purchase at Initial Closing . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 8.2 Conditions of Sale at Initial Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 8.3 Conditions to Purchase at Second Closing . . . . . . . . . . . . . . . . . . . . . . . . . 52 Section 8.4 Conditions of Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Section 8.5 Conditions to Purchase at each Additional Closing . . . . . . . . . . . . . . . . . . . . . 53 Section 8.6 Conditions to Sale at each Additional Closing . . . . . . . . . . . . . . . . . . . . . . . 53 ARTICLE 9 SURVIVAL; INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 9.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 9.2 Indemnification by Buyer or the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 9.3 Third-Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 ARTICLE 10 TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 10.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 10.2 Procedure and Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 10.3 Expenses; Breakup Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Section 10.4 Repurchase Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 ARTICLE 11 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 11.1 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 11.2 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 11.3 Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 11.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
-ii- 4 Section 11.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Section 11.6 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Section 11.7 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Section 11.8 Interpretation; Absence of Presumption . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Section 11.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Section 11.10 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Section 11.11 Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
-iii- 5 SCHEDULES Schedule 3.1(d) Subsidiaries Schedule 3.3(a) Partnership Units Schedule 3.3(b) Options Under Option Plans Schedule 3.3(c) Options, Warrants, Etc. Schedule 3.4(b) Breaches, Defaults or Accelerations of Vesting Schedule 3.4(d) Defaults Schedule 3.6(a) Litigation; Compliance with Law Schedule 3.7 Absence of Certain Changes or Events Schedule 3.8(a) Tax Matters Schedule 3.8(c) Section 280G Matters Schedule 3.8(d) Section 162(m) Matters Schedule 3.9(c) Indebtedness; Joint Venture and Partnership Agreements Schedule 3.9(d) Development, Construction, Management and Leasing Arrangements Schedule 3.9(e) Other Material Agreements Schedule 3.9(f) Conflict Policies & Agreements; Waivers Schedule 3.10(b) Corporate Records Schedule 3.11(a) Trust Properties Schedule 3.11(b) Trust Property Violations/Engineering Reports Schedule 3.11(c) Trust Property Road Changes Schedule 3.11(f) Material Trust Lease Information Schedule 3.11(g) Trust Property Letters of Intent or Similar Understandings Schedule 3.11(h) Trust Property Rights of First Refusal Schedule 3.11(i) Trust Property Noncompliance and Capital Expenditure Budget and Schedule Schedule 3.11(j) Developed, Undeveloped, or Rehabilitated Land of Trust Property Schedule 3.11(l) Trust Tenancy Leases Schedule 3.12(a) Environmental Permits Schedule 3.12(e) Environmental Concerns Schedule 3.12(f) Environmental Reports Schedule 3.13(a) Employment Agreements Schedule 3.13(b) Employee Benefit Plans Schedule 3.13(g) COBRA Participants Schedule 3.13(k) Payments to Employees Schedule 3.14 Collective Bargaining; Labor Union Agreements Schedule 3.15 Affirmative Transactions Schedule 3.20 Individuals for Knowledge Test Schedule 6.12 Property Acquisitions for Funding Option
-iv- 6 EXHIBIT Exhibit A Trust Declaration Exhibit B Terms of Buyer Preferred Shares Exhibit C Registration Rights Agreement Exhibit D Form of Promissory Note
-v- 7 THIS SHARE PURCHASE AGREEMENT (the "Agreement"), dated as of July 30, 1998, is made between American Industrial Properties REIT, a Texas real estate investment trust (the "Trust"), and Developers Diversified Realty Corporation, an Ohio corporation ("Buyer"). RECITALS: WHEREAS, Buyer wishes to purchase from the Trust, and the Trust wishes to sell to Buyer, an aggregate of 6,175,730 of the Trust's common shares of beneficial interest, par value $0.10 per share ("Trust Common Shares"), having the terms set forth in the Third Amended and Restated Declaration of Trust attached as Exhibit A (the "Trust Declaration"), in exchange for the Initial Purchase Price and the Remaining Purchase Price, each as defined herein; and WHEREAS, Buyer and the Trust are entering into this Agreement to provide for such purchase and sale and to establish various rights and obligations in connection with this Agreement and the Merger Agreement, as defined herein; NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto hereby agree as follows: ARTICLE 1 DEFINITIONS As used in this Agreement, the following terms have the following respective meanings: "Action" means any actual or threatened action, suit, arbitration, inquiry, proceeding or investigation by or before any Government Authority. "ADA" has the meaning set forth in Section 3.11(e). "Additional Closing Date" has the meaning set forth in Section 2.3(c). "Additional Purchase Option" has the meaning set forth in Section 6.6(a). "Additional Purchased Shares" has the meaning set forth in Section 6.6(a). "Affiliate" has the meaning ascribed thereto in Rule 12b-2 promulgated under the Exchange Act, as in effect on the date hereof. -1- 8 "Agreement" has the meaning set forth in the first paragraph hereof. "Benefit Arrangements" has the meaning set forth in Section 3.13(h). "Beneficial Ownership" has the meaning set forth in Rule 13d-3 promulgated under the Exchange Act. "Blue Sky Laws" has the meaning set forth in Section 3.4(e). "Board of Managers" means the Board of Trust Managers of the Trust. "Breakup Fee" has the meaning set forth in Section 10.3(c). "Business Day" means any day other than a Saturday, a Sunday or a bank holiday in Cleveland, Ohio or Dallas, Texas. "Buyer" has the meaning set forth in the first paragraph hereof. "Buyer Preferred Shares" means a class of preferred shares of the Trust to be created by the Board of Managers on or prior to the date hereof having the terms set forth in Exhibit B hereto. "Buyer Representatives" has the meaning set forth in Section 6.3(a). "Buyer Shares" means, at any time, the Initial Purchased Shares and the Remaining Shares then issued and outstanding pursuant to this Agreement, as adjusted for any share split, subdivision, combination, merger, reclassification or share dividend related to the Trust Common Shares occurring at or before that time. "CERCLA" has the meaning set forth in Section 3.12(e). "Claim" has the meaning set forth in Section 3.12(g)(i). "Closing" has the meaning set forth in Section 2.3. "Code" means the Internal Revenue Code of 1986, as amended, and any successor thereto, including all of the rules and regulations promulgated thereunder. "Commitment" has the meaning set forth in Section 3.7. "Competing Transaction" means (i) any acquisition in any manner, directly or indirectly (including through any option, right to acquire or other Beneficial Ownership), of more than 10% -2- 9 of any class of equity securities of the Trust or any Subsidiary or assets representing a material portion of the assets of the Trust or any Subsidiary, (ii) any merger, consolidation, sale of assets, share exchange, recapitalization, other business combination, liquidation, or other action out of the ordinary course of business of the Trust, or (iii) any public announcement of a proposal, plan or intention to do any of the foregoing or any agreement to engage in any of the foregoing. "Controlled Group Liability" has the meaning set forth in Section 3.13(h). "Debt Instruments" means all notes, mortgages, deeds of trust or similar instruments which evidence or secure any indebtedness payable to the Trust or any Subsidiary. "Development Properties" has the meaning set forth in Section 3.11(j). "Development Budget and Schedule" has the meaning set forth in Section 3.11(j). "Disinterested Managers" has the meaning set forth in Section 6.11. "Employee Benefit Plan" has the meaning set forth in Section 3.13(h). "Employees" has the meaning set forth in Section 3.13(h). "Environmental Claim" has the meaning set forth in Section 3.12(g)(ii). "Environmental Laws" has the meaning set forth in Section 3.12(g)(iii). "Environmental Permits" has the meaning set forth in Section 3.12(a). "ERISA" means the Employee Income Security Act of 1974, as amended, and any successor thereto. "ERISA Affiliate" means, with respect to any entity, trade or business, any other entity, trade or business that is a member of a group described in Section 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA that includes the first entity, trade or business, or that is a member of the same "controlled group" as the first entity, trade or business within the meaning of Section 4001(a)(14) of ERISA. "Exercise Date Trailing Average" has the meaning set forth in Section 6.6(c). -3- 10 "Exchange Act" has the meaning set forth in Section 3.4(e). "Executive Summaries of the Trust Environmental Reports" has the meaning set forth in Section 3.12(f). "Forty Percent Threshold" has the meaning set forth in Section 6.7(a). "GAAP" has the meaning set forth in Section 3.5(b). "Government Authority" means any government or state (or any subdivision thereof) of or in the United States, or any agency, authority, bureau, commission, department or similar body or instrumentality thereof, or any governmental court or tribunal. "HSR Act" has the meaning set forth in Section 3.4(e). "Indemnified Party" has the meaning set forth in Section 9.2. "Initial Closing" has the meaning set forth in Section 2.2. "Initial Closing Date" has the meaning set forth in Section 2.1(a). "Initial Purchase Price" means $14,711,778.50. "Initial Shares" has the meaning set forth in Section 2.1(a). "Insurance Policies" has the meaning set forth in Section 3.16. "IRS" means the Internal Revenue Service. "Liabilities" means, as to any Person, all debts, adverse claims, liabilities and obligations, direct, indirect, absolute or contingent of such Person, whether accrued, vested or otherwise, whether in contract, tort, strict liability or otherwise and whether or not actually reflected, or required by GAAP to be reflected, in such Person's balance sheets or other books and records, including (i) obligations arising from noncompliance with any law, rule or regulation of any Government Authority or imposed by any court or any arbitrator of any kind, (ii) all indebtedness or liability of such Person for borrowed money, or for the purchase price of property or services (including trade obligations), (iii) all obligations of such Person as lessee under leases, capital or other, (iv) liabilities of such Person in respect of plans covered by Title IV of ERISA, or otherwise arising in respect of plans for employees or former employees or their respective families or beneficiaries, (v) reimbursement obligations of such Person in respect of letters of -4- 11 credit, (vi) all obligations of such Person arising under acceptance facilities, (vii) all liabilities of other Persons or entities, directly or indirectly, guaranteed, endorsed (other than for collection or deposit in the ordinary course of business) or discounted with recourse by such Person or with respect to which such Person is otherwise directly or indirectly liable, (viii) all obligations secured by any Lien on property of such Person, whether or not the obligations have been assumed, and (ix) all other items which have been, or in accordance with GAAP would be, included in determining total liabilities on the liability side of such Person's balance sheet. "Liens" means all liens, mortgages, deeds of trust, deeds to secure debt, security interests, pledges, claims, charges, easements and other encumbrances of any nature whatsoever. "Loss and Expense" has the meaning set forth in Section 9.2(a). "Manager" means a member of the Board of Managers. "Material Adverse Effect" means a material adverse effect on the financial condition, results of operations, business or prospects of the Trust and its Subsidiaries (to the extent of the Trust's interests therein), taken as a whole. "Material Buyer Leases" has the meaning set forth in Section 4.9(f). "Material Transaction" means any transaction between Buyer and its Affiliates, on the one hand, and the Trust and its Affiliates, on the other hand. "Material Trust Leases" has the meaning set forth in Section 3.11(f). "Materials of Environmental Concern" has the meaning set forth in Section 3.12(g)(iv). "Merger Agreement" means the Merger Agreement of even date herewith among the Trust, Buyer and DDR Office Flex Corporation, a Delaware corporation. "Merger Shares" has the meaning set forth in Section 2.1. "NYSE" means the New York Stock Exchange, Inc. "Notice of Superior Proposal" has the meaning set forth in Section 5.4. "Other Filings" has the meaning set forth in Section 5.1(b). -5- 12 "Partnership Units" has the meaning set forth in Section 3.3(a). "Pension Plans" has the meaning set forth in Section 3.13(h). "Person" means any individual, corporation, partnership, limited liability company, joint venture, trust, unincorporated organization, other form of business or legal entity or Government Authority. "Project" has the meaning set forth in Section 3.11(j). "Property Restrictions" has the meaning set forth in Section 3.11(a). "Proxy Statement" has the meaning set forth in Section 5.1(b). "Purchase Price" has the meaning set forth in Section 2.2. "Purchased Shares" has the meaning set forth in Section 2.1. "Qualified REIT Subsidiary" has the meaning set forth in Section 3.8(i). "Realco" has the meaning set forth in Section 3.15. "Registration Rights Agreement" means an agreement in substantially the same form as the agreement attached hereto as Exhibit C. "Regulatory Filings" has the meaning set forth in Section 3.4(e). "REIT" has the meaning set forth in Section 3.8(b). "Release" has the meaning set forth in Section 3.12(g)(v). "Remaining Purchase Price" means $81,012,036.50. "Remaining Shares" has the meaning set forth in Section 2.1(b). "SEC" has the meaning set forth in Section 3.5(a). "Second Closing" has the meaning set forth in Section 2.2. "Second Closing Date" has the meaning set forth in Section 2.3(b). -6- 13 "Securities Act" has the meaning set forth in Section 3.4(c). "Securities Laws" has the meaning set forth in Section 3.5(a). "Standstill Period" has the meaning set forth in Section 6.11. "Subsidiary" means each entity of which the Trust is the direct or indirect general partner or as to which the Trust, directly or through one or more intermediary entities, has the right to elect a majority of the board of directors or other governing body or as to which the Trust has the right to receive 50% or more of the economic value of any business or activity in which such entity is engaged. "Superior Proposal" means any bona fide written proposal for a Competing Transaction that the Board of Managers determines in good faith (after consultation with a financial adviser of nationally-recognized reputation and the Trust's outside legal counsel) will provide greater aggregate value to the Trust or the Trust's shareholders than the transaction contemplated by this Agreement (and with a greater aggregate value than any alternative transaction proposed by Buyer in accordance with Section 5.4). "Tax" means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code Section 54A), customs duties, capital stock, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. The term "Tax" also includes any amount payable pursuant to any tax sharing agreement pursuant to which any relevant party is liable and any amount payable pursuant to any similar contract. "Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. "Threshold Amount" has the meaning set forth in Section 6.6(b). "Trust" has the meaning set forth in the first paragraph hereof. "Trust Abstracts" has the meaning set forth in Section 3.11(f). -7- 14 "Trust Capital Expenditure Budget and Schedule" has the meaning set forth in Section 3.11(i). "Trust Common Shares" has the meaning set forth in the second paragraph hereof. "Trust Declaration" means the Third Amended and Restated Declaration of Trust of the Trust attached hereto as Exhibit A. "Trust Environmental Reports" has the meaning set forth in Section 3.12(f). "Trust Leases" has the meaning set forth in Section 3.11(f). "Trust Permitted Liens" means (i) Liens (other than Liens imposed under ERISA or any Environmental Law or in connection with any Environmental Claim) for taxes or other assessments or charges of Governmental Authorities that are not yet delinquent or that are being contested in good faith by appropriate proceedings in each case, and with respect to which adequate reserves or other appropriate provisions are being maintained by the Trust or its Subsidiaries to the extent required by GAAP, (ii) statutory Liens of landlords, carriers, warehousemen, mechanics, materialmen and other Liens (other than Liens imposed under ERISA or any Environmental Law or in connection with any Environmental Claim) imposed by law and created in the ordinary course of business for amounts not yet overdue or which are being contested in good faith by appropriate proceedings, and in each case with respect to which adequate reserves or other appropriate provisions are being maintained by the Trust or its Subsidiaries to the extent required by GAAP and which do not exceed $25,000 in the aggregate, (iii) the Trust Leases, (iv) easements, rights-of-way and covenant restrictions which are customary and typical for properties similar to the Trust Properties and which do not (x) interfere materially with the ordinary conduct of any Trust Property or the business of the Trust and its Subsidiaries as a whole or (y) detract materially from the value or usefulness of the Trust Property to which they apply, (v) the Liens which were granted by the Trust or any of its Subsidiaries to lenders pursuant to credit agreements in existence on the date hereof which are described in Schedule 3.9(c), and (vi) such imperfections of title and encumbrances, if any, as would not individually or in the aggregate reasonably be expected to result in a Material Adverse Effect. "Trust Plans" has the meaning set forth in Section 3.13(b). "Trust Property" has the meaning set forth in Section 3.11(a). "Trust Reports" has the meaning set forth in Section 3.5(a). -8- 15 "Trust Rent Roll" has the meaning set forth in Section 3.11(f). "Trust Tenancy Leases" has the meaning set forth in Section 3.11(l). "Welfare Plans" has the meaning set forth in Section 3.13(h). ARTICLE 2 PURCHASE AND SALE OF SHARES; CLOSING Section 2.1 Purchase and Sale. On the terms and subject to the conditions hereof: (a) at the Initial Closing, the Trust will issue and deliver to Buyer 949,147 Trust Common Shares (the "Initial Shares"); and (b) at the Second Closing, the Trust will issue and deliver to Buyer 5,226,583 Trust Common Shares (the "Remaining Shares," and, together with the Initial Shares, the Additional Purchased Shares (to the extent any are issued) and the Trust Common Shares issued pursuant to the Merger Agreement (the "Merger Shares"), the "Purchased Shares"). Any Additional Purchased Shares will be issued and delivered on the terms and subject to the conditions described in this Agreement, and the Merger Shares will be issued and delivered on the terms, and subject to the conditions described in the Merger Agreement. Section 2.2 Consideration. On the terms and subject to the conditions hereof, at the closing of the purchase of the Initial Shares (the "Initial Closing"), Buyer shall deliver the Initial Purchase Price, in immediately available funds, in exchange for the Initial Shares, and at the closing of the purchase of the Remaining Shares (the "Second Closing"), Buyer shall deliver the Remaining Purchase Price, in immediately available funds, in exchange for the Remaining Shares. Section 2.3 Closings. (a) Initial Closing. The Initial Closing shall take place at 10:00 a.m., local time, at the offices of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P., 2001 Ross Avenue, Suite 3000, Dallas, Texas 75201, on the Business Day following the satisfaction or waiver of the last to be satisfied or waived of the conditions set forth in Sections 8.1 and 8.2 (other than those conditions that are to be satisfied concurrently with the Initial Closing), or on such other date or at such other time and place as the parties shall agree on in writing (the "Initial Closing Date"). (b) Second Closing. The Second Closing shall take place at 10:00 a.m., local time, at the offices of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P., 2001 Ross Avenue, Suite 3000, Dallas, Texas 75201, on the Business Day following the satisfaction or waiver of the last to be satisfied or waived of -9- 16 the conditions set forth in Sections 8.3 and 8.4 (other than those conditions that are to be satisfied concurrently with the Second Closing), or on such other date or at such other time and place as the parties shall agree on in writing (the "Second Closing Date"). (c) Additional Closings. Any closing of any purchase of Additional Purchased Shares (each, an "Additional Closing," and each of the Initial Closing and the Second Closing and each Additional Closing, a "Closing") shall take place at 10:00 a.m., local time, at the offices of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P., 2001 Ross Avenue, Suite 3000, Dallas, Texas 75201, on the Business Day following the satisfaction or waiver of the last to be satisfied or waived of the agreements and conditions set forth in Sections 6.6, 8.5 and 8.6 (other than those conditions that are to be satisfied concurrently with that Additional Closing), or on such other date or at such other time and place as the parties shall agree on in writing (each date of an Additional Closing, an "Additional Closing Date"). ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE TRUST The Trust hereby represents and warrants to Buyer as follows: Section 3.1 Organization and Qualification; Subsidiaries. (a) The Trust is a real estate investment trust duly organized and validly existing under the laws of the State of Texas. The Trust has all requisite power and authority to own, operate, lease and encumber its properties and carry on its business as now conducted, and to enter into this Agreement and to perform its obligations hereunder. (b) Each Subsidiary of the Trust is a corporation, partnership or limited liability company duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, and has the corporate, partnership or limited liability company power and authority, as applicable, to own its properties and carry on its business as it is now being conducted. (c) The Trust and each of its Subsidiaries is duly qualified to do business and to the extent legally applicable is in good standing in such jurisdictions in which the ownership of its property or the conduct of its business requires such qualification, except for any jurisdiction in which any failure to be so qualified or to be in good standing would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. (d) Schedule 3.1(d) sets forth the name of each Subsidiary (whether owned directly or indirectly through one or -10- 17 more intermediaries). All of the outstanding shares of capital stock of, or other equity interests in, each of the Subsidiaries are duly authorized, validly issued, fully paid and nonassessable, and are owned, directly or indirectly, by the Trust free and clear of all Liens, except as set forth in Schedule 3.1(d). The following information for each Subsidiary is set forth in Schedule 3.1(d), if applicable: (i) its name and jurisdiction of incorporation or organization; (ii) the type of and percentage interest held by the Trust in the Subsidiary and the names of and percentage interest held by the other interest holders, if any, in the Subsidiary; and (iii) any loans from the Trust to, or payments payable to the Trust from, the Subsidiary, and the rate of interest thereon. Section 3.2 Authority Relative to Agreements; Board Approval. (a) The execution, delivery and performance of this Agreement and of all of the documents and instruments delivered in connection herewith by the Trust are within the power of the Trust. This Agreement is, and the other documents and instruments required hereby will be, when executed and delivered by the Trust, the valid and binding obligations of the Trust, enforceable against the Trust in accordance with their respective terms subject only to bankruptcy, insolvency, reorganization, moratorium or similar laws at the time in effect affecting the enforceability or right of creditors generally and to general equitable principles which may limit the right to obtain equitable remedies. (b) The Board of Managers has approved this Agreement and the Merger Agreement and the transactions contemplated hereby and thereby and has determined to recommend that the shareholders of the Trust vote in favor of and approve the issuance of the Purchased Shares pursuant to this Agreement and the Merger Agreement. (c) The Purchased Shares to be issued pursuant to this Agreement and the Merger Agreement have been duly authorized, and upon issuance on the terms set forth in this Agreement and the Merger Agreement will be duly and validly issued, fully paid and nonassessable. Upon consummation of the transactions contemplated by this Agreement and the Merger Agreement, Buyer will have good title to the Purchased Shares issued pursuant to this Agreement and the Merger Agreement, free and clear of all Liens. (d) The sale of the Purchased Shares pursuant to this Agreement and the Merger Agreement will not give any shareholder of the Trust the right to demand payment for that shareholder's shares under the law of the State of Texas, but may give them such rights under the Trust Declaration. Section 3.3 Capital Stock. (a) The authorized capital stock of the Trust on the date hereof consists of 500,000,000 Trust Common Shares, and 50,000,000 preferred shares of beneficial interest, $.10 par value. As of the date hereof, -11- 18 there are 11,093,594 Trust Common Shares issued and outstanding, and no preferred shares issued and outstanding. All such issued and outstanding Trust Common Shares are duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights. The Trust has no outstanding bonds, debentures, notes or other obligations the holders of which have the right to vote (or which are convertible into or exercisable for securities the holders of which have the right to vote) with the shareholders of the Trust on any matter. Other than (i) the limited partnership units ("Partnership Units") described in Schedule 3.3(a) of this Agreement which may be put to the Trust by the holders thereof for Trust Common Shares or the cash equivalent thereof (at the option of the Trust), (ii) options subject to grant under the option plans described in Schedule 3.3(b) of this Agreement, or (iii) as described in Schedule 3.3(c) to this Agreement, there are no existing options, warrants, calls, subscriptions, convertible securities, or other rights, agreements or commitments which obligate the Trust to issue, transfer or sell any shares of capital stock or other equity interests of the Trust. (b) Except as described in Schedule 3.3(a), no Subsidiary has issued Partnership Units or granted securities convertible into interests in the Trust or in any Subsidiary and no Subsidiary is a party to any outstanding commitment of any kind relating to, or any presently effective agreement or understanding with respect to, interests in the Trust or in any Subsidiary, whether issued or unissued. (c) Except for the Trust's interests in the Subsidiaries or as described in Schedule 3.3(c), none of the Trust or any of its Subsidiaries owns directly or indirectly any interest or investment (whether equity or debt) in any corporation, partnership, joint business, trust or other legal entity (other than investments in short-term investment securities). Section 3.4 No Conflicts; No Defaults; Required Filings and Consents. Neither the execution and delivery by the Trust hereof or of the Merger Agreement nor the consummation by the Trust of the transactions contemplated hereby or by the Merger Agreement in accordance with the terms hereof and thereof, will: (a) conflict with or result in a breach of any provisions of the Trust Declaration or By-laws of the Trust; (b) except as described in Schedule 3.4(b), result in a breach or violation of, a default under, or the triggering of any payment or other obligation pursuant to, or accelerate vesting under, any Trust or Subsidiary stock option plan, option plan or similar compensation plan or any grant or award made under any of the foregoing; -12- 19 (c) violate or conflict with any statute, regulation, judgment, order, writ, decree or injunction applicable to the Trust or to any of its Subsidiaries; (d) except as described in Schedule 3.4(d), violate or conflict with or result in a breach of any provision of, or constitute a default (or any 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 upon any of the properties of the Trust or of any of 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 franchise, permit, lease, contract, agreement or other instrument, commitment or obligation to which the Trust or any of its Subsidiaries is a party, or by which the Trust or any of its Subsidiaries or any of their properties is bound or affected; or (e) require any consent, approval or authorization of, or declaration, filing or registration with, any Government Authority, other than any filings required under the Securities Act of 1933, as amended (the "Securities Act"), the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), state securities laws ("Blue Sky Laws") (collectively, the "Filings"), and any filings required to be made with the Texas State Department of Assessments and Taxation, if any, or any national securities exchange on which the Trust Common Shares are listed. Section 3.5 SEC Matters and Absence of Undisclosed Liabilities. (a) The Trust has delivered or made available to Buyer the Annual Report on Form 10-K for the fiscal year ended December 31, 1997 filed by the Trust with the Securities and Exchange Commission ("SEC") and all exhibits, amendments and supplements thereto, including all documents incorporated by reference therein (collectively, the "Form 10-K"), and each registration statement, report, proxy statement or information statement and all exhibits thereto prepared by the Trust or relating to the Trust Properties for the five years prior to the date of this Agreement, each in the form (including exhibits and any amendments thereto) filed with the SEC (collectively the "Trust Reports"). The Trust Reports were filed with the SEC in a timely manner and constitute all forms, reports and documents required to be filed by the Trust under the Securities Act and the Exchange Act and the rules and regulations promulgated thereunder (the "Securities Laws"). As of their respective dates, the Trust 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 -13- 20 necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading. There is no unresolved violation asserted by any Government Authority with respect to any of the Trust Reports. (b) Each of the balance sheets included in or incorporated by reference into the Trust Reports (including the related notes and schedules) fairly presented the financial position of the entity or entities to which it relates as of its date and each of the statements of operations, shareholders' equity (deficit) and cash flows included in or incorporated by reference into the Trust Reports (including any related notes and schedules) fairly presented the results of operations, retained earnings or cash flows, as the case may be, of the entity or entities to which it relates for the period covered thereby, in each case in accordance with United States generally accepted accounting principles ("GAAP") consistently applied during the periods involved and in accordance with Regulation S-X promulgated by the SEC, except as may be noted therein and except, in the case of the unaudited statements, for normal recurring year-end adjustments which would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. (c) Except as and to the extent set forth in the Trust Reports or in any Schedule hereto, to the best of the Trust's knowledge, none of the Trust or any of its Subsidiaries has any material Liabilities, nor do there exist any circumstances that would, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. Section 3.6 Litigation; Compliance With Law. (a) Except as disclosed in Schedule 3.6(a), there are no Actions pending or, to the Trust's knowledge, threatened against the Trust or any of its Subsidiaries that would, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect, or which question the validity hereof or of the Merger Agreement or of the any action taken or to be taken in connection herewith or with the Merger Agreement. Except as disclosed in Schedule 3.6(a), there are no continuing orders, injunctions or decrees of any Government Authority to which the Trust or any of its Subsidiaries is a party or by which any of its properties or assets are bound. (b) None of the Trust or any of its Subsidiaries is in material violation of any statute, rule, regulation, order, writ, decree or injunction of any Government Authority or any body having jurisdiction over them or any of their respective properties which, if enforced, would, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. Section 3.7 Absence of Certain Changes or Events. Except as disclosed in Schedule 3.7 or in any Trust Report or other filings made by the Trust with the SEC, since January 1, -14- 21 1996, the Trust and each of its Subsidiaries has conducted its business only in the ordinary course of such business and has not acquired any real estate or entered into any financing arrangements in connection therewith, and there has not been (a) any change, circumstance or event that would reasonably be expected to result in a Material Adverse Effect, (b) any declaration, setting aside or payment of any dividend or other distribution with respect to the Trust Common Shares, (c) any commitment, contractual obligation, borrowing, capital expenditure or transaction (each, a "Commitment") entered into by the Trust or any of its Subsidiaries, other than Commitments which would not, individually or in the aggregate, be expected to result in a Material Adverse Effect, or (d) any change in the Trust's accounting principles, practices or methods. Section 3.8 Tax Matters; REIT & Partnership Status. (a) The Trust and each of its Subsidiaries has timely filed with the appropriate taxing authority all Tax Returns required to be filed by it or has timely requested extensions and any such request has been granted and has not expired. Each such Tax Return is complete and accurate in all material respects. All information shown on any Tax Return is correct in all material respects, and all material Taxes shown as owed by the Trust or by any of its Subsidiaries on any Tax Return have been paid or accrued, except for Taxes contested in good faith and for which adequate reserves have been taken. Each of the Trust and each of its Subsidiaries has properly accrued all Taxes for periods subsequent to the periods covered by such Tax Returns as required by GAAP. None of the Trust or 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 Tax. None of the Trust or any of its Subsidiaries is a party to any pending action or proceeding by any taxing authority for assessment or collection of any Tax, and no claim for assessment or collection of any Tax has been asserted against it. No claim has been made by any authority in a jurisdiction where the Trust or any of its Subsidiaries does not file Tax Returns that it is or may be subject to taxation or reporting in that jurisdiction. There is no dispute or claim concerning any information, reporting or tax liability of the Trust or of any of its Subsidiaries, (i) claimed or raised by any taxing authority in writing or (ii) as to which the Trust or any of its Subsidiaries has knowledge. The Trust is a "domestically-controlled" REIT within the meaning of Code Section 897(h)(4)(B), and all nondomestic registered, and to the knowledge of the Trust beneficial, owners of Trust Common Shares are listed in Schedule 3.8(a). To the Trust's knowledge, no Person or entity which would be treated as an "individual" for purposes of Section 542(a)(2) of the Code (as modified by Section 856(h) of the Code) owns or would be considered to own (taking into account the ownership attribution rules under Section 544 of the Code, as modified by Section 856(h) of the Code) in excess of 9.8% of the value of the outstanding equity interests in the Trust. -15- 22 (b) The Trust (i) intends in its federal income tax return for the tax year ended December 31, 1997 and for the tax year that will end on December 31, 1998 to elect to be taxed as a real estate investment trust within the meaning of Section 856 of the Code ("REIT") and has complied (or will comply) with all applicable provisions of the Code relating to a REIT, for 1993 through the date hereof, (ii) has operated, and will to continue to operate, in such a manner as to qualify as a REIT for 1998, (iii) has not taken or omitted to take any action which would reasonably be expected to result in a challenge to its status as a REIT, and, no such challenge is pending or threatened, and (iv) will not be rendered unable to qualify as a REIT for federal income tax purposes as a consequence of the transactions contemplated hereby and by the Merger Agreement. (c) Except as described in Schedule 3.8(c), no amount or other entitlement that could be received (whether in cash or property or the vesting of property) as a result of any of the transactions contemplated hereby by any employee, officer, or manager of the Trust or of any of its Subsidiaries or of any of their Affiliates who is a "disqualified individual" (as such term is defined in proposed Treasury Regulation Section 1.28OG-1) under any employment, severance or termination agreement, other compensation arrangement or plan currently in effect would be characterized as an "excess parachute payment" (as such term is defined in Section 280G(b)(2) of the Code). (d) Except as described in Schedule 3.8(d), the disallowance of a deduction under Section 162(m) of the Code for employee remuneration will not apply to any amount paid or payable by the Trust or by any of its Subsidiaries under any contract, stock plan, program, arrangement or understanding currently in effect. (e) The Trust was eligible to and did validly elect to be taxed as a REIT for federal income tax purposes for calendar year 1993 and all subsequent taxable periods. Each Subsidiary organized as a partnership or limited liability company (and any other Subsidiary that files Tax Returns as a partnership for federal income tax purposes) was and, as of the date hereof, continues to be, and will continue to be through the Second Closing Date, classified as a partnership for federal income tax purposes. (f) For each taxable year beginning with the Trust's first taxable year which ended December 31, 1985, the dividends paid by the Trust on the Trust Common Shares have been and will continue to be paid pro rata, with no preference to any Trust Common Share as compared with other shares. (g) The Trust has not actively conducted a business (i) from which it earns fees for services it performs and (ii) that would cause (a) the Trust's REIT status to be lost or (b) rents from real property to be treated as not rent under the Code. -16- 23 (h) As required by Treasury Regulation Section 1.857-8, the Trust has maintained and will continue to maintain the necessary records regarding the actual ownership of its shares, and will timely make (i.e., by January 30 of each calendar year) the requisite information requests of its shareholders regarding share ownership and will maintain a list of the Persons failing or refusing to comply in whole or in part with the Trust's demand for statements regarding share ownership. The Trust will continue to maintain such records for all years, as required by law. (i) The Trust has never owned more than ten percent (10%) of the common shares of any corporation other than a "Qualified REIT Subsidiary," i.e., (i) before 1998, a corporation, all of whose shares were always owned by the Trust, and (ii) after January 1, 1998, a corporation (a) all of whose shares are owned by the Trust, and (b) all of whose earnings and profits existing at the time the Trust acquired all of its shares are distributed before the end of the tax year in which all of the shares are acquired. With respect to any Subsidiary and the Trust itself, since January 1, 1993 none have had "earnings and profits," as defined in the Code. Section 3.9 Compliance with Agreements. (a) Neither the Trust nor any of the Subsidiaries is in default under or in violation of any provision of the Trust Declaration, the By-laws of the Trust, its partnership agreement, operating agreement or any similar organizational document. (b) Each of the Trust and each of its Subsidiaries has filed all reports, registrations and statements, together with any amendments required to be made with respect thereto, that it was required to file with any Government Authority and all other reports and statements required to be filed by it, including any report or statement required to be filed pursuant to the laws, rules or regulations of the United States, and has paid all fees or assessments due and payable in connection therewith. There is no unresolved violation asserted by any regulatory agency of which the Trust has received any written notice which, if resolved in a manner unfavorable to the Trust or any Subsidiary, would, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. (c) Schedule 3.9(c) sets forth (i) a description of all material indebtedness of the Trust and of each of its Subsidiaries, whether unsecured or secured or collateralized by mortgages, deeds of trust or other security interests in the Trust Property or any other assets of the Trust or of any Subsidiary, or otherwise and (ii) each Commitment currently in effect entered into by the Trust or by any of the Subsidiaries (including any guarantees of any third party's debt or any obligations in respect of letters of credit issued for the Trust's or any Subsidiary's account) which may result in total payments or liability in excess of $100,000, excluding Commitments that are terminable on 30 days or less notice, and -17- 24 excluding Commitments the breach of which would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. Neither the Trust nor any of the Subsidiaries is in default, and, to the Trust's knowledge, no event has occurred which, with the giving of notice or the lapse of time or both, would constitute a default, under any of the documents described in clause (i) or (ii) of the first sentence of this paragraph or in respect of any payment obligations thereunder. All joint venture and partnership agreements to which the Trust or any of the Subsidiaries is a party as of the date hereof are described in Schedule 3.9(c), all of which are in full force and effect as against the Trust or the applicable Subsidiary and, to the Trust's knowledge, as against the other parties thereto, and none of the Trust or any of the Subsidiaries is in default, and, to the Trust's knowledge, no event has occurred which, with the giving of notice or the lapse of time or both, would constitute a default, with respect to any obligations thereunder, except as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. To the Trust's knowledge, the other parties to such agreements are not in breach of any of their respective obligations thereunder, except as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. To the Trust's knowledge, there is no condition with respect to any of the Subsidiaries (including with respect to the partnership agreements for its Subsidiaries that are partnerships) that would, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. (d) Except as disclosed in any other Schedule hereto, Schedule 3.9(d) sets forth a complete and accurate list of all material agreements to which the Trust or any of its Subsidiaries is a party as of the date hereof relating to the development or construction of, additions or expansions to, or management or leasing services for, light industrial properties or office buildings or other real properties which are currently in effect and under which the Trust or any of its Subsidiaries currently has, or expects to incur, any material obligation. (e) Except for (i) agreements made in the ordinary course of business with a maturity of less than one year or that are terminable on 30 days or less notice, and (ii) agreements the breach or nonfulfillment of which would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect, Schedule 3.9(e) sets forth a complete and accurate list of all material agreements to which the Trust or any Subsidiary is a party as of the date hereof which are not listed in any other Schedule hereto or are not exhibits to any filing made by the Trust with the SEC. Each agreement listed on Schedule 3.9(e) is in full force and effect as against the Trust and, to the Trust's knowledge, as against the other parties thereto, no payments, if any, are delinquent, no notice of default thereunder has been sent or received by the Trust or any of the Subsidiaries, and, to the Trust's knowledge, no event has occurred which, with notice or lapse of time or both, would -18- 25 constitute such a default, except for any default that would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. (f) Schedule 3.9(f) sets forth a complete and accurate list of all agreements and written policies of the Trust in effect on the date hereof relating to transactions with Affiliates and potential conflicts of interest. Each agreement or policy listed on Schedule 3.9(f) is in full force and effect, and the Trust, each of the Subsidiaries and, to the Trust's knowledge, the other parties thereto, are in compliance with such agreements or policies, or such compliance has been waived by the Board of Managers as listed on Schedule 3.9(f). Section 3.10 Financial Records; Trust Declaration and By-Laws; Corporate Records. (a) The books of account and other financial records of the Trust and of each of the Subsidiaries are in all respects true and complete, have been maintained in accordance with good business practices, and are accurately reflected in all respects in the financial statements included in the Trust Reports. (b) The Trust has delivered or made available to Buyer true and complete copies of the Trust Declaration and the By-laws of the Trust, as amended to date, and the charter, by-laws, organizational documents, partnership agreements and joint venture agreements of the Subsidiaries, and all amendments thereto. All such documents are listed in Schedule 3.10(b). (c) The minute books and other records of corporate, trust or partnership proceedings of the Trust and of each of the Subsidiaries contain accurate records of all meetings of the equity holders, managers and other governing bodies thereof and accurately reflect in all material respects all other corporate action of the Managers, shareholders and directors and any committees of the Board of Managers and of the Subsidiaries which are corporations and all actions of the partners of the Subsidiaries which are partnerships. Section 3.11 Properties. (a) Schedule 3.11(a) sets forth a complete and accurate list and the address of all real property owned or leased by the Trust or by any of the Subsidiaries or otherwise used by the Trust or by any of the Subsidiaries in the conduct of their business or operations. That real property, together with the land at each address referenced in Schedule 3.11(a) and all buildings, structures and other improvements and fixtures located on or under such land and all easements, rights and other appurtenances to such land shall be referred to individually as a "Trust Property" and collectively as the "Trust Properties". To the Trust's knowledge the Trust, or, in the case of Trust Properties owned by Subsidiaries, the Subsidiary or trustees holding legal title solely for the benefit of a Subsidiary indicated in Schedule 3.11(a), owns good and indefeasible fee simple title (or, if so indicated in Schedule 3.11(a), leasehold title) to each of the -19- 26 Trust Properties, in each case free and clear of any Liens, title defects, common restrictions or covenants, laws, ordinances or regulations affecting use or occupancy (including zoning regulations and building codes) or reservations of interests in title (collectively, "Property Restrictions"), except for (i) Trust Permitted Liens and (ii) Property Restrictions imposed or promulgated by law or by any Government Authority which are customary and typical for similar properties. To the Trust's knowledge, none of the Trust Permitted Liens interferes with, impairs, or is violated by the present use, occupancy or operation (or if applicable, development) of any Trust Property and none of the Property Restrictions interferes with, impairs, or is violated by, the existence of any building or other structure or improvement which constitutes a part of, or the present use, occupancy or operation (or, if applicable, development) of, any Trust Property, except, in each such case, to the extent that any interference, impairment or violation would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. American Land Title Association policies of title insurance (or marked title insurance commitments having the same force and effect as title insurance policies) have been issued by national title insurance companies insuring the fee simple or leasehold, as applicable, title of the Trust or a Subsidiary or a trustee holding legal title solely for the benefit of a Subsidiary, as applicable, to each of the Trust Properties in amounts at least equal to the original cost thereof, subject only to Trust Permitted Liens, and to the Trust's knowledge, such policies are valid and in full force and effect and no claim has been made under any such policy. (b) Except as described in Schedule 3.11(b), the Trust has no knowledge (i) that any currently required certificate, permit or license (including building permits and certificates of occupancy for tenant spaces) from any Government Authority having jurisdiction over any Trust Property or any agreement, easement or other right that is necessary to permit the lawful use, occupancy or operation of the existing buildings, structures or other improvements that constitute a part of any of the Trust Properties or which are necessary to permit the lawful use and operation of any existing driveways, roads or other areas of ingress and egress to and from any of the Trust Properties has not been obtained or is not in full force and effect, or of any pending threat of modification or cancellation of any of same, or (ii) of any violation by any Trust Property of any federal, state or municipal law, ordinance, order, regulation or requirement, including any applicable zoning law or building code, arising from the use or occupancy of such Trust Property or otherwise. Except as described in Schedule 3.11(b), the Trust has no knowledge of any current uninsured physical damage to any Trust Property in excess of $25,000. To the Trust's knowledge, except for repairs identified in the Trust Capital Expenditure Budget and Schedule, each Trust Property: (i) is in good operating condition and repair and is structurally sound and free of defects, with no material alterations or repairs being required -20- 27 thereto under applicable law or insurance company requirements, and (ii) consists of sufficient land areas, driveways and other improvements and lawful means of access and utility service and capacity to permit the use thereof in the manner and for the purposes to which it is presently devoted (or, in the case of the Development Properties, for the development and operation thereon of the applicable Project), except, in each such case, to the extent that failure to meet such standards would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (c) The Trust has no knowledge (i) except as described in Schedule 3.11(c) that any condemnation, eminent domain or rezoning proceedings are pending or threatened with respect to any of the Trust Properties, (ii) except as described in Schedule 3.11(c), that any road widening or change of grade of any road adjacent to any Trust Property is underway or has been proposed, (iii) of any proposed change in the assessed valuation of any Trust Property other than customarily scheduled revaluations, (iv) of any special assessment made or threatened against any Trust Property, or (v) that any of the Trust Properties is subject to any so-called "impact fee" or to any agreement with any Government Authority to pay for sewer extension, oversizing utilities, lighting or like expenses or charges for work or services by such Government Authority, except, in the case of each of the foregoing, to the extent that same would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (d) To the Trust's knowledge, each of the Trust Properties is an independent unit which does not rely on any facilities located on any property not included in such Trust Property to fulfill any municipal or governmental requirement or for the furnishing to such Trust Property of any essential building systems or utilities, other than facilities the benefit of which inures to the Trust Properties pursuant to one or more valid easements. Each of the Trust Properties is served by public water and sanitary systems and all other utilities, and, to the Trust's knowledge, each of the Trust Properties has lawful access to public roads, in all cases sufficient for the current use and occupancy of that Trust Property (or, in the case of the Development Properties, for the development and operation thereon of the applicable Project). To the Trust's knowledge, all parcels of land included in each Trust Property that purport to be contiguous are contiguous and are not separated by strips or gores. To the Trust's knowledge, no portion of any Trust Property lies in any flood plain area (as defined by the U.S. Army Corps of Engineers or otherwise) or includes any wetlands or vegetation or species protected by any applicable laws. To the Trust's knowledge, no improvements constituting a part of any Trust Property encroach on real property not constituting a part of such Trust Property. (e) Except for matters addressed in the Trust Capital Expenditure Budget and Schedule, no Trust Property fails to -21- 28 comply with the requirements of the ADA except for such noncompliance as the Trust reasonably believes will not, individually or in the aggregate, have a Material Adverse Effect. (f) The Trust has provided to Buyer an accurate rent roll for each Trust Property for the month ended June 30, 1998 (the "Rent Roll"), which identifies and accurately describes each lease of space in each Trust Property (collectively, the "Trust Leases"). The Trust has delivered to Buyer an abstract of each Trust Lease (the "Trust Abstracts") which accurately describes the material terms thereof. With respect to each Trust Lease for premises larger than 20,000 square feet of rentable space (collectively, the "Material Trust Leases"), except as described in Schedule 3.11(f) and except for matters that are not, individually or in the aggregate, reasonably expected to have a material effect on any Trust Property, (i) each of the Material Trust Leases is valid and subsisting and in full force and effect as against each party thereto, and has not been amended, modified or supplemented, other than by any amendment, modification or supplement that has been provided to Buyer, (ii) the tenant under each of the Material Trust Leases is in actual possession of the premises leased thereunder, (iii) no tenant under any Material Trust Lease is more than 30 days in arrears in the payment of rent, (iv) none of the Trust or any of its Subsidiaries has received any written notice from any tenant under any Material Trust Lease of its intention to vacate, (v) none of the Trust or any of its Subsidiaries has collected payment of rent under any Material Trust Lease (other than security deposits) for a period which is more than one month in advance, (vi) no notice of default has been sent or received by the landlord under any Material Trust Lease with respect to any defect that remains uncured as of the date hereof, no default has occurred under any Material Trust Lease and, to the Trust's knowledge, no event has occurred and is continuing which, with notice or lapse of time or both, would constitute a default under any Material Trust Lease, (vii) no tenant under any of the Material Trust Leases has any purchase option or kick-out right or is entitled to any concession, allowance, abatement, set-off, rebate or refund, (viii) none of the Material Trust Leases and none of the rents or other amounts payable thereunder has been assigned, pledged or encumbered except in connection with financing secured by the applicable Trust Property, which is described in Schedule 3.9(c), (ix) no brokerage or leasing commission or other compensation is due or payable to any Person with respect to or on account of any of the Material Trust Leases or any extensions or renewals thereof, (x) except as set forth in the Trust Abstracts, no space of a material size in any Trust Property is occupied by a tenant rent-free, (xi) no tenant under any of the Material Trust Leases has asserted any claim which is likely to affect the collection of rent from such tenant, and (xii) the landlord under each Material Trust Lease has fulfilled all of its obligations thereunder in respect of tenant improvements and capital expenditures. Other than the tenants identified in the Rent Roll and Trust Abstracts and parties to easement agreements which constitute Trust Permitted Liens, no third party has any right to occupy or use any portion of any Trust Property. The Rent Roll -22- 29 or Trust Abstracts include a budget for all material tenant improvements and similar material work required to be performed by the lessor under each of the Material Trust Leases. (g) Schedule 3.11(g) sets forth a complete and accurate list of all material commitments, letters of intent or written understandings made or entered into by the Trust or any of its Subsidiaries as of the date hereof (x) to lease any space larger than 20,000 rentable square feet at any of the Trust Properties, (y) to sell, mortgage, or pledge any Trust Property or to otherwise enter into a material transaction or arrangement in respect of the ownership or financing of any Trust Property, or (z) to purchase or acquire an option, right of first refusal or similar right in respect of any real property, which, in any such case has not yet been reduced to a written lease or contract, and sets forth with respect to each such commitment, letter of intent or other understanding the principal terms thereof. (h) Except as set forth in the Rent Roll or Trust Abstracts, and except for certain rights of first refusal which are set forth in the sections of the partnership agreements referenced in Schedule 3.1(d) and which relate to partnerships in which the Trust, directly or indirectly, owns less than a 100% interest, none of the Trust or any of its Subsidiaries has granted any outstanding options or has entered into any outstanding contracts with others for the sale, mortgage, pledge, hypothecation, assignment, sublease, lease or other transfer of all or any part of any Trust Property, and no Person has any right or option to acquire, or right of refusal with respect to, the Trust's or any of its Subsidiaries' interest in any Trust Property or any part thereof. Except as described in Schedule 3.11(h) none of the Trust or any Subsidiary has any outstanding options or rights of first refusal or has entered into any outstanding contracts with others for the purchase of any real property. (i) Schedule 3.11(i) contains a complete and accurate description of any material noncompliance by any Trust Property, to the Trust's knowledge, with any law, ordinance, code, health and safety regulation or insurance requirement (except for the ADA, which is addressed in this respect in Section 3.11(e) above) other than such noncompliance as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Schedule 3.11(i) also sets forth the Trust's and each Subsidiary's capital expenditure budget and schedule for each Trust Property (the "Trust Capital Expenditure Budget and Schedule"), which describes the capital expenditures which the Trust or any Subsidiary has budgeted for such Trust Property that was acquired prior to March 25, 1998 for the period from December 31, 1997 through December 31, 1999. To the Trust's knowledge, the costs and time schedules for 1998 and 1999 set forth in the Trust Capital Expenditure Budget and Schedule are reasonable estimates and projections. Except as described in Schedule 3.11(i), there are no outstanding, or to the Trust's -23- 30 knowledge, threatened requirements of any insurance company which has issued an insurance policy covering any Trust Property, or of any board of fire underwriters or other body exercising similar functions, requiring any repairs or alterations to be made to any Trust Property. (j) Schedule 3.11(j) contains a list of each Trust Property which consists of or includes undeveloped land or which is in the process of being developed or rehabilitated (each, a "Development Property," and collectively, the "Development Properties") and a brief description of the development or rehabilitation intended by the Trust or any Subsidiary to be carried out or completed thereon (collectively, the "Projects"), including any budget and development or rehabilitation schedule therefor prepared by or for the Trust or any Subsidiary (collectively, the "Development Budget and Schedule"). Except as disclosed in Schedule 3.11(j), each Development Property is zoned for the lawful development thereon of the applicable Project, and the Trust or a Subsidiary has obtained all permits, licenses, consents and authorizations required for the lawful development or rehabilitation thereon of such Project, except only for such failure to meet the foregoing standards as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Except as described in Schedule 3.11(j), to the Trust's knowledge, there are no material impediments to or constraints on the development or rehabilitation of any Project in all material respects within the time frame and for the cost set forth in the Development Budget and Schedule applicable thereto. In the case of each Project the development of which has commenced, to the Trust's knowledge, the costs or expenses incurred in connection with such Project and the progress thereof are, except as described in Schedule 3.11(j), consistent and in compliance in all material respects with all aspects of the Development Budget and Schedule applicable thereto. (k) The Trust has disclosed to Buyer all adverse matters known to the Trust with respect to or in connection with the Trust Properties (including the Trust Leases and the Trust Tenancy Leases), which would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (l) The ground leases underlying the leased Trust Properties referenced in Schedule 3.11(a) (collectively, the "Trust Tenancy Leases") are listed in Schedule 3.11(l). Each of the Trust Tenancy Leases is valid, binding and in full force and effect against the applicable Subsidiary and, to the Trust's knowledge, against the other party thereto. Except as indicated in Schedule 3.11(l), none of the Trust Tenancy Leases is subject to any pledge, lien, sublease, assignment, license or other agreement granting to any third party any interest in or any right to the use or occupancy of any premises leased thereunder. To the Trust's knowledge, except as described in Schedule 3.11(l), there is no pending or threatened proceeding which is reasonably likely to interfere with the quiet enjoyment of the -24- 31 tenant under any of the leases. Except as described in Schedule 3.11(l), no payments under any Tenancy lease are delinquent and no notice of default thereunder has been sent or received by the Trust or any of its Subsidiaries. There does not exist under any of the Trust Tenancy Leases any default, and, to the Trust's knowledge, no event has occurred which, with notice or lapse of time or both, would constitute such a default, except as would not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect. (m) Each of the Trust and each of its Subsidiaries has good and sufficient title to all the personal and other property and assets reflected in their books and records as being owned by them (including those reflected in the balance sheets of the Trust and its Subsidiaries as of March 31, 1998, except as since sold or otherwise disposed of in the ordinary course of business), free and clear of all liens, except for Trust Permitted Liens which are not, individually or in the aggregate, reasonably expected to have a material adverse effect on any Trust Property. Section 3.12 Environmental Matters. (a) To the Trust's knowledge, each of the Trust and its Subsidiaries has obtained and now maintains as currently valid and effective all permits required under Environmental Laws (the "Environmental Permits") in connection with the operation of its businesses and properties, all of which are listed in Schedule 3.12(a). To the Trust's knowledge, except as disclosed in the Executive Summaries of the Trust Environmental Reports, each of the Trust and its Subsidiaries, and each Trust Property, is and has been in compliance with all terms and conditions of the Environmental Permits and all Environmental Laws, except for any noncompliance that would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on any Trust Property. The Trust has no knowledge of any circumstances that may prevent or interfere with such compliance in the future. (b) Each of the Trust and its Subsidiaries has provided to Buyer all material written information and written communications (whether from a Government Authority, citizens' group, employee or other Person) in its possession or control regarding (i) alleged or suspected noncompliance of any of the Trust Properties with any Environmental Laws or Environmental Permits or (ii) alleged or suspected liability of the Trust or its Subsidiaries under any Environmental Law. (c) There are no environmental liens or encumbrances on any of the Trust Properties and, to the Trust's knowledge, no government actions have been taken or are in process which are reasonably likely to subject any Trust Property to such liens or other encumbrances. (d) No Environmental Claim with respect to the operations or the businesses of the Trust or of its Subsidiaries, or with respect to the Trust Properties, has been asserted or, to -25- 32 the Trust's knowledge, threatened, and, to the Trust's knowledge, no circumstances exist with respect to the Trust or any of its Subsidiaries or the Trust Properties that would reasonably be expected to result in any Environmental Claim being asserted, in any such case, against (i) the Trust or any of its Subsidiaries, or (ii) any Person whose liability for any Environmental Claims the Trust or any of its Subsidiaries has or may have retained or assumed either contractually or by operation of law. (e) Except as disclosed in Schedule 3.12(e) or set forth in the Executive Summaries of the Trust Environmental Reports: (i) none of the Trust or any of the Subsidiaries has been notified or has reason to anticipate being notified of potential responsibility in connection with any site that has been placed on, or proposed to be placed on, the National Priorities List or its state or foreign equivalent pursuant to the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U-S.C. Section 9601 et seq., or analogous state or foreign laws, (ii) to the Trust's knowledge, no Materials of Environmental Concern are present on, in or under any Trust Property in a manner or condition that is reasonably likely to give rise to an Environmental Claim which would reasonably be expected to result in a Material Adverse Effect, (iii) to the Trust's knowledge, none of the Trust, any Subsidiary or any tenant of any Trust Property has Released or arranged for the Release of any Materials of Environmental Concern at any location to an extent or in a manner which would reasonably be expected to result in a material effect on any Trust Property, (iv) to the Trust's knowledge, no underground storage tanks, surface disposal areas, pits, ponds, lagoons, open trenches or equipment is present at any Trust Property, (v) to the Trust's knowledge, no transformers, capacitors or other equipment containing fluid with more than 50 parts per million polychlorinated biphenyls are present at any Trust Property, except for any such transformers, capacitation or other equipment owned by any utility company, and (vi) to the Trust's knowledge, no employee, agent, contractor, subcontractor or tenant of the Trust or of any of the Subsidiaries is now or has in the past been exposed to friable asbestos or asbestos-containing material at any Trust Property. (f) Schedule 3.12(f) contains a list of the most recent Phase I environmental reports prepared for the Trust or the Subsidiaries or otherwise in the possession of any of them with respect to the environmental condition of any Trust Property (collectively, the "Trust Environmental Reports"). True and complete copies of the executive summaries or conclusions included in the Trust Environmental Reports (collectively, the "Executive Summaries of the Trust Environmental Reports") have been delivered or made available by the Trust to Buyer. To the Trust's knowledge, none of the matters disclosed by the Summaries of the Trust Environmental Reports would, individually or in the aggregate, be reasonably likely to have a Material Adverse Effect. -26- 33 (g) For purposes of this Section 3.12, the terms listed below have the following meanings: (i) "claim" means any action, cause of action, suit, debt, dues, account, reckoning, bond, bill, covenant, contract, controversy, promise, trespass, damage, judgment, execution, claim, liability or demand whatsoever, in law or equity. (ii) "Environmental Claim" means any Claim investigation or notice (written or oral) by any Person alleging potential liability (including potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries or fatalities, or penalties) arising out of, based on or resulting from (A) the presence, generation, transportation, treatment, use, storage, disposal or Release of Materials of Environment Concern or the threatened Release of Materials of Environmental Concern at any location, or (B) activities or conditions forming the basis of any violation, or alleged violation of, or liability or alleged liability under, any Environmental Law. (iii) "Environmental Laws" means federal, state, local, provincial, municipal and foreign laws, ordinances, principles of common law, rules, by-laws, orders, governmental policies, statutes, regulations, agreements, treaties, customary law, and international principles relating to the pollution or protection of the environment or of flora or fauna or their habitat or of human health and safety, or to the cleanup or restoration of the environment, including, but not limited to, any laws relating to (A) generation, treatment, storage, disposal or transportation of wastes, emissions or discharges or protection of the environment from the same, (B) exposure of Persons to, or Release or threat of Release of, Materials of Environmental Concern, (C) noise, (D) repetitive motion, and (E) the safety and health of workers and employees. (iv) "Materials of Environmental Concern" means all chemicals, pollutants, contaminants, wastes, toxic substances, petroleum or any fraction thereof, petroleum products and hazardous substances (as defined -27- 34 in Section 101(14) of CERCLA, 42 U.S.C. Section 6601(14)), or solid or hazardous wastes as now defined and regulated under any Environmental Laws. (v) "Release" means any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration. Section 3.13 Employees and Benefit Plans. (a) Schedule 3.13(a) sets forth a complete and accurate list of all employment agreements with employees of the Trust or of any of the Subsidiaries. Except for the employees who are parties to such employment agreements, all of the employees of the Trust and of each of its Subsidiaries are employed in an at-will status (except for restrictions or limitations on the at-will status of such employees imposed by general principles of law or equity). (b) Schedule 3.13(b) sets forth a complete and accurate list of all Employee Benefit Plans and all material Benefit Arrangements which affect Employees of the Trust or of any of its Subsidiaries (each, a "Trust Plan"). (c) With respect to each Trust Plan, (i) the Trust and each of its Subsidiaries is in compliance in all material respects with the terms of that Trust Plan and with the requirements prescribed by all applicable statutes, orders or governmental rules or regulations, (ii) the Trust and each of its Subsidiaries has contributed to each Pension Plan included in the Trust Plan not less than the amounts accrued for such plan for all plan periods for which payment is due, and (iii) none of the Trust or any of its Subsidiaries has any funding commitment or other liabilities except as reserved for in the financial statements included in or incorporated by reference into the Trust Reports, except, in the case of each of clauses (i) through (iii), for such matters as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. (d) None of the Trust or any of its Subsidiaries has made any commitment to establish any new Employee Benefit Plan, to modify any Employee Benefit Plan, or to increase benefits or compensation of Employees of the Trust or of any of its Subsidiaries (except for normal increases in compensation consistent with past practices), and to the Trust's knowledge, no intention to do so has been communicated to Employees of the Trust or of any of its Subsidiaries. (e) There are no pending or, to the Trust's knowledge, anticipated claims against or otherwise involving any of the Trust Plans or any fiduciaries thereof with respect to their duties to the Plans and no suit, action or other litigation (excluding claims for benefits incurred in the ordinary course of Trust Plan activities) has been brought against or with respect to any Trust Plan. -28- 35 (f) Neither the Trust or any entity under "common control" with the Trust within the meaning of Section 4001 of ERISA has contributed to, or been required to contribute to, any "multiemployer plan" (as defined in Section 3(37) and 4001(a)(3) of ERISA). (g) Except as described in Schedule 3.13(g), the Trust and its Subsidiaries do not maintain or contribute to any plan or arrangement which provides or has any liability to provide life insurance, medical or other employee welfare benefits to any Employee during his employment or upon his retirement or termination of employment and, to the Trust's knowledge, the Trust and its Subsidiaries have never represented, promised or contracted (whether in oral or written form) to any employee or former employee that such benefits would be provided. (h) For purposes hereof, "Employee Benefit Plans" means each and all "employee benefit plans" as defined in Section 3(3) of ERISA maintained or contributed to by a party hereto or in which a party hereto participates or participated and which provides benefits to Employees, including (i) any such plans that are "employee welfare benefit plans" as defined in Section 3(1) of ERISA, including retirement medical and life insurance ("Welfare Plans"), and (ii) any such plans that constitute "employee pension benefit plans" as defined in Section 3(2) of ERISA ("Pension Plans"). "Benefit Arrangements" means life and health, hospitalization, savings, bonus, deferred compensation, incentive compensation, holiday, vacation, severance pay, sick pay, sick leave, disability, tuition refund, service award, company car, scholarship, relocation, patent award, fringe benefit, individual employment, consultation or severance and other polices or practices of a party hereto providing employee or executive compensation or benefits to Employees, other than Employee Benefit Plans. "Employees" means all current employees, former employees and retired employees of a party hereto or of any of the Subsidiaries, including employees on disability, layoff or leave status. "Controlled Group Liability" means any and all liabilities under (i) Title IV of ERISA, (ii) Section 302 of ERISA, (iii) Sections 412 and 4971 of the Code, (iv) the continuation coverage requirements of Section 601 et seq, of ERISA and Section 4980B of the Code, and (v) corresponding or similar provisions of foreign laws or regulations, other than such liabilities that arise solely out of, or relate solely to, the Plans. (i) To the Trust's knowledge, with respect to each plan that is subject to Title IV or Section 302 of ERISA or Section 412 or 4971 of the Code: (i) there does not exist any accumulated deficiency within the meaning of Section 412 of the Code or Section 302 of ERISA, whether or not waived, (ii) the fair market value of the assets of such plan equals or exceeds the actuarial present value of all accrued benefits under the -29- 36 plan (whether or not vested), on a termination basis, (iii) no reportable event within the meaning of Section 4043(c) of ERISA has occurred, and the consummation of the transactions contemplated by this Agreement and the Merger Agreement will not result in the occurrence of any such reportable event, and (iv) all premiums to the Pension Benefit Guaranty Corporation have been timely paid in full. (j) There does not now exist, nor do any circumstances exist that could result in, any Controlled Group Liability that would be a liability of the Trust following the Closing. Without limiting the generality of the foregoing, neither the Trust nor any ERISA Affiliate has engaged in any transaction described in Section 4069 or Section 4204 of ERISA. (k) Except as set forth in Schedule 3.13(k), either the execution and delivery of this Agreement or the Merger Agreement nor the consummation of the transactions contemplated hereby and thereby will (either alone or in conjunction with any other event) result in, cause the accelerated vesting or delivery of, or increase the amount or value of, any payment or benefit to any employee of the Trust or of any Subsidiary. Section 3.14 Labor Matters. None of the Trust or 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. Except for the matters described in Schedule 3.14 (none of which matters would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect), there is no unfair labor practice or labor arbitration proceeding pending or, to the knowledge of the Trust, threatened against the Trust or any of its Subsidiaries. To the knowledge of the Trust, there are no organizational efforts with respect to the formation of a collective bargaining unit presently being made or threatened involving employees of the Trust or of any of its Subsidiaries. Section 3.15 Affiliate Transactions. Other than any transaction involving USAA Real Estate Company, a Delaware corporation ("Realco"), and its Affiliates, Schedule 3.15 sets forth a complete and accurate list of all transactions or currently proposed transactions or series of related transactions entered into by the Trust or any of its Subsidiaries since January 1, 1996 which are of a type that would be required to be disclosed by the Trust pursuant to Item 404 of Regulation S-K of the Securities Laws. Section 3.16 Insurance. The Trust maintains insurance policies covering the assets, business, equipment, properties, operations, employees, officers, managers, and directors of the Trust and of each of its Subsidiaries (collectively, the "Insurance Policies") which are of a type and in amounts customarily carried by Persons similar in size to the Trust conducting businesses similar to those of the Trust. There is no material claim by the Trust or by any of its Subsidiaries -30- 37 pending under any of the Insurance Policies as to which coverage has been questioned, denied or disputed by the underwriters of such policies. Section 3.17 Proxy Statement. The Proxy Statement and all of the information included or incorporated by reference therein (other than any information supplied or to be supplied by Buyer for inclusion or incorporation by reference therein) will not, as of the date such Proxy Statement is first made available to the shareholders of the Trust and as of the time of the meeting of the shareholders of the Trust in connection with the transactions contemplated hereby, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Proxy Statement will comply as to form in all material respects with the provisions of the Exchange Act and the rules and regulations promulgated by the SEC thereunder. Section 3.18 Takeover Statutes. No "fair price," "moratorium," "control share acquisition" or other anti-takeover statute or similar statute or regulation enacted by the State of Texas applies to the transactions contemplated by this Agreement or the Merger Agreement. Section 3.19 Brokers and Finders. No agent, broker, investment banker or other Person, including any of the foregoing that is an Affiliate of the Trust, is or will be entitled to any broker's or finder's fee or any other commission or similar fee from the Trust in connection with this Agreement or any of the transactions contemplated hereby for which Buyer will be responsible. Buyer acknowledges that the Trust is obligated to pay a fee to each of Salomon Smith Barney and Prudential Securities Incorporated in connection with the transaction contemplated hereby and by the Merger Agreement. Section 3.20 Knowledge Defined. As used herein, the phrase "to the Trust's knowledge" (or words of similar import) means the knowledge of those individuals identified in Schedule 3.20, and includes any facts, matters or circumstances set forth in any written notice from any Government Authority or any other material notice received by the Trust or any Subsidiary, and also includes any matter of which Buyer informs the Trust in writing. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER Buyer hereby represents and warrants to the Trust as follows: Section 4.1 Organization. Buyer is a corporation duly incorporated, validly existing and in good standing under the laws of Ohio. Buyer has all requisite corporate power and -31- 38 authority to own, operate, lease and encumber its properties and carry on its business as now conducted, and to enter into this Agreement and to perform its obligations hereunder. Section 4.2 Due Authorization. The execution, delivery and performance of this Agreement and of all of the documents and instruments delivered in connection herewith by Buyer has been duly and validly authorized by all necessary corporate action on the part of Buyer. This Agreement is, and the other documents and instruments required hereby will be, when executed and delivered by Buyer, the valid and binding obligations of Buyer, enforceable against Buyer in accordance with their respective terms, subject only to bankruptcy, insolvency, reorganization, moratorium or similar laws at the time in effect affecting the enforceability or right of creditors generally and to general equitable principles which may limit the right to obtain equitable remedies. Section 4.3 Conflicting Agreements and Other Matters. Neither the execution and delivery of this Agreement nor the performance by Buyer of its obligations hereunder will conflict with, result in a breach of the terms, conditions or provisions of, constitute a default under, result in the creation of any mortgage, security interest, encumbrance, lien or of any kind upon any of the properties or assets of Buyer pursuant to, or require any consent, approval or other action by or any notice to or filing with any Government Authority pursuant to, the organizational documents of Buyer or any agreement, instrument, order, judgment, decree, statute, law, rule or regulation by which Buyer is bound, except for any filings required by Sections 13(d) and 16 of the Exchange Act following each Closing. Section 4.4 Acquisition for Investment; Sophistication. Buyer is acquiring the Purchased Shares being purchased by it for its own account for the purpose of investment and not with a view to or for sale in connection with any distribution thereof, and Buyer has no present intention or plan to effect any "distribution" (within the meaning of the Securities Act) of the Purchased Shares, but the disposition of the Purchased Shares owned by Buyer shall at all times be and remain within its control, subject to the provisions of this Agreement, the Registration Rights Agreement and the Securities Act. Buyer is able to bear the economic risk of the acquisition of the Purchased Shares pursuant hereto and pursuant to the Merger Agreement and can afford to sustain a total loss on such investment, and has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the transactions contemplated hereby, and therefore has the capacity to protect its own interests in connection with the acquisition of Purchased Shares pursuant hereto and pursuant to the Merger Agreement. Section 4.5 Proxy Statement. None of the information supplied or to be supplied by Buyer for inclusion or incorporation by reference in the Proxy Statement, as of the date -32- 39 the Proxy Statement is mailed to the shareholders of the Trust and as of the time of the meeting of the shareholders of the Trust in connection with the transactions contemplated hereby, will contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. Section 4.6 Brokers or Finders. No agent, broker, investment banker or other firm or Person, including any of the foregoing that is an Affiliate of Buyer, is or will be entitled to any broker's or finder's fee or any other commission or similar fee from the Trust in connection with this Agreement or any of the transactions contemplated hereby. The Trust acknowledges that Buyer is obligated to pay a fee to Chadwick & Saylor in connection with the transactions contemplated hereby and by the Merger Agreement. Section 4.7 REIT Qualification Matters. To Buyer's knowledge, no Person which would be treated as an "individual" for purposes of Section 542(a)(2) of the Code (as modified by Section 856(h) of the Code) owns or would be considered to own (taking into account the ownership attribution rules under Section 544 of the Code, as modified by Section 856(h) of the Code) in excess of 9.8% of the value of the outstanding equity interest in Buyer. At each Closing, applying the stock ownership rules of Section 856(h) of the Code, Buyer will be treated as a corporation, and the Purchased Shares that it owns will be treated as owned proportionately by Buyer's shareholders. Section 4.8 Investment Company Matters. Buyer is not, and after giving effect to the acquisition of the Purchased Shares contemplated hereby will not be, an "investment company" or an entity "controlled" by an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended. Section 4.9 Legends; Stop-Transfer Orders. (a) The certificates for the Purchased 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 SHARES ARE SUBJECT TO A STANDSTILL PROVISION SET FORTH IN SECTION 6.11 OF THAT CERTAIN SHARE PURCHASE AGREEMENT DATED JULY 30, 1998, BY AND BETWEEN THE ISSUER AND DEVELOPERS DIVERSIFIED REALTY CORPORATION. -33- 40 The legend set forth in the first paragraph shall be removed from any such certificate at the request of the holder thereof at such times as the shares represented thereby are registered under the Securities Act or become eligible for resale under Rule 144 promulgated under the Securities Act. The legend set forth in the second paragraph shall be removed upon expiration of the Standstill Period. (b) The certificates for the Purchased Shares may also bear any legend required by any applicable state blue sky law. (c) Any certificates for the Purchased Shares will also bear a legend relating to restrictions on transfer imposed pursuant to the percentage ownership limitation contained in the Trust Declaration. (d) The Trust may impose appropriate stop-transfer instructions relating to the restrictions set forth herein. ARTICLE 5 COVENANTS RELATING TO THE CLOSINGS Section 5.1 Taking of Necessary Action. (a) Each party hereto agrees to use its commercially reasonable best efforts promptly to take or cause to be taken all action and promptly to do or cause to be done all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement and the Merger Agreement, subject to the terms and conditions hereof and of the Merger Agreement. (b) As promptly as practicable after the Initial Closing, the Trust shall prepare and file with the SEC a preliminary proxy statement (the "Proxy Statement") by which the Trust's shareholders will be asked to approve, in accordance with the rules of the NYSE and any applicable laws, the issuance of Trust Common Shares contemplated under this Agreement and the Merger Agreement. The Proxy Statement as initially filed with the SEC, as it may be amended and refiled with the SEC and as mailed to the Trust's shareholders, shall be in form and substance reasonably satisfactory to Buyer. The Trust shall respond to any comments of the SEC, and cause the Proxy Statement to be mailed to the Trust's shareholders and shall cause any meeting of the Board of Managers or the Trust's shareholders required to be held to approve the issuance of the Purchased Shares at the earliest practicable time. As promptly as practicable after the date hereof, the Trust shall prepare and file any other filings required under the Exchange Act, the Securities Act or any other federal, state or local laws relating to this Agreement and the Merger Agreement and the transactions -34- 41 contemplated hereby and thereby, including under the HSR Act and any state takeover laws (the "Other Filings"), and Buyer shall prepare and file any filings required by the HSR Act. The Trust will notify Buyer promptly of the receipt of any comments from the SEC or its staff and of any request by the SEC or its staff or any other government official for amendments or supplements to the Proxy Statement or any Other Filing or for additional information and will supply Buyer with copies of all correspondence between the Trust or any of its representatives, on the one hand, and the SEC or its staff or any other government official, on the other hand, with respect to the Proxy Statement or any Other Filing. The Trust shall cause the Proxy Statement and any Other Filing to comply in all material respects with all applicable requirements of law. Buyer shall provide the Trust all information about Buyer required to be included or incorporated by reference in the Proxy Statement or any Other Filing and shall otherwise cooperate with the Trust in taking the actions described in this Section 5.1(b). Whenever any event occurs which is required to be set forth in an amendment or supplement to the Proxy Statement or any Other Filing, the Trust or Buyer, as applicable, shall promptly inform the other party of such occurrence and cooperate in filing with the SEC or its staff or any other government officials, or mailing to shareholders of the Trust, as required, such amendment or supplement. Subject to the provisions of Section 5.4, the Proxy Statement shall include the recommendation of the Board of Managers that the shareholders of the Trust vote in favor of the issuance of the Purchased Shares pursuant to this Agreement and the Merger Agreement. Section 5.2 Public Announcement; Confidentiality. (a) The initial press release or releases with respect to the transactions contemplated by this Agreement and the Merger Agreement shall be in the form agreed to by the Trust and Buyer. Thereafter, for as long as this Agreement is in effect, neither the Trust nor the Buyer shall issue or cause the publication of any press release or any other announcement with respect to this Agreement, the Merger Agreement, the Registration Rights Agreement, or the transactions contemplated hereby or thereby without the consent of the other, except when such release or announcement is required by applicable law or pursuant to any listing agreement with, or the rules or regulations of, any securities exchange or any other regulatory requirement. (b) Buyer agrees that all information provided to Buyer or any of its representatives pursuant to this Agreement shall be kept confidential, and Buyer shall not disclose such information to any Persons other than the directors, officers, employees, financial advisors, legal advisors, accountants, consultants and affiliates of Buyer who reasonably need to have access to the confidential information and who are advised of the confidential nature of such information but the foregoing obligation of Buyer shall not (i) relate to any information that (A) is or becomes generally available other than as a result of unauthorized disclosure by Buyer or by Persons to whom Buyer has made such information available, (B) is or becomes available to -35- 42 Buyer on a nonconfidential basis from a third party that is not, to Buyer's knowledge, bound by any other confidentiality agreement with the Trust, or (ii) prohibit disclosure of any information if required by law, rule, regulation, court order or other legal or governmental process. Section 5.3 Conduct of Business. Except for the transactions contemplated hereby, during the period from the date hereof to the Second Closing Date, the Trust will, except as otherwise consented to or approved by Buyer in writing or as expressly permitted or required hereby, conduct the business of the Trust and its Subsidiaries and engage in transactions only in the ordinary course of business, and the Trust will not, except as otherwise approved by Buyer in writing or as expressly permitted or required hereby: (i) change any provision of the Trust Declaration or the By-laws of the Trust; or (ii) except for (A) issuances of Trust Common Shares in consideration for the acquisition of assets by the Trust in bona fide arm's length transactions subject to the limitations set forth in the Trust Declaration, (B) grants of options pursuant to the plans listed on Schedule 3.3(b) in the ordinary course and consistent with past practice, (C) issuances of Trust Common Shares upon the exercising of options granted pursuant to the plans listed on Schedule 3.3(b) and (D) redemption of Partnership Units listed on Schedule 3.3(a) for Trust Common Shares, change the authorized or issued number of shares of the Trust or issue or grant any option, warrant, call, commitment, subscription, right to purchase or agreement of any character relating to the authorized or issued capital stock of the Trust, or any securities convertible into such shares (including Partnership Units), or split, combine or reclassify any shares of the capital stock of the Trust or declare, set aside or pay any extraordinary dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of the capital stock of the Trust, or redeem or otherwise acquire any shares of such capital stock. Section 5.4 No Solicitation of Transactions. Except as otherwise contemplated by this Section 5.4, from and after the date hereof until the earlier of the Second Closing or the termination of this Agreement pursuant to Article 10, the Trust shall not, directly or indirectly, encourage, solicit, participate in or initiate discussions or negotiations with, or -36- 43 provide any information to, any Person or group (other than the Buyer or any Affiliate of Buyer) concerning any proposal for a Competing Transaction otherwise than in compliance with this Agreement. Neither the Trust nor any Subsidiary shall directly or indirectly, encourage, solicit, participate in or initiate discussions or negotiations with or provide information to, any such Person or group concerning any proposal for an acquisition of all or substantially all of the business and properties or partnership units or interests of the Trust or of any Subsidiary, whether by merger, tender offer, purchase of assets or shares or partnership units or otherwise, otherwise than in compliance with the provisions of this Section. The Board of Managers may take, and disclose to the Trust's shareholders, a position contemplated by Rules 14d-9 and 14e-2 promulgated under the Exchange Act with respect to any tender offer for Trust Common Shares, and the Trust and each Subsidiary may, directly or indirectly, furnish information and access and may participate in discussions and negotiate with any Person or group concerning any proposal with respect to a Competing Transaction which the Board of Managers determines in its good faith judgment, after consultation with the Trust's legal counsel, that it is prudent to do so in the exercise of its fiduciary obligations. The Trust shall notify Buyer orally (within one Business Day) and in writing (as promptly as practicable) of all of the relevant details relating to all inquiries and proposals which it or any of its Subsidiaries or of any officer, Manager, director, employee, investment banker, financial advisor, attorney, accountant or other representative of the Trust or any Subsidiary, to the extent of the Trust's knowledge of any such inquiry or proposal, may receive relating to any Competing Transaction and if such Proposal is in writing, the Trust shall deliver to Buyer a copy of such inquiry or proposal (within one Business Day after the receipt of any such inquiry or proposal). The Trust may terminate this Agreement, subject to the payment of the fee required under Article 10, at any time after the third Business Day following notice to Buyer (a "Notice of Superior Proposal") advising Buyer that the Board of Managers has received a Superior Proposal and specifying the structure and material terms of such Superior Proposal, but only if a proposal continues to be a Superior Proposal in light of any changes that Buyer proposes in the transactions contemplated hereby and by the Merger Agreement prior to the end of that three Business Day period. Section 5.5 Notification of Certain Matters. Each of Buyer and the Trust shall notify the other party in writing of its discovery of any matter that would render any of such party's or the other party's representations and warranties contained herein untrue or incorrect in any material respect, but the failure of either party to so notify the other party of the inaccuracy of that other party's representations and warranties does not constitute a breach of this Agreement. Section 5.6 Provision of Certain Documents. The Trust shall, upon reasonable request by Buyer, deliver true and complete copies of any documents to Buyer within three Business Days after the date of such request. -37- 44 Section 5.7 Registration Rights Agreement. The Trust and Buyer agree to enter into the Registration Rights Agreement at the Initial Closing. Section 5.8 Merger Agreement. The Trust and Buyer agree to enter into the Merger Agreement at or prior to the date hereof. Section 5.9 Compensation of Chairman of the Board. Subject to adjustment as described below, the Trust has awarded to Scott A. Wolstein non-qualified options to purchase 100,000 Trust Common Shares at a purchase price equal to the closing price of Trust Common Shares on the NYSE on July 29, 1998, such options to vest on the Second Closing. Promptly after the Initial Closing, the Trust will engage an independent compensation consultant (who shall be reasonably acceptable to Buyer) who shall prepare a proposed compensation package for Mr. Wolstein. The Board of Managers (excluding the Buyer Representatives) shall vote on such proposed compensation and the grant described above shall be adjusted based upon the recommendation of the compensation consultant as approved by the Board of Managers (excluding the Buyer Representatives). ARTICLE 6 CERTAIN ADDITIONAL COVENANTS Section 6.1 Resale. Buyer acknowledges and agrees that the Purchased Shares will not, as of the Initial Closing Date, be registered under the Securities Act or the securities laws of any state and that they may be sold or otherwise disposed of only in one or more transactions registered under the Securities Act and, where applicable, such state securities laws or as to which an exemption from the registration requirements of the Securities Act and, where applicable, such state securities laws is available. Section 6.2 REIT Status. From and after the date hereof until Buyer no longer owns 10% or more of the aggregate number of outstanding Trust Common Shares, the Trust will elect to be taxed as a REIT in its federal income tax returns, will comply with all applicable laws, rules and regulations of the Code relating to a REIT, and will not take any action or fail to take any action which would, or would reasonably be expected to, alone or in conjunction with any other factors, result in the loss of its status as a REIT for federal income tax purposes. Section 6.3 Board Representation; Chairmanship; Visitation Rights; Voting Agreements. (a) At the Initial Closing, Scott A. Wolstein, Robert H. Gidal, Albert T. Adams and James Schoff, shall be appointed to the Board of Managers (the -38- 45 "Buyer Representatives") and shall cause Scott A. Wolstein to be elected Chairman of the Board of Managers. The Trust hereby confirms that William Bricker has agreed not to stand for reelection at the Trust's next annual meeting of shareholders and to retire from the Board of Managers. The Trust also hereby confirms that, upon Mr. Bricker's retirement from the Board of Managers, the Board of Managers will consist of 10 members. (b) At any meeting of the shareholders of the Trust thereafter held to elect Managers, Buyer shall be entitled to nominate three Managers to the Board of Managers, including the Chairman of the Board of Managers. Buyer's right to nominate Managers to the Board of Managers shall continue, based on its ownership of the Purchased Shares, as follows: (i) so long as Buyer holds a number of Trust Common Shares that is equal to or greater than 75% of the number of Buyer Shares, Buyer shall be entitled to nominate three candidates for the Board of Managers, including the Chairman of the Board; (ii) so long as Buyer holds a number of Trust Common Shares that is less than 75%, but equal to or greater than 50%, of the number of Buyer Shares, Buyer shall be entitled to nominate two candidates for the Board of Managers, including the Chairman; (iii) so long as Buyer holds a number of Trust Common Shares that is less than 50%, but equal to or greater than 25%, of the number of Buyer Shares, Buyer shall be entitled to nominate one candidate for the Board of Managers; and (iv) if Buyer holds a number of Trust Common Shares that is less than 25% of the number of Buyer Shares, then Buyer's right to nominate Managers shall terminate. The Trust shall cause such nominees to be included in the slate of nominees recommended by the Board of Managers to the Trust's shareholders for election as Managers, and the Trust shall use its reasonable best efforts to cause the election of such nominees. (c) If any such nominee of Buyer shall cease to serve as a Manager for any reason, other than by reason of Buyer not being entitled to nominate a nominee as provided in Section 6.5(b), the Trust shall use its reasonable best efforts to cause the vacancy resulting thereby to be filled by a nominee of Buyer, including by taking the actions specified in the last sentence of Section 6.3(b). (d) If the Board of Managers of the Trust establishes committees from time to time, to the extent not precluded by the NYSE, the nominees of Buyer shall have the right to serve on each such committee in the same ratio (as closely as practicable) as such nominees represent of the entire Board of Managers. (e) So long as Buyer owns a number of Trust Common Shares that is more than 10% but less than 25% of the number of Buyer Shares, in addition to the rights granted pursuant to Sections 6.5(a) and (b) above, Buyer shall have the right to have a representative attend all regular and special meetings of the Board of Managers of the Trust and of its Subsidiaries and any committees thereof. This right shall include the right to receive the same notice and materials provided to members of the Board of Managers and each committee thereof. -39- 46 (f) On or before the date hereof, the Trust shall have delivered to Buyer in form and substance satisfactory to Buyer, agreements duly executed and delivered by each of Realco, ABKB/LaSalle Securities Limited Partnership, LaSalle Advisors Limited Partnership, The Morgan Stanley Real Estate Special Situations Fund I, L.P., The Morgan Stanley Real Estate Special Situations Fund II, L.P., Morgan Stanley Asset Management Inc., and Praedium II Industrial Associates LLC, or the entities, individuals or accounts represented by such entities or individuals, pursuant to which each of them agrees to vote its Trust Common Shares in favor of the transactions contemplated hereby and in favor of the Buyer Representatives for so long as Buyer's right to nominate Managers pursuant to this Section 6.4 continues. Buyer agrees to vote all Trust Common Shares held by Buyer and its affiliates in favor of the nominees of each of the entities or individuals listed in the first sentence of this Section 6.4(f) for so long as the right of each such entity or individual to nominate Managers continues. Section 6.4 Listing. The Trust shall cause the Purchased Shares to be approved for listing on the NYSE (subject to official notice of issuance) prior to each of the Initial Closing Date, the Second Closing Date and each Additional Closing Date, as applicable. In addition, the Trust shall cause the Trust Common Shares issuable upon conversion of Buyer Preferred Shares to be approved for listing on the NYSE (subject to official notice of issuance) prior to each Additional Closing Date, as applicable. Section 6.5 Acknowledgment. Buyer acknowledges that no representation set forth in Section 3.11 shall be deemed to be untrue unless such untruths are, individually or in the aggregate, reasonably expected to have a Material Adverse Effect or to materially and adversely affect the use or occupancy (or, if applicable, development) of the affected Trust Property. Section 6.6 Additional Purchased Shares. (a) From time to time during the period commencing on the Second Closing Date and ending on the second anniversary of the Second Closing Date, the Trust shall have the option to sell, and Buyer agrees to purchase, the additional shares described in Section 6.6(b) (the "Additional Purchased Shares") for an aggregate purchase price that shall not exceed $200,000,000 (the "Additional Purchase Option") solely for the purpose of funding property acquisitions approved by a majority of the Managers that are not Affiliates of the seller of the property or of the assignor that assigned its right to acquire such property to the Trust, on the terms and subject to the conditions contained herein. The Additional Purchase Option shall only be exercisable by action of a majority of the Managers, excluding the Buyer Representatives. -40- 47 (b) The Additional Purchased Shares shall consist of all, or any combination of the following, as the Trust elects subject to the provisions of this Section 6.6: (i) Trust Common Shares at a price of $15.50 per share, or (ii) Buyer Preferred Shares at a price of $14.00 per share; provided, however, that if Buyer would own, as a result of any such sale and purchase, in excess of 49.9% of the outstanding Trust Common Shares, excluding Buyer Preferred Shares (the "Threshold Amount"), the Trust may sell only Buyer Preferred Shares to Buyer, on the terms described in Section 6.6(b)(ii). (c) The price per share described in Sections 6.6(b)(i) and 6.6(b)(ii) shall be adjusted as follows: (i) if the average closing price on the NYSE of one Trust Common Share, determined by reference to The Wall Street Journal, for the ten trading days immediately preceding the date on which the Additional Purchase Option is exercised (the "Exercise Date Trailing Average") is less than $12.12, then the purchase price per Trust Common Share or Buyer Preferred Share, as applicable, shall be adjusted downward by multiplying the same by a fraction, the numerator of which shall be the Exercise Date Trailing Average and the denominator of which shall be $12.12, and (ii) in the event of any share split, subdivision, combination, merger, reclassification or share dividend related to the Trust Common Shares or the Buyer Preferred Shares, as applicable, the price per Trust Common Share or Buyer Preferred Share shall be adjusted so that the price per share is multiplied by a fraction the numerator of which is the total number of Trust Common Shares and Buyer Preferred Shares outstanding on the date hereof and the denominator is the total number of Trust Common Shares and Buyer Preferred Shares outstanding on the date of any such share split, subdivision, combination, merger, reclassification or share dividend. (d) Buyer shall purchase and pay for, and the Trust shall deliver, the Additional Purchased Shares in one or more transactions within 14 days after the exercise of the Additional Purchase Option by the Board of Managers under Section 6.6(a), subject to the satisfaction of the closing conditions described in this Agreement. Section 6.7 Anti-Dilution. (a) If Buyer's Beneficial Ownership of Trust Common Shares falls below forty percent (40%) of the outstanding Trust Common Shares on a fully diluted basis (the "Forty Percent Threshold"), Buyer shall have the right to purchase from time to time, and the Trust hereby agrees to sell from time to time, at a price of $15.50 per Trust Common Share, a number of Trust Common Shares such that, immediately after such purchase and giving effect thereto, Buyer's Beneficial Ownership of Trust Common Shares shall be less than or equal to the Forty Percent Threshold. The purchase price of all Trust Common Shares issued pursuant to this Section 6.7(a) shall reduce the Additional Purchase Option on a dollar for dollar basis. -41- 48 (b) If Buyer's Beneficial Ownership of Trust Common Shares falls below the Forty Percent Threshold after the Additional Purchase Option has been exhausted or otherwise terminated, then, notwithstanding the provisions of Section 6.6, Buyer shall have the right (to the extent permitted by law) to purchase from time to time, in the open market or in one or more privately negotiated transactions, a number of Trust Common Shares such that, immediately after such purchase and giving effect thereto, Buyer's Beneficial Ownership of Trust Common Shares shall be less than or equal to the Forty Percent Threshold. Section 6.8 No Repurchase Program. The Trust shall not engage in any open market repurchases of Trust Common Shares, whether pursuant to a share repurchase program conducted in accordance with Rule 10b-18 promulgated under the Exchange Act or otherwise, if such repurchase program would trigger the "poison pill" provisions contained in Article 13(b) of the Trust Declaration. Section 6.9 Excess Securities Provision. The Trust shall cause the Board of Managers to exempt Buyer from the "excess securities" provision contained in Article 13 of the Trust Declaration, as permitted by Article 13(h) of the Trust Declaration, for as long as Buyer owns any of the Purchased Securities, provided that Buyer's Beneficial Ownership of the Purchased Shares will not, in the opinion of counsel to the Trust (who must be reasonably acceptable to Buyer), cause the Trust to lose its status as a REIT. During each December in which Buyer owns any of the Purchased Shares, the Trust shall certify its compliance with this Section 6.9 and Buyer shall provide reasonable certification to the Trust that Buyer's Beneficial Ownership of the Purchased Shares will not cause the Trust to lose its status as a REIT. Section 6.10 Disinterested Managers. Buyer and its Affiliates will not engage in any Material Transaction with the Trust without the prior approval of a majority of the Managers, excluding the Buyer Representatives (the Managers other than the Buyer Representatives, the "Disinterested Managers"). Buyer and the Trust agree that the approval of a majority of the Disinterested Managers shall satisfy the requirements of any provision of this Agreement requiring the approval of a majority of the Managers if the transaction requiring such approval would constitute a Material Transaction. Section 6.11 Standstill. For a period beginning on the Initial Closing Date and ending on the third anniversary of the Second Closing (the "Standstill Period"), Buyer and its Affiliates shall not, without the prior approval of a majority of the Disinterested Managers: (a) Directly or indirectly acquire, or agree to acquire, Beneficial Ownership of Trust Common Shares (or any other voting securities or securities convertible into, or -42- 49 exchangeable or redeemable for, Trust Common Shares) if, as a result of such acquisition, Buyer and its Affiliates would own in excess of the Forty Percent Threshold, other than an acquisition of Additional Purchased Shares or any other acquisition permitted by this Agreement. Trust Common Shares, and options to purchase, or securities convertible into, Trust Common Shares granted to, or purchased upon the exercise of such options or the conversion of such securities, the Buyer Representatives in their capacities as Managers shall not considered to be owned by Buyer and its Affiliates for purposes of determining whether Buyer has exceeded the Forty Percent Threshold. (b) Form or join or act with any Person as a partnership, voting trust, syndicate or other group, or otherwise act in concert with any other Person, for the purpose of acquiring, holding, voting or disposing of Trust Common Shares, or otherwise become a "group" within the meaning of Section 13(d)(3) of the Exchange Act. (c) Solicit proxies or assist or participate in any way or, directly or indirectly, become a "participant" in a "solicitation" (as such terms are defined in Regulation 14A under the Exchange Act), or seek to advise or influence any person or entity with respect to the voting of Trust Common Shares in connection with any such solicitation, in opposition to the recommendation of a majority of the Managers with respect to any matter. (d) Initiate, submit or propose any shareholder proposal for submission to a vote of the shareholders of the Trust, or request, induce or attempt to induce any other Person to initiate or propose any such proposal, or seek to advise or influence any person or entity with respect to the voting of Trust Common Shares in connection with any proposal, all with respect to the Trust, in opposition to the recommendation of a majority of the Managers with respect to any matter. (e) Directly or indirectly assist, encourage or induce any Person to bid for or acquire Beneficial Ownership of Trust Common Shares in excess of five percent (5%) of the outstanding Trust Common Shares, other than in connection with any sale by Buyer or its Affiliates of Purchased Shares conducted in accordance with this Agreement, the Registration Rights Agreement (if applicable) and any applicable Securities Laws. (f) Take any other action in concert with any other Person to seek to direct the management or policies of the Trust or otherwise exercise control over the Trust. (g) Buyer shall not be deemed to have breached this Section 6.11 solely as a result of any action taken by any Buyer Representative solely in his or her capacity as a Manager. -43- 50 Section 6.12 Funding Prior to Second Closing. (a) From time to time during the period commencing on the Initial Closing Date and ending on the earlier of (i) the Second Closing Date, (ii) the date 180 days after the Initial Closing Date, and (iii) the date this Agreement is terminated pursuant to Article 10 hereto, the Trust shall have the option (the "Funding Option") to borrow from Buyer, and Buyer agrees to lend within 30 days from the date of the exercise of the Funding Option, amounts that shall not in the aggregate exceed the Remaining Purchase Price, solely for the purpose of funding the property acquisitions listed on Schedule 6.12. Each such acquisition shall be approved by a majority of the Managers that are not Affiliates of the seller of the property or the assignor of the right to purchase the property at any time between the Initial Closing Date and the exercise of the Funding Option. The Funding Option shall only be exercisable by action of a majority of the Managers, excluding the Buyer Representatives. (b) All loans made by Buyer to the Trust pursuant to the Funding Option shall be on the terms and conditions contained in the promissory note attached hereto as Exhibit D. Buyer shall make each such loan within ten days after the date the applicable Funding Option is exercised in accordance with Section 6.12(a). All such loans shall be repaid at the earlier of: (i) the Second Closing Date, (ii) the date that is 181 days after the Initial Closing Date, and (iii) within 30 days of the date on which this Agreement is terminated pursuant to Article 10 hereto. 6.13 Transfer of Shares. During the Standstill Period, any Purchased Shares transferred by Buyer shall be, in the possession of the transferee, and the transferee shall be subject to the terms and conditions of this Agreement and the Registration Rights Agreement, if applicable, including but not limited to, the provisions of Section 6.11 of this Agreement. ARTICLE 7 CLOSING DELIVERIES Section 7.1 Initial Closing Deliveries. (a) Trust Deliveries. At the Initial Closing, the Trust shall deliver, or cause to be delivered, to Buyer the following: (i) certificates representing the Initial Shares, bearing the legends described in Section 4.9, free and clear of all Liens (unless created by Buyer or any of its Affiliates), with all necessary stock powers, share transfer and other documentary stamps attached; (ii) the certificate, dated the Initial Closing Date and validly executed on behalf of the Trust, required by Section 8.1(a); -44- 51 (iii) resolutions of the Board of Managers, certified by the Secretary of the Trust, authorizing the execution and delivery of this Agreement, the Merger Agreement and the Registration Rights Agreement, and the transactions contemplated hereby and thereby, including the creation and issuance of the Buyer Preferred Shares; (iv) each of the legal opinions of the Trust's counsel required by Sections 8.1(g) and 8.1(h); (v) evidence or copies of any consents, approvals, orders, qualifications or waivers required by Section 8.1; (vi) all other certificates and instruments and documents required pursuant this Agreement to be delivered by the Trust to Buyer at or prior to the Initial Closing; (vii) the Registration Rights Agreement, duly executed on behalf of the Trust; (viii) evidence that the merger contemplated by the Merger Agreement has occurred; (ix) a supplemental listing application executed by the Trust and the NYSE authorizing the listing of the Initial Shares (subject to official notice of issuance); (x) such other instruments reasonably requested by Buyer as may be necessary or appropriate to confirm or carry out the provisions of this Agreement. (b) Buyer Deliveries. At the Initial Closing, Buyer shall deliver, or cause to be delivered, to the Trust the following: (i) the Initial Purchase Price in immediately available funds; (ii) the certificate, dated the Initial Closing Date and validly executed on behalf of Buyer, required by Section 8.2(a); (iii) the Registration Rights Agreement, duly executed on behalf of Buyer; (iv) if not theretofore delivered to the Trust, all other certificates, documents, instruments and writings required pursuant to this Agreement to be delivered by or on behalf of Buyer at or before the Initial Closing; -45- 52 (v) each of the legal opinions of Buyer's counsel required by Sections 8.2(e) and 8.2(f); and (vi) such other instruments reasonably requested by the Trust as may be necessary or appropriate to confirm or carry out the provisions of this Agreement. Section 7.2 Second Closing Deliveries. (a) Trust Deliveries. At the Second Closing, the Trust shall deliver, or cause to be delivered, to Buyer the following: (i) certificates representing the Remaining Shares, bearing the legends described in Section 4.9, free and clear of all Liens (unless created by Buyer or any of its Affiliates), with all necessary stock powers, share transfer and other documentary stamps attached; (ii) the certificate, dated the Second Closing Date and validly executed on behalf of the Trust, required by Section 8.3(a); (iii) a certificate from the Secretary of the Trust stating that the resolutions of the Board of Managers authorizing the execution and delivery of this Agreement, the Merger Agreement and the Registration Rights Agreement, and the transactions contemplated hereby and thereby, remain in full force and effect, and have not been amended, repealed or altered in any way; (iv) a certificate of the Secretary of the Trust that the shareholders of the Trust approved the issuance of the Purchased Shares and the transactions contemplated by this Agreement and the Merger Agreement at a special meeting of the Trust's shareholders held in accordance with the rules of the NYSE; (v) each of the legal opinions of the Trust's counsel required by Sections 8.3(c); (vi) evidence or copies of any consents, approvals, orders, qualifications or waivers required by Section 8.4; (vii) a supplemental listing application executed by the Trust and the NYSE authorizing the listing of the Remaining Shares (subject to official notice of issuance); (viii) all other certificates and instruments and documents required pursuant this Agreement to be delivered by the Trust to Buyer at or prior to the Second Closing; and -46- 53 (viii) such other instruments reasonably requested by Buyer as may be necessary or appropriate to confirm or carry out the provisions of this Agreement. (b) Buyer Deliveries. At the Second Closing, Buyer shall deliver, or cause to be delivered, to the Trust the following: (i) the Remaining Purchase Price in immediately available funds; (ii) the certificate, dated the Second Closing Date and validly executed on behalf of Buyer, required by Section 8.4(a); (iii) all other certificates, documents, instruments and writings required pursuant to this Agreement to be delivered by or on behalf of Buyer at or before the Second Closing; (iv) each of the legal opinions of Buyer's counsel required by Sections 8.2(e); and (v) such other instruments reasonably requested by the Trust as may be necessary or appropriate to confirm or carry out the provisions of this Agreement. Section 7.3 Additional Closings. (a) Trust Deliveries. At each Additional Closing, the Trust shall deliver, or cause to be delivered, to Buyer the following: (i) certificates representing the number of Additional Purchased Shares to be purchased at that Additional Closing, bearing the legends described in Section 4.9, free and clear of all Liens (unless created by Buyer or any of its Affiliates), with all necessary stock powers, share transfer and other documentary stamps attached; (ii) the certificate, dated that Additional Closing Date and validly executed on behalf of the Trust, required by Section 8.5; (iii) a certificate from the Secretary of the Trust stating that the resolutions of the Board of Managers authorizing the execution and delivery of this Agreement, the Merger Agreement and the Registration Rights Agreement, and the transactions contemplated hereby and thereby, remain in full force and effect, and have not been amended, repealed or altered in any way; -47- 54 (iv) evidence or copies of any consents, approvals, orders, qualifications or waivers required by Section 8.5(a); (v) each of the legal opinions of the Trust's counsel required by Section 8.5(b); (vi) a supplemental listing application executed by the Trust and the NYSE authorizing the listing of the Additional Purchased Shares to be purchased by Buyer at that Additional Closing (subject to official notice of issuance); (vii) all other certificates and instruments and documents required pursuant to this Agreement to be delivered by the Trust to Buyer at or prior to that Additional Closing; and (viii) such other instruments reasonably requested by Buyer as may be necessary or appropriate to confirm or carry out the provisions of this Agreement with respect to that Additional Closing. (b) Buyer Deliveries. At each Additional Closing, Buyer shall deliver, or cause to be delivered, to the Trust the following: (i) the amount of the purchase price, in immediately available funds, for the Additional Purchased Shares to be delivered at that Additional Closing; (ii) the certificate, dated that Additional Closing Date and validly executed by Buyer, required by Section 8.6(a); (iii) each of the legal opinions of Buyer's counsel required by Section 8.6(b); (iv) all other certificates and instruments and documents required pursuant to this Agreement to be delivered by the Buyer to the Trust at or prior to each Additional Closing; and (v) such other instruments reasonably requested by the Trust as may be necessary or appropriate to confirm or carry out the provisions of this Agreement with respect to that Additional Closing. -48- 55 ARTICLE 8 CONDITIONS TO CLOSINGS Section 8.1 Conditions to Purchase at Initial Closing. The obligations of Buyer to purchase and pay for the Initial Shares at the Initial Closing are subject to the satisfaction or waiver of each of the following conditions precedent: (a) Representations and Warranties; Covenants. The representations and warranties of the Trust contained herein that are not qualified as to materiality shall have been true and correct in all material respects on and as of the date hereof, and shall be true and correct in all material respects on and as of the Initial Closing Date with the same effect as though such representations and warranties had been made on and as of the Initial Closing Date (except for representations and warranties that speak as of a specific date or time other than the Initial Closing Date (which need only be materially true and correct in all respects as of such date or time)), and the representations and warranties already qualified with respect to materiality shall have been true and correct in all respects at each such date without regard to the materiality qualification contained in this Section 8.1(a). The covenants and agreements of the Trust to be performed on or before the Initial Closing Date in accordance with this Agreement shall have been duly performed in all material respects. The Trust shall have delivered to Buyer at the Initial Closing a certificate of an appropriate officer in form and substance satisfactory to Buyer dated the Initial Closing Date to such effect. (b) No Material Adverse Change. Since December 31, 1997, there shall not have been any change, circumstance or event which has had or would reasonably be expected to have a Material Adverse Effect. (c) HSR Act. Any waiting period applicable to the consummation of the transactions contemplated by this Agreement and the Merger Agreement under the HSR Act shall have expired or been terminated, and no action shall have been instituted by the United States Department of Justice or the United States Federal Trade Commission challenging or to enjoin the consummation of the transactions contemplated hereby, which action shall not have been withdrawn or terminated, or the Trust and Buyer shall have concluded that no filing under the HSR Act is required with respect to the transactions contemplated hereby. (d) No Limitation. There shall not be in effect any order, decree or injunction of a court or agency of competent jurisdiction which enjoins or prohibits consummation of the transactions contemplated hereby and there shall be no pending Action which would reasonably be expected to have a material adverse effect on the ability of the Trust to consummate the actions contemplated hereby or to issue the Initial Shares. -49- 56 (e) Proceedings. All trust and other proceedings to be taken by the Trust in connection with the transactions contemplated by this Agreement and the Merger Agreement and all documents incident thereto shall be reasonably satisfactory to Buyer and Buyer shall have received all such counterpart originals or certified or other copies of such documents as it has reasonably requested. (f) REIT Status. The Trust shall have elected to be taxed as a REIT in each of its federal income tax returns, and shall be in compliance with all applicable laws, rules and regulations, including the Code, necessary to permit it to be taxed as a REIT for all tax years since the Trust's formation. The Trust shall not have taken any action or have failed to take any action which would reasonably be expected to, alone or in conjunction with any other factors, result in the loss of its status as a REIT for federal income tax purposes. (g) Opinion of Counsel. Buyer shall have received a legal opinion from Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P., counsel to the Trust, dated the Initial Closing Date concerning, among other things, the Trust's organization, authority, capitalization, SEC filings (excluding financial and statistical data contained therein), contractual relationships, compliance with law and other legal matters, and confirming that all shares issued pursuant to this Agreement will be validly issued, fully paid and nonassessable, in form and substance reasonably satisfactory to Buyer. (h) Tax Opinion. Buyer shall have received the opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P., counsel to the Trust, in form and substance reasonably satisfactory to Buyer, and dated the Initial Closing Date, that (i) commencing with its initial taxable year ended December 31, 1985, the Trust has met the requirements under the Code for qualification and taxation as a real estate investment trust and that, after giving effect to the transactions contemplated hereby, the Trust's proposed method of operation will enable it to continue to meet the requirements for qualification and taxation as a real estate investment trust under the Code and (ii) each Subsidiary of the Trust has been, since its formation, and continues to be, treated for federal income tax purposes (a) as a partnership, and not as a corporation or an association taxable as a corporation or (b) as an entity disregarded as separate from its owner (in the case of (i) and (ii) above with customary assumptions and qualifications). (i) The Merger. The merger contemplated by the Merger Agreement shall have occurred. Section 8.2 Conditions of Sale at Initial Closing. The obligation of the Trust to sell the Initial Shares at the Initial Closing is subject to the satisfaction or waiver of each of the following conditions precedent: -50- 57 (a) Representations and Warranties; Covenants. The representations and warranties of Buyer contained herein that are not qualified as to materiality shall have been true and correct in all material respects on and as of the date hereof, and shall be true and correct in all material respects on and as of the Initial Closing Date with the same effect as though such representations and warranties had been made on and as of the Initial Closing Date (except for representations and warranties that speak as of a specific date or time other than the Initial Closing Date (which need only be materially true and correct in all material respects as of such date or time), and the representations and warranties already qualified with respects to materiality shall have been true and correct in all respect at each such date without regard to the materiality qualification contained in this Section 8.2(a). The covenants and agreements of Buyer to be performed on or before the Initial Closing Date in accordance with this Agreement shall have been duly performed in all respects. Buyer shall have delivered to the Trust at the Initial Closing a certificate of an appropriate officer in form and substance reasonably satisfactory to the Trust dated the Initial Closing Date to such effect. (b) No Limitation. There shall not be in effect any order, decree or injunction of a court or agency of competent jurisdiction which enjoins or prohibits consummation of the transactions contemplated hereby and there shall be no pending Action which would reasonably be expected to have a material adverse effect on the ability of Buyer to consummate the transactions contemplated hereby or to acquire the Initial Shares. (c) HSR Act. Any waiting period applicable to the consummation of the transactions contemplated by this Agreement and the Merger Agreement under the HSR Act shall have expired or been terminated, and no action shall have been instituted by the United States Department of Justice or the United States Federal Trade Commission challenging or to enjoin the consummation of the transactions contemplated hereby, which action shall not have been withdrawn or terminated, or the Trust and Buyer shall have concluded that no filing under the HSR Act is required with respect to the transactions contemplated hereby. (d) Proceedings. All corporate and other proceedings to be taken by Buyer in connection with the transactions contemplated by this Agreement and the Merger Agreement and all documents incident thereto shall be reasonably satisfactory in form and substance to the Trust and the Trust shall have received all such counterpart originals or certified or other copies of such documents as they may reasonably request. (e) Opinion of Counsel. The Trust shall have received a legal opinion from Baker & Hostetler LLP, counsel to Buyer, dated the Initial Closing Date, concerning, among other things, the matters described in Section 4.8, Buyer's organization, authority, capitalization, SEC filings, contractual relationships, compliance with law and other legal matters, in form and substance reasonably satisfactory to the Trust. -51- 58 (f) Tax Opinion. The Trust shall have received the opinion of Baker & Hostetler LLP, counsel for Buyer, in form and substance reasonably satisfactory to the Trust, and dated the Initial Closing Date, concerning the matters described in Section 4.7 and that (i) commencing with its initial taxable year ended December 31, 1993, Buyer has met the requirements under the Code for qualification and taxation as a real estate investment trust and that, after giving effect to the transactions contemplated hereby, Buyer's proposed method of operation will enable it to continue to meet the requirements for qualification and taxation as a real estate investment trust under the Code and (ii) each subsidiary of the Buyer has been, since its formation, and continues to be, treated for federal income tax purposes (a) as a partnership, and not as a corporation or an association taxable as a corporation or (b) as an entity disregarded as separate from its owner (in the case of (i) and (ii) above with customary assumptions and qualifications). Section 8.3 Conditions to Purchase at Second Closing. The obligation of Buyer to purchase and pay for the Remaining Shares at the Second Closing is subject to the satisfaction or waiver of each of the following conditions precedent: (a) Conditions Met. The conditions set forth in Sections 8.1(a)-(f) shall continue to be satisfied or to have been waived in all respects on and as of the Second Closing Date, with references to the Initial Closing Date in those conditions considered, for this purpose, to be references to the Second Closing Date. The Trust shall have delivered to Buyer at the Second Closing a certificate of an appropriate officer in form and substance satisfactory to Buyer dated the Second Closing Date stating that the conditions contained in Sections 8.1(a)-(f) remain satisfied as of the Second Closing Date. (b) Shareholder Approval. The Trust shall have received the shareholder approval contemplated by Section 5.1(b) and the Trust shall have delivered to Buyer a certificate of an appropriate officer in form and substance satisfactory to Buyer dated the Second Closing Date to that effect. (c) Opinions of Counsel. Buyer shall have received each of the legal opinions required by Section 8.1(g) and 8.1(h), dated the Second Closing Date, with references to the Initial Closing Date in those Sections and opinions considered, for this purpose, to be references to the Second Closing Date. Section 8.4 Conditions of Sale at Second Closing. The obligation of the Trust to sell the Remaining Shares at the Second Closing is subject to satisfaction or waiver of each of the following conditions precedent: -52- 59 (a) Conditions Met. The conditions set forth in Sections 8.2(a)-(d) shall continue to be satisfied or to have been waived in all respects on and as of the Second Closing Date, with references to the Initial Closing Date in those conditions considered, for this purpose, to be references to the Second Closing Date. Buyer shall have delivered to the Trust at the Second Closing a certificate of an appropriate officer in form and substance satisfactory to the Trust dated the Second Closing Date stating that the conditions contained in Sections 8.2(a)-(d) remain satisfied as of the Second Closing Date. (b) Opinions of Counsel. The Trust shall have received each of the legal opinions required by Section 8.1(g) and 8.1(h), dated the Second Closing Date, with references to the Initial Closing Date in those Sections and opinions considered, for this purpose, to be references to the Second Closing Date. Section 8.5 Conditions to Purchase at each Additional Closing. The obligation of Buyer to purchase and pay for the Additional Purchased Shares at each Additional Closing is subject to satisfaction or waiver of each of the following conditions precedent: (a) Conditions Met. The conditions set forth in Sections 8.1(a)-(f) shall continue to be satisfied or to have been waived in all respects on and as of each Additional Closing Date, with references to the Initial Closing Date in those conditions considered, for this purpose, to be references to the applicable Additional Closing Date. The Trust shall have delivered to Buyer at each Additional Closing a certificate of an appropriate officer in form and substance satisfactory to Buyer dated as of each Additional Closing Date stating that the conditions contained in Sections 8.1(a)-(f) remain satisfied as of each Additional Closing Date. (b) Opinions of Counsel. Buyer shall have received each of the legal opinions required by Section 8.1(g) and 8.1(h), dated as of each Additional Closing Date, with references to the Initial Closing Date in those Sections and opinions considered, for this purpose, to be references to applicable Additional Closing Date. Section 8.6 Conditions to Sale at each Additional Closing. The obligation of the Trust to sell the Additional Purchased Shares at each Additional Closing is subject to satisfaction or waiver of the following condition precedent: (a) Conditions Met. The conditions set forth in Section 8.2(a)-(d) shall continue to be satisfied or to have been waived in all respects on and as of each Additional Closing Date, with references to the Initial Closing Date in those conditions considered, for this purpose, to be references to applicable Additional Closing Date. Buyer shall have delivered to the Trust at each Additional Closing a certificate of an appropriate officer in form and substance satisfactory to the Trust dated as -53- 60 of each Additional Closing Date stating that the conditions contained in Sections 8.2(a)-(d) remain satisfied as of each Additional Closing Date. (b) Opinions of Counsel. The Trust shall have received each of the legal opinions required by Section 8.1(g) and 8.1(h), dated the applicable Additional Closing Date, with references to the Initial Closing Date in those Sections and opinions considered, for this purpose, to be references to the applicable Additional Closing Date. ARTICLE 9 SURVIVAL; INDEMNIFICATION Section 9.1 Survival. All representations, warranties and (except as provided in the last sentence of this Section 9.1) covenants and agreements of the parties contained herein, including indemnity or indemnification agreements contained herein, or in any Schedule or Exhibit hereto, or any certificate, document or other instrument delivered in connection herewith shall survive until the first anniversary of each Closing. No Action or proceeding may be brought with respect to any of the representations and warranties or any of the covenants or agreements which so survive unless written notice thereof, setting forth in reasonable detail the claimed misrepresentation or breach of warranty or breach of covenant or agreement, shall have been delivered to the party alleged to have breached such representation or warranty or such covenant or agreement on or prior to the first anniversary of each Closing and the party alleged to have breached such representation or warranty has not cured the alleged breach within 30 days after the receipt of such notice. Those covenants or agreements that contemplate or may involve actions to be taken or obligations to be in effect after all Closings contemplated by this Agreement shall survive in accordance with their terms, and any action or proceeding with respect to any such covenant or agreement may be brought until the statute of limitations applicable thereto expires. Section 9.2 Indemnification by Buyer or the Trust. (a) Subject to Section 9.1, from and after the Initial Closing Date, Buyer shall indemnify and hold harmless the Trust, its successors and assigns, from and against any and all damages, claims, losses, expenses, costs, obligations and liabilities, including liabilities for all reasonable attorneys' fees and expenses (including attorney and expert fees and expenses incurred to enforce the terms of this Agreement) (collectively, "Loss and Expense") suffered, directly or indirectly, by the Trust by reason of, or arising out of, (i) any breach as of the date made or deemed made or required to be true of any representation or warranty made by Buyer in or pursuant to this Agreement and the failure to cure such breach within the applicable cure period, or (ii) any failure by Buyer to perform or fulfill any of its covenants or agreements set forth herein. -54- 61 (b) Subject to Section 9.1, from and after the Initial Closing Date, the Trust shall indemnify and hold harmless Buyer, its successors and assigns, from and against any and all Loss and Expense, suffered, directly or indirectly, by Buyer by reason of, or arising out of, (i) any breach as of the date made or deemed made or required to be true of any representation or warranty made by the Trust in or pursuant to this Agreement or in any certificate delivered pursuant to this Agreement and the failure to cure such breach within the applicable cure period, or (ii) any failure by the Trust to perform or fulfill any of its covenants or agreements set forth herein. (c) Notwithstanding the foregoing, neither Buyer nor the Trust shall be responsible for any Loss and Expense as provided in paragraphs (a) and (b), respectively, of this Section 9.2, until the cumulative aggregate amount of such Loss and Expense suffered by Buyer or the Trust, as the case may be, exceeds $50,000, in which case Buyer or the Trust, as the case may be, shall then be liable for all such Loss and Expense. Except with respect to third- party claims being defended in good faith or claims for indemnification with respect to which there exists a good faith dispute, the indemnifying party shall satisfy its obligations hereunder within 30 days of receipt of a notice of claim under this Article 9. The liability of Buyer or the Trust, as applicable, under this Article 9 and Article 9 of the Merger Agreement, collectively, shall not exceed $58,000,000. Section 9.3 Third-Party Claims. If a claim by a third party is made against a party and if such party intends to seek indemnity with respect thereto under this Article, such party (the "Indemnified Party") shall promptly notify the indemnifying party in writing of such claim setting forth such claim in reasonable detail. The indemnifying party shall have 10 days after receipt of such notice to undertake, through counsel of its own choosing and at its own expense, the settlement or defense thereof, and the Indemnified Party shall cooperate with it in connection therewith, but the Indemnified Party may participate in such settlement or defense through counsel chosen by such Indemnified Party, so long as the fees and expenses of such counsel are borne by that Indemnified Party. The Indemnified Party shall not pay or settle any claim which the indemnifying party is contesting. Notwithstanding the foregoing, the Indemnified Party shall have the right to pay or settle any such claim, but in such event it shall waive any right to indemnity therefor by the indemnifying party. If the indemnifying party does not notify the Indemnified Party within 10 days after the receipt of the Indemnified Party's notice of a claim of indemnity hereunder that it elects to undertake the defense thereof, the Indemnified Party shall have the right to contest or compromise the claim and no such contesting or compromise will constitute a waiver of any right to indemnity therefor pursuant to this Agreement. -55- 62 ARTICLE 10 TERMINATION Section 10.1 Termination. This Agreement may be terminated at any time prior to the Second Closing and the Merger Agreement may be terminated at any time prior to the Initial Closing (provided that a termination of either this Agreement or the Merger Agreement shall also terminate the other agreement, but any termination after the Initial Closing shall not, subject to the repurchase obligation described in Section 10.4, terminate, rescind or undo the Merger Agreement or the transactions contemplated thereby by: (a) the consent of each of the Trust and Buyer; (b) Buyer (if it is not in breach of any of its obligations hereunder) in the event of a breach by the Trust of any representation, warranty, covenant or agreement by the Trust contained in this Agreement or in the Merger Agreement, which has not been, or cannot be, cured within 30 days after written notice of such breach is given to the Trust; (c) the Trust (if it is not in breach of any of its obligations hereunder) in the event of a breach by Buyer of any representation, warranty, covenant or agreement by Buyer contained in this Agreement or in the Merger Agreement which has not been, or cannot be, cured within 30 days after written notice of such breach is given to Buyer; (d) the Trust, if terminated in accordance with Section 5.4 so long as the Trust shall have paid or shall contemporaneously pay to Buyer the Breakup Fee; (e) either the Trust or Buyer if the Second Closing shall not have occurred on or prior to the date 180 days after the date of this Agreement, unless the failure of such occurrence shall be attributable to the failure of the party seeking to terminate this Agreement to perform or observe any covenant or agreement set forth herein required to be performed or observed by such party on or before the Second Closing Date, as applicable; or (f) Buyer, if the Board of Managers shall have withdrawn, modified or failed to make or refrained from making its recommendation that the shareholders of the Trust approve the issuance of the Purchased Shares pursuant to this Agreement and the Merger Agreement as provided for in Section 3.2(b) and Section 5.1(b), or if the Board of Managers at any time refuses to reaffirm, at Buyer's request, such recommendation and its determination to make such recommendation to the shareholders of the Trust. Section 10.2 Procedure and Effect of Termination. In the event of termination of this Agreement by the Trust or Buyer -56- 63 pursuant to Section 10.1, written notice thereof shall forthwith be given by the terminating party to the other party hereto, and this Agreement shall thereupon be and become void and have no effect, and the transactions contemplated hereby shall be abandoned without further action by the parties hereto, except that the provisions of Sections 5.2 (Public Announcements), 10.3 (Expenses), 11.2 (Governing Law), 10.4 (Repurchase Obligation), and 11.4 (Notices) shall survive the termination of this Agreement, and no termination of this Agreement shall relieve any party hereto of any liability for any breach of this Agreement. In addition, the Confidentiality Agreements executed by each of the parties hereto prior to the date hereof shall survive any termination of this Agreement in accordance with their terms. Section 10.3 Expenses; Breakup Fee. (a) Except as set forth in this Agreement, whether or not the purchase of any Purchased Shares is consummated, all legal and other costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses. (b) If: (i) this Agreement and the transactions contemplated hereby shall have been submitted to a vote of the Trust's shareholders and the shareholders have failed for any reason to approve this Agreement and the actions contemplated hereby by the requisite vote and Buyer is not in breach of any of its material obligations hereunder; (ii) Buyer terminates this Agreement under Section 10.1(b); (iii) the Trust terminates this Agreement under Section 10.1(d); (iv) Buyer terminates this Agreement under Section 10.1(f), provided that Buyer is not in material breach of any of its obligations hereunder; or (v) the Trust fails to perform any of its material obligations under this Agreement, provided that Buyer is not in material breach of any of its obligations hereunder; then the Trust shall immediately make payment to Buyer (by wire transfer) of a fee in the amount of $3.5 million (the "Breakup Fee"). (c) If the Trust shall terminate this Agreement under Section 10.1(c) or Buyer shall fail to perform any of its material obligations at the Initial Closing or the Second Closing, provided that the Trust is not in material breach of any of its obligations hereunder, then Buyer shall immediately make payment to the Trust (by wire transfer) of a fee in the amount of $3.5 million. (d) From the date this Agreement is terminated under this Section 10.3 and ending 30 days after such termination: (i) if this Agreement is terminated under Section 10.3(b), then Buyer shall have the option to require the Trust to assign, and the Trust agrees to assign, all of the membership interests of Office Flex I and Office Flex II, each as defined in the Merger Agreement, to Buyer in exchange for the Merger Shares and in lieu of the Trust's obligation to repurchase the Merger Shares described in Section 10.4; and (ii) if this Agreement is terminated under Section 10.3(c), then the Trust shall have the -57- 64 option to assign, and Buyer agrees to accept such assignment, all of the membership interests of Office Flex I and Office Flex II, to Buyer in exchange for the Merger Shares and in lieu of the Trust's obligation to repurchase the Merger Shares described in Section 10.4. Section 10.4 Repurchase Obligation. If this Agreement is terminated for any reason after the Initial Closing and before the Second Closing, the Trust shall repurchase, at a price of $15.50 per Trust Common Share, all Trust Common Shares issued pursuant to this Agreement and the Merger Agreement by wire transfer of immediately available funds to Buyer within 30 days following such termination against delivery of the certificates representing such shares, with all necessary stock powers, share transfer and other documentary stamps attached. This repurchase obligation shall be in addition to the fee required to be paid pursuant to Section 10.3. Further, each Buyer Representative then on the Board of Managers shall resign immediately upon Buyer's receipt of all amounts due under this Section 10.4. ARTICLE 11 MISCELLANEOUS Section 11.1 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other party. Copies of executed counterparts transmitted by telecopy, telefax or other electronic transmission service shall be considered original executed counterparts for purposes of this Section, provided receipt of copies of such counterparts is confirmed. Section 11.2 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE THE LAWS OF THE STATE OF TEXAS WITHOUT REFERENCE TO THE CHOICE OF LAW PRINCIPLES THEREOF. Section 11.3 Jurisdiction. Each party to this Agreement hereby irrevocably agrees that any legal action or proceeding arising out of or relating to this Agreement or any agreements or transactions contemplated hereby may be brought only in a federal district court of the United States of America and hereby expressly submits to the personal jurisdiction and venue of any such court of proper jurisdiction for the purposes thereof and expressly waives any claim of improper venue and any claim that such court is an inconvenient forum. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH PARTY HEREBY WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON -58- 65 THIS AGREEMENT OR THE SUBJECT MATTER HEREOF, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING OR WHETHER IN CONTRACT OR TORT OR OTHERWISE. Section 11.4 Entire Agreement. This Agreement (including the agreements incorporated herein) and the Schedules and Exhibits hereto contain the entire agreement between the parties with respect to the subject matter hereof and there are no agreements, understandings, representations or warranties between the parties other than those set forth or referred to herein. This Agreement is not intended to confer upon any Person not a party hereto (and their successors and assigns) any rights or remedies hereunder. Section 11.5 Notices. All notices and other communications hereunder shall be sufficiently given for all purposes hereunder if in writing and delivered personally, sent by documented overnight delivery service or, to the extent receipt is confirmed, telecopy, telefax or other electronic transmission service to the appropriate address or number as set forth below, unless and until either of such parties notifies the other in accordance with this section of a change of address or change of telecopy number: If to Buyer: Developers Diversified Realty Corporation 34555 Chagrin Blvd. Moreland Hills, Ohio 44022 Attention: Scott A. Wolstein Telecopy Number: (440) 247-0434 with a copy to: Baker & Hostetler LLP 3200 National City Center 1900 East 9th Street Cleveland, Ohio 44114-3485 Attention: Albert T. Adams Telecopy Number: (216) 696-0740 If to the Trust: American Industrial Properties REIT 6210 North Beltline, Suite 170 Irving, Texas 75063 Attention: Charles W. Wolcott Telecopy Number: (972) 756-0704 with a copy to: Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. 2001 Ross Avenue, Suite 3000 Dallas, Texas 75201 Attention: Bryan L. Goolsby Telecopy Number: (214) 849-5599 Section 11.6 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but -59- 66 neither this Agreement nor any of the rights, interests or obligations hereunder may be assigned by either of the parties hereto without the prior written consent of the other party. Section 11.7 Amendments and Waivers. This Agreement may not be modified or amended except by an instrument in writing signed by the party against whom enforcement of any such modification or amendment is sought. Either party hereto may, only by an instrument in writing, waive compliance by the other party hereto with any term or provision hereof on the part of such other party hereto to be performed or complied with. The waiver by any party hereto of a breach of any term or provision hereof shall not be construed as a waiver of any subsequent breach thereof. Section 11.8 Interpretation; Absence of Presumption. (a) For the purposes hereof, (i) words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other gender as the context requires, (ii) the terms "hereof," "herein," and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole (including all of the Schedules and Exhibits hereto) and not to any particular provision of this Agreement, and Article, Section, paragraph, Exhibit and Schedule references are to the Articles, Sections, paragraphs, Exhibits and Schedules to this Agreement unless otherwise specified, (iii) the word "including" and words of similar import when used in this Agreement shall mean "including, without limitation," unless otherwise specified, and (iv) the word "or" shall not be exclusive. (b) This Agreement will be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting or causing any instrument to be drafted. Section 11.9 Severability. Any provision hereof which is invalid or unenforceable shall be ineffective to the extent of such invalidity or unenforceability then such invalid or unenforceable provision shall be revised by a court of competent jurisdiction to make that provision valid or enforceable. Section 11.10 Further Assurances. The Trust and Buyer agree that, from time to time, whether before, at or after the Initial Closing Date, each of them will execute and deliver such further instruments and take such other actions as may be necessary to carry out the purposes and intents hereof. Section 11.11 Specific Performance. Buyer and the Trust each acknowledge that, in view of the uniqueness of the Purchased Shares and the properties to be acquired by the Trust pursuant to the Merger Agreement, the parties hereto would not have an adequate remedy at law for money damages if this Agreement were not performed in accordance with its terms, and therefore agree that the parties hereto shall be entitled to specific enforcement of the terms hereof in addition to any other remedy to which the parties hereto be entitled at law or in equity. -60- 67 IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of each of the parties hereto as of the date first above written. BUYER: DEVELOPERS DIVERSIFIED REALTY CORPORATION, an Ohio corporation By: /s/ Scott A. Wolstein ----------------------------------- Name: Scott A. Wolstein --------------------------------- Title: President -------------------------------- THE TRUST: AMERICAN INDUSTRIAL PROPERTIES REIT, a Texas real estate investment trust By: /s/ Charles W. Wolcott ----------------------------------- Name: Charles W. Wolcott --------------------------------- Title: President & CEO -------------------------------- EX-10.2 5 DEMAND PROMISSORY NOTE DATED JULY 30, 1998 1 EXHIBIT 10.2 DEMAND PROMISSORY NOTE $6,532,5254.34 July 30, 1998 Dallas, Texas FOR VALUE RECEIVED, the undersigned, AMERICAN INDUSTRIAL PROPERTIES REIT, a Texas real estate investment trust ("Maker"), hereby promises to pay to the order of DEVELOPERS DIVERSIFIED REALTY CORPORATION, an Ohio corporation ("Payee"), the principal amount of SIX MILLION FIVE HUNDRED THRITY-TWO THOUSAND FIVE HUNDRED TWENTY-FIVE DOLLARS AND 34/100 ($6,532,525.34), together with interest upon the outstanding balance of the principal amount hereof at a rate of interest of ten and one-quarter percent (10.25%) per annum. The principal of and interest on this Demand Promissory Note are payable as follows: (a) accrued and unpaid interest only on the outstanding principal balance of this Demand Promissory Note shall be paid quarterly on the first day of each November, February, May and August, commencing on November 1, 1998, until the principal balance hereof is paid in full; and (b) the entire outstanding balance of the principal hereof, together with all accrued and unpaid interest thereon, shall be due and payable on the thirtieth calendar day following a demand by Payee. Both principal and interest are payable in lawful money of the United States of America to Payee at 34255 Chagrin Boulevard, Moreland Hills, Ohio 44022 or at such other address as Payee may designate in writing from time to time to Maker, in immediately available funds. Maker shall have the privilege of prepaying all or any part of the amounts due under this Demand Promissory Note at any time and from time to time without notice or any prepayment penalty. Any prepayment shall first be applied to accrued but unpaid interest and thereafter applied to the unpaid principal balance hereof. The invalidity or unenforceability of any term or provision of this Demand Promissory Note, or the application of such term or provision to any person or circumstance, shall not impair or affect the remainder of this Demand Promissory Note and its application to other persons and circumstances and the remaining terms and provisions hereof shall not be invalid, but shall remain in full force and effect. This Demand Promissory Note shall be governed by and construed in accordance with the laws of the State of Texas. This Demand Promissory Note has been executed at Dallas, Dallas County, Texas, as of the date first above written. AMERICAN INDUSTRIAL PROPERTIES REIT, a Texas real estate investment trust By: /s/ Marc A. Simpson ------------------------------------- Name: Marc A. Simpson ----------------------------------- Title: Senior Vice President ---------------------------------- EX-10.3 6 SECOND AMENDED & RESTATED REGISTRATION RIGHTS AGMT 1 EXHIBIT 10.3 SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT This Second Amended and Restated Registration Rights Agreement (the "Agreement") is made and entered into as of July 30, 1998, by and among American Industrial Properties REIT, a Texas real estate investment trust (the "Company"), and 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, purchased 8,163,265 Common Shares (the "Shares") of the Company (subject to the Share Ownership Limited described in the Purchase Agreement); WHEREAS, the Company and the Purchasers entered into Registration Rights Agreements dated as of July 8, 1997 and January 29, 1998 (the "Prior Registration Rights Agreement"); WHEREAS, the Company is entering into a Share Purchase Agreement, an Agreement and Plan of Merger and a Registration Rights Agreement on the date hereof with Developers Diversified Realty Corporation ("DDR"); and WHEREAS, to enable the Company to enter into such agreements with DDR, the Purchasers have agreed to amend the registration rights previously granted to the Purchasers by the Company; NOW, THEREFORE, for the promises contained herein, and other good and 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, $0.10 par value per share, of the Company. 1 2 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. 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 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: 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 share dividend or share 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. 2 3 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. 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. 2. Registration Rights. (a) Shelf Registration. Upon the written request of one or more Requesting Purchasers, the Company will file 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 the 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 the 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 Holder shall consent in writing, no party (including the Company) other than any Purchaser, DDR, USAA Real Estate Company ("Realco"), Praedium II Industrial Associates LLC ("Praedium"), LaSalle Advisors Limited Partnership acting as agent for and on behalf of certain clients ("LaSalle"), or ABKB/LaSalle Securities Limited Partnership ("ABKB" and together with LaSalle, the "LaSalle Entities") 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 any 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 shares of Registrable Securities and shares of DDR, 4 5 Realco, Praedium or the LaSalle Entities, 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 DDR, Realco, Praedium or the LaSalle Entities, 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 DDR, Realco, Praedium or the LaSalle Entities, 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 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 DDR, Realco, Praedium or the LaSalle Entities, 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 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 all Purchasers as soon as practicable (but in no event less than 30 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 specify 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 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 5 6 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 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 and pursuant to a written opinion delivered to the Participating Purchasers, 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. Notwithstanding the foregoing, if the Purchasers exercise an incidental registration in connection with DDR's or Realco's or the Morgan Entities' or LaSalle Entities' demand registration rights, then the managing underwriter's cutback provision under the demand registration right set forth in Section 2(b) shall govern with respect to the Participating Purchasers 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. 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 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 6 7 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 DDR, Realco, Praedium or the LaSalle Entities, 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 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 the Purchasers not being able to sell their 7 8 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(k) hereof, if applicable; (c) notify each Participating Purchaser and the managing underwriters, if any, promptly (and in no event more than three days after the occurrence of any of the following events), 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 (m) 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) 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); 8 9 (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 the Participating 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; (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 (except as reasonably required to protect the Company's status as a REIT); 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 9 10 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; (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 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 the Purchasers 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(k) hereof, 10 11 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(k) 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(k) 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 Participating 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(m) 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 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 Participating 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 reasonable expenses arising out of or based upon any untrue or alleged untrue statement of a material 11 12 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, liabilities and reasonable 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 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 (and in any event within 10 days) 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 12 13 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 in no event shall any Purchaser 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 misrepresentation. 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 Purchasers, 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. 13 14 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 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 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. (c) 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. (d) 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. (e) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 14 15 (f) 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 TEXAS, WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAWS. (g) 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(g). (h) 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(h) shall be held in Dallas, Texas. (i) 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. (j) Attorneys' Fees. In any proceeding brought to enforce any provision of this Agreement the successful party shall be entitled to recover reasonable attorneys' and accountants' fees in addition to its costs and expenses and any other available remedy. (k) 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 acts 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 15 16 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 any time subsequent to the date hereof appoint a successor agent to MSAM in connection with the matters est 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. (iv) The provisions of Section 5, 6 and of this Section 9(k) 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. (l) 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(k) 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. (m) Notices. The notice provisions contained in Section 12.11 of the Purchase Agreement shall be incorporated herein and shall be governing under this Agreement. (n) Representation of the Trust. The Trust hereby represents and warrants to Investor that the rights granted to Investor hereunder are pari passu to the registration rights granted by the Trust to each of Praedium, USAA, the LaSalle Entities and DDR. 16 17 IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment and Restated Registration Rights Agreement as of the date first written above. "COMPANY" AMERICAN INDUSTRIAL PROPERTIES REIT /s/ Charles W. Wolcott ------------------------------------------- Charles W. Wolcott President and Chief Executive Officer "MSRE" MS REAL ESTATE SPECIAL SITUATIONS, INC. By: /s/ Russell Platt --------------------------------------- Name: Russell Platt ----------------------------------- Title: Managing Director ------------------------------------ "MSAM" MORGAN STANLEY ASSET MANAGEMENT INC., as agent and attorney-in-fact on behalf of the MSAM Purchasers By: /s/ Russell Platt --------------------------------------- Name: Russell Platt ----------------------------------- Title: 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. 18 EX-10.4 7 SECOND AMENDED & RESTATED REGISTRATION RIGHTS AGMT 1 EXHIBIT 10.4 SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT This Second Amended and Restated Registration Rights Agreement (the "Agreement") is made and entered into as of July 30, 1998, by and between American Industrial Properties REIT, a Texas real estate investment trust (the "Company"), and USAA Real Estate Company, a Delaware corporation ("Investor"). WITNESSETH: WHEREAS, pursuant to that certain Share Purchase Agreement dated as of December 13, 1996, between the Company and Investor, Investor purchased 924,600 Common Shares from the Company; WHEREAS, pursuant to that certain Share Purchase Agreement, dated as of December 20, 1996, among the Company, American Industrial Properties REIT, Inc., a Maryland corporation ("Sub") and Investor (together with the Share Purchase Agreement referenced in the preceding recital, the "Purchase Agreement"), Investor purchased 998,100 Common Shares from Sub; WHEREAS, the Company and the Investor entered into Registration Rights Agreements dated as of December 19, 1996, December 20, 1996, and January 29, 1998 (collectively, the "Prior Registration Rights Agreement"); WHEREAS, on December 1, 1997, Investor converted the Company's $5,449,618 principal amount note (the "Convertible Note") to Investor into 544,961 Common Shares (such shares and the 924,600 Common Shares and the 998,100 Common Shares shall be referred to herein collectively as the "Shares"); WHEREAS, pursuant to the terms of the Share Purchase Agreement, an Agreement and Plan of Merger and the Convertible Note, the Company and Investor agreed that the Company would grant certain registration rights to Investor with respect to the Shares; WHEREAS, the Company is entering into a Share Purchase Agreement and a Registration Rights Agreement on the date hereof with Developers Diversified Realty Corporation ("DDR"); and WHEREAS, to enable the Company to enter into such agreements with DDR, the Investor has agreed to amend the registration rights previously granted to Investor by the Company; NOW, THEREFORE, for the promises contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1 2 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, $0.10 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. 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: As defined in the Recitals to this Agreement. Purchasers: See Section 2(b) hereof. Registrable Securities: (a) The Shares and (b) any securities issued or issuable with respect to the Shares by way of share dividend or share split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. 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 2 3 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. 2. Registration Rights. (a) Shelf Registration. Upon the written request of the Investor, the Company will file 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 the Registrable Securities that the Company has been so requested to register by the Investor. 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. If the Investor so elects, the offering of Registrable Securities pursuant to such registration shall be in the form of an Underwritten Offering. 3 4 (b) Demand Registration. At any time during the five year period following the Closing Date, the Investor may make a written request (the "Demand Notice") for registration under the Securities Act (a "Demand Registration") of its 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 DDR, Praedium II Industrial Associates LLC ("Praedium"), MS Real Estate Special Situations Inc. ("MRSE"), certain clients of Morgan Stanley Asset Management Inc. who have purchased Common Shares of the Company (such clients together with MRSE, the "Morgan Entities"), LaSalle Advisors Limited Partnership acting as agent for and on behalf of certain clients ("LaSalle"), or ABKB/LaSalle Securities Limited Partnership ("ABKB" and together with LaSalle, the "LaSalle Entities") 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 any 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 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 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 DDR, Praedium, the Morgan Entities or the LaSalle Entities, 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 DDR, Praedium, the Morgan Entities or the LaSalle Entities, 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 DDR, Praedium, the Morgan Entities or the LaSalle Entities, 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 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 DDR, Praedium, the Morgan Entities or the LaSalle Entities, if any, to be included in such Registration shall be reduced 4 5 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 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 30 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 specify 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 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) 5 6 if the actions described in clause (A) would, in the judgment of the managing underwriter and pursuant to a written opinion delivered to the Investor, 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. Notwithstanding the foregoing, if the Investor exercises an incidental registration in connection with DDR's or Praedium's or the Morgan Entities' or LaSalle Entities' demand registration rights, then the managing underwriter's cutback provision under the demand registration right set forth in Section 2(b) 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 DDR, Praedium, the Morgan Entities or the LaSalle Entities, 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: 6 7 (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 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 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(k) hereof, if applicable; (c) notify the Investor and the managing underwriters, if any, promptly (and in no event more than three days after the occurrence of any of the following events), 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 (m) below cease to be true and correct, (5) of the receipt by the Company of any notification with respect to the 7 8 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) 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, 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 (except as reasonably required to protect the Company's status as a REIT); and enable such Registrable Securities to be in such denominations and registered in 8 9 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; (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 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 9 10 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 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 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(k) 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(k) 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(k) 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 10 11 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(m) 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 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 its 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 reasonable 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 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, if requested. (b) Indemnification By Holder of Registrable Securities. The Investor 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 reasonable 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 to the Company specifically for inclusion in such Registration Statement or Prospectus. In no event shall the liability of the Investor hereunder be greater in amount than the 11 12 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 (and in any event within 10 days) 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 the indemnifying party, as well as any other relevant equitable considerations, provided, that in no event shall the Investor be required to contribute an amount greater than the dollar amount of the proceeds received by Investor 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 on the other shall be determined by reference to, among other things, whether the untrue or alleged 12 13 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 misrepresentation. 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 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; 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. 13 14 (b) Third Party Registration Rights. The Company will not 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. (c) 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 and Investor. (d) Notices. The notice provision contained in Section 9(d) of the Purchase Agreement shall be incorporated herein and shall be governing under this Agreement. (e) 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. (f) 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. (g) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (h) 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 TEXAS, WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAWS. (i) 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(i). 14 15 (j) 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(j) shall be held in Dallas, Texas. (k) 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, including, but not limited to, the Prior Registration Rights Agreement. (l) Attorneys' Fees. In any proceeding brought to enforce any provision of this Agreement the successful party shall be entitled to recover reasonable attorneys' and accountants' fees in addition to its costs and expenses and any other available remedy. (m) Representation of the Trust. The Trust hereby represents and warrants to Investor that the rights granted to Investor hereunder are pari passu to the registration rights granted by the Trust to each of Praedium, the Morgan Entities, the LaSalle Entities and DDR. IN WITNESS WHEREOF, the parties hereto have executed this Second Amended and Restated Registration Rights Agreement as of the date first written above. "COMPANY" AMERICAN INDUSTRIAL PROPERTIES REIT /s/ Charles W. Wolcott --------------------------------------------- Charles W. Wolcott President and Chief Executive Officer "INVESTOR" USAA REAL ESTATE COMPANY /s/ T. Patrick Duncan --------------------------------------------- T. Patrick Duncan Senior Vice President - Real Estate Operations 15 EX-10.5 8 REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 10.5 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "AGREEMENT") is made and entered into as of July 30, 1998, by and between American Industrial Properties REIT, a Texas real estate investment trust (the "COMPANY"), and Developers Diversified Realty Corporation, an Ohio corporation ("Investor"). WITNESSETH: WHEREAS, pursuant to that certain Share Purchase Agreement (the "Purchase Agreement") dated as of July 30, 1998, between the Company and Investor, Investor has agreed to purchase up to 6,137,251 Common Shares from the Company; WHEREAS, pursuant to that certain Merger Agreement dated as of July 30, 1998, by and among the Trust, Investor and DDR Office Flex Corporation, a Delaware corporation, Investor will acquire 1,258,478 Common Shares (collectively with the 6,137,251 Common Shares, the "Shares") from the Company; WHEREAS, pursuant to the terms of the Share Purchase Agreement, the Company and Investor agreed that the Company would grant certain registration rights to Investor with respect to the Shares; NOW, THEREFORE, for the promises contained herein, and other good and 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, $0.10 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. 1 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 Agreement: As defined in the Recitals to this Agreement. Purchasers: See Section 2(b) hereof. Registrable Securities: (a) The Shares and (b) any securities issued or issuable with respect to the Shares by way of share dividend or share split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. 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. 2 3 2. Registration Rights. (a) Shelf Registration. Upon the written request of the Investor, the Company will file 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 the Registrable Securities that the Company has been so requested to register by the Investor. 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. If the Investor so elects, 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, the Investor may make a written request (the "DEMAND NOTICE") for registration under the Securities Act (a "DEMAND REGISTRATION") of its 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 _USAA Real Estate Company ("USAA"), Praedium II Industrial Associates LLC ("Praedium"), MS Real Estate Special Situations Inc. ("MRSE"), certain clients of Morgan Stanley Asset Management Inc. who have purchased Common Shares of the Company (such clients together with MRSE, the "Morgan Entities"), LaSalle Advisors Limited Partnership acting as agent for and on behalf of certain clients ("LaSalle"), or ABKB/LaSalle Securities Limited Partnership ("ABKB" and together 3 4 with LaSalle, the "LaSalle Entities") 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 any 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 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 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 USAA, Praedium, the Morgan Entities or the LaSalle Entities, 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 USAA, Praedium, the Morgan Entities or the LaSalle Entities, 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 USAA, Praedium, the Morgan Entities or the LaSalle Entities, 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 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 USAA, Praedium, the Morgan Entities or the LaSalle Entities, 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 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 4 5 shall give written notice of such proposed filing to the Investor as soon as practicable (but in no event less than 30 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 specify 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 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 and pursuant to a written opinion delivered to the Investor, 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. Notwithstanding the foregoing, if the Investor exercises an incidental registration in connection with USAA's or Praedium's or the Morgan Entities' or LaSalle Entities' demand registration rights, then the managing underwriter's cutback provision under the demand registration right set forth in Section 2(b) 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. 5 6 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 USAA, Praedium, the Morgan Entities or the LaSalle Entities, 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 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 6 7 supplement thereto (including such documents incorporated by reference) to which the Investor 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(k) hereof, if applicable; (c) notify the Investor and the managing underwriters, if any, promptly (and in no event more than three days after the occurrence of any of the following events), 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 (m) 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) 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, 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 7 8 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 (except as reasonably required to protect the Company's status as a REIT); 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; (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; 8 9 (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 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 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 9 10 (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 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(k) 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(k) 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(k) 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(m) 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 not have any obligation to pay any underwriting fees, discounts or commissions 10 11 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 its 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 reasonable 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 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, if requested. (b) Indemnification By Holder of Registrable Securities. The Investor 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 reasonable 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 to the Company specifically for inclusion in such Registration Statement or Prospectus. In no event shall the liability of the Investor 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 (and in any event within 10 days) 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 11 12 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 in no event shall the Investor be required to contribute an amount greater than the dollar amount of the proceeds received by Investor 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 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 misrepresentation. 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 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 12 13 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; 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 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. (c) 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 and Investor. (d) Notices. The notice provision contained in Section 9(d) of the Purchase Agreement shall be incorporated herein and shall be governing under this Agreement. 13 14 (e) 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. (f) 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. (g) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (h) 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 TEXAS, WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAWS. (i) 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(i). (j) 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(j) shall be held in Dallas, Texas. (k) 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. 14 15 (l) Attorneys' Fees. In any proceeding brought to enforce any provision of this Agreement the successful party shall be entitled to recover reasonable attorneys' and accountants' fees in addition to its costs and expenses and any other available remedy. (m) Representation of the Trust. The Trust hereby represents and warrants to Investor that the rights granted to Investor hereunder are pari passu to the registration rights granted by the Trust to each of USAA, Praedium, the Morgan Entities and the LaSalle Entities. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. "COMPANY" AMERICAN INDUSTRIAL PROPERTIES REIT, a Texas real estate investment trust By: /s/ Charles W. Wolcott ------------------------------------------ Name: Charles W. Wolcott ---------------------------------------- Title: President and Chief Executive Officer ---------------------------------------- "INVESTOR" DEVELOPERS DIVERSIFIED REALTY CORPORATION, an Ohio corporation By: /s/ Joan U. Allgood ------------------------------------------- Name: Joan U. Allgood ----------------------------------------- Title: Vice President ---------------------------------------- 15 EX-10.6 9 1ST AMENDED & RESTATED REGISTRATION RIGHTS AGMT 1 EXHIBIT 10.6 FIRST AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT This First Amended and Restated Registration Rights Agreement (the "AGREEMENT") is made and entered into as of July 30, 1998, by and between American Industrial Properties REIT, a Texas real estate investment trust (the "COMPANY"), and Praedium II Industrial Associates LLC, a Delaware limited liability company (the "Investor"). WITNESSETH: WHEREAS, pursuant to certain Common Share Purchase Agreement, dated as of January 29, 1998, between the Company and the Investor (the "PURCHASE AGREEMENT"), the Investor purchased 733,945 Common Shares (the "SHARES") of the Company; WHEREAS, pursuant to the terms of the Purchase Agreement, the Company and the Investor agreed that the Company would grant certain registration rights to the Investor with respect to the Shares; WHEREAS, the Company and the Investor entered into a Registration Rights Agreement dated as of January 29, 1998 (the "Prior Registration Rights Agreement"); WHEREAS, the Company is entering into a Share Purchase Agreement, an Agreement and Plan of Merger and a Registration Rights Agreement on the date hereof with Developers Diversified Realty Corporation ("DDR"); and WHEREAS, to enable the Company to enter into such agreements with DDR, the Investor has agreed to amend the registration rights previously granted to the Investor by the Company; NOW, THEREFORE, for the promises contained herein, and other good and 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, $0.10 par value per share, of the Company. Exchange Act: The Securities Exchange Act of 1934, as amended from time to time. 2 Person: An individual, partnership, corporation, limited liability company, trust or unincorporated organization, or a government or agency or political subdivision thereof. 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: As defined in the Recitals to this Agreement. Purchasers: See Section 2(b) hereof. Registrable Securities: (a) The Shares and (b) any securities issued or issuable with respect to the Shares by way of share dividend or share split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. 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. 2 3 2. Registration Rights. (a) Shelf Registration. Upon the written request of the Investor, the Company will file 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 the Registrable Securities that the Company has been so requested to register by the Investor. 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. If the Investor so elects, 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, the Investor may make a written request (the "DEMAND NOTICE") for registration under the Securities Act (a "DEMAND REGISTRATION") of its 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 DDR, USAA Real Estate Company ("Realco"), MS Real Estate Special Situations Inc. ("MRSE"), certain clients of Morgan Stanley Asset Management Inc. who have purchased Common Shares of the Company (such clients together with MRSE, the "Morgan Entities"), LaSalle Advisors Limited Partnership acting as agent for and on behalf of certain clients ("LaSalle"), or ABKB/LaSalle Securities Limited Partnership ("ABKB" and together with LaSalle, the "LaSalle Entities") shall be 3 4 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 any 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 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 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 DDR, Realco, the Morgan Entities or the LaSalle Entities, 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 DDR, Realco, the Morgan Entities or the LaSalle Entities, 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 DDR, Realco, the Morgan Entities or the LaSalle Entities, 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 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 DDR, Realco, the Morgan Entities or the LaSalle Entities, 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 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 30 days before the anticipated filing date), and such notice shall (i) offer the Investor 4 5 the opportunity to register such number of Registrable Securities as it may request and (ii) describe such securities and specify 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 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 and pursuant to a written opinion delivered to the Investor, 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. Notwithstanding the foregoing, if the Investor exercises an incidental registration in connection with DDR's or Realco's or the Morgan Entities' or LaSalle Entities' demand registration rights, then the managing underwriter's cutback provision under the demand registration right set forth in Section 2(b) 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. 5 6 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 DDR, Realco, the Morgan Entities or the LaSalle Entities, 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 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 or 6 7 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(k) hereof, if applicable; (c) notify the Investor and the managing underwriters, if any, promptly (and in no event more than three days after the occurrence of any of the following events), 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 (m) 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) 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, 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 7 8 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 (except as reasonably required to protect the Company's status as a REIT); 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; (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; 8 9 (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 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 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 9 10 (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 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(k) 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(k) 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(k) 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(m) 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 not have any obligation to pay any underwriting fees, discounts or commissions 10 11 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 its 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 reasonable 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 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, if requested. (b) Indemnification By Holder of Registrable Securities. The Investor 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 reasonable 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 to the Company specifically for inclusion in such Registration Statement or Prospectus. In no event shall the liability of the Investor 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 (and in any event within 10 days) 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 11 12 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 in no event shall the Investor be required to contribute an amount greater than the dollar amount of the proceeds received by Investor 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 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 misrepresentation. 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 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 12 13 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; 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 hereby represents and warrants to the Investor that it has obtained all necessary consents or waivers of Realco, the Morgan Entities and the LaSalle Entities in connection with the execution of this Agreement and the consummation of the transactions contemplated hereby. (c) 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 and Investor. 13 14 (d) Notices. The notice provisions contained in Section 9.11 of the Purchase Agreements shall be incorporated herein and shall be governing under this Agreement. (e) 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. (f) 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. (g) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (h) 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 TEXAS, WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAWS. (i) 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(i). (j) 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(j) shall be held in Dallas, Texas. (k) 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. 14 15 This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. (l) Attorneys' Fees. In any proceeding brought to enforce any provision of this Agreement the successful party shall be entitled to recover reasonable attorneys' and accountants' fees in addition to its costs and expenses and any other available remedy. (m) Representation of the Trust. The Trust hereby represents and warrants to Investor that the rights granted to Investor hereunder are pari passu to the registration rights granted by the Trust to each of the Morgan Entities, the LaSalle Entities, USAA and DDR. IN WITNESS WHEREOF, the parties hereto have executed this First Amended and Restated Registration Rights Agreement as of the date first written above. "COMPANY" AMERICAN INDUSTRIAL PROPERTIES REIT /s/ Charles W. Wolcott ----------------------------------------------- Charles W. Wolcott President and Chief Executive Officer "INVESTOR" By: PRAEDIUM II INDUSTRIAL ASSOCIATES LLC, a Delaware limited liability company By: THE PRAEDIUM OPPORTUNITY FUND II, L.P., its member By: PRAEDIUM ADVISORS, INC., its managing general partner By: /s/ Christopher Hughes ----------------------------------- Name: Christopher Hughes ----------------------------- Title: Vice President ---------------------------- By: PRAEDIUM PARTNERS, LLC, its investment general partner By: /s/ Christopher Hughes ----------------------------------- Name: Christopher Hughes ----------------------------- Title: Vice President ---------------------------- 15 EX-10.7 10 2ND AMENDED & RESTATED REGISTRATION RIGHTS AGMT 1 EXHIBIT 10.7 SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT This Second Amended and Restated Registration Rights Agreement (the "Agreement") is made and entered into as of July 30, 1998, by and among American Industrial Properties REIT, a Texas real estate investment trust (the "Company"), ABKB/LaSalle Securities Limited Partnership ("ABKB"), acting as agent for and on behalf of a particular client and LaSalle Advisors Limited Partnership ("LaSalle," and together with ABKB, the "Investor"), acting as agent for and on behalf of certain of their respective 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 (collectively, the "Purchase Agreement"), the Investor purchased 6,122,449 Common Shares (the "Shares") of the Company as agent for and on behalf of the Pecuniary Owners; WHEREAS, pursuant to the terms of the Purchase Agreement, the Company and Investor agreed that the Company would grant certain registration rights to the Investor with respect to the Shares; WHEREAS, the Company and the Investor entered into Registration Rights Agreements as of July 10, 1997 and January 29, 1998 (the "Prior Registration Rights Agreement"); WHEREAS, the Company is entering into a Share Purchase Agreement, an Agreement and Plan of Merger and a Registration Rights Agreement on the date hereof with Developers Diversified Realty Corporation ("DDR"); and WHEREAS, to enable the Company to enter into such agreements with DDR, the Investor has agreed to amend the registration rights previously granted to Investor by the Company; NOW, THEREFORE, for the promises contained herein, and other good and 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, $0.10 par value per share, of the Company. 1 2 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 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: 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 share dividend or share 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 Agreement) purchase 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. 2 3 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. 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) Registrable 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. 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. 3 4 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. (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 its 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, DDR, USAA Real Estate Company ("Realco"), MS Real Estate Special Situations Inc. ("MRSE"), certain clients of Morgan Stanley Asset Management Inc. who have purchased Common Shares of the Company (such clients together with MRSE, the "Morgan Entities"), and Praedium II Industrial Associates LLC ("Praedium") 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 any 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 DDR, Realco, the Morgan Entities or Praedium, 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 DDR, Realco, the Morgan Entities or Praedium, 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 4 5 Registrable Securities or shares of DDR, Realco, the Morgan Entities or Praedium, 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 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 DDR, Realco, the Morgan Entities or Praedium, 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 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 30 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 specify 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 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 5 6 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 and pursuant to a written opinion delivered to the Investor, 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. Notwithstanding the foregoing, if the Investor exercises an incidental registration in connection with DDR's or Realco's or the Morgan Entities' or Praedium's demand registration rights, then the managing underwriter's cutback provision under the demand registration right set forth in Section 2(b) 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 DDR, Realco, the Morgan Entities or Praedium, 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. 6 7 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 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(k) hereof, if applicable; (c) notify the Investor and the managing underwriters, if any, promptly (and in no event more than three days after the occurrence of any of the following events), 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 7 8 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 (m) 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) 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 8 9 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 (except as reasonably required to protect the Company's status as a REIT); 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; (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 9 10 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 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(k) 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(k) 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(k) hereof or the Advice. 10 11 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(m) 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 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, 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 reasonable 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, 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 11 12 (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) against any losses, claims, damages, liabilities and reasonable 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 (and in any event within 10 days) 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 12 13 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 in no event shall the Investor or any Pecuniary Owner be required to contribute an amount greater than the dollar amount of the proceeds received by Investor 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 misrepresentation. 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 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. 13 14 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 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 hereby represents and warrants to the Investor that it has obtained all necessary consents or waivers of Realco, the Morgan Entities and Praedium in connection with the execution of this Agreement and the consummation of the transactions contemplated hereby. (c) 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 and Investor. (d) Notices. The notice provisions contained in Section 12.11 of the Purchase Agreement shall be incorporated herein and shall be governing under this Agreement. (e) 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. (f) 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. (g) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (h) 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 TEXAS, WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAWS. 14 15 (i) 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(i). (j) 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(j) shall be held in Dallas, Texas. (k) 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, including, but not limited to, the Prior Registration Rights Agreement. (l) Attorneys' Fees. In any proceeding brought to enforce any provision of this Agreement the successful party shall be entitled to recover reasonable attorneys' and accountants' fees in addition to its costs and expenses and any other available remedy. (m) 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 15 16 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(m) 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. (n) Representation of the Trust. The Trust hereby represents and warrants to Investor that the rights granted to Investor hereunder are pari passu to the registration rights granted by the Trust to each of Praedium, the Morgan Entities, USAA and DDR. IN WITNESS WHEREOF, the parties hereto have executed this Second Amended and Restated Registration Rights Agreement as of the date first written above. "COMPANY" AMERICAN INDUSTRIAL PROPERTIES REIT /s/ Charles W. Wolcott --------------------------------------------------- Charles W. Wolcott President and Chief Executive Officer "INVESTOR" LaSalle Advisors Limited Partnership, as agent for and on behalf of its Pecuniary Owners /s/ Stanley J. Kraska, Jr. --------------------------------------------------- Stanley J. Kraska, Jr. Managing Director ABKB/LaSalle Securities Limited Partnership, as agent for and on behalf of its Pecuniary Owners /s/ Stanley J. Kraska, Jr. --------------------------------------------------- Stanley J. Kraska, Jr. Managing Director 16 EX-10.8 11 LETTER AGREEMENT DATED JULY 30, 1998 1 EXHIBIT 10.8 July 30, 1998 Developers Diversified Realty Corporation 34555 Chagrin Boulevard Moreland Hills, Ohio Re: Voting Agreement Ladies and Gentlemen: The undersigned understands that Developers Diversified Realty Corporation, an Ohio corporation ("DDRC"), and American Industrial Properties REIT, a Texas real estate investment trust ("AIP"), are entering into a Share Purchase Agreement to be dated on or about the date hereof (the "Purchase Agreement"), and, together with DDR Office Flex Corporation, a Delaware corporation, a Merger Agreement to be dated on or about the date hereof (the "Merger Agreement" and, together with the Purchase Agreement, the "Agreements"), providing for, among other things, the purchase of common shares, $.10 par value per share, of AIP by DDRC (the "Share Purchase"). Under the rules of the New York Stock Exchange, consummation of the Share Purchase will require the approval of the shareholders of AIP. The undersigned is a shareholder of AIP (the "Shareholder") and is entering into this letter agreement at your request, in exchange for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, to induce you to enter into the Agreements and to consummate the transactions contemplated thereby. The Shareholder confirms its agreement with you as follows: 1. The Shareholder represents and warrants that Schedule I annexed hereto sets forth the shares of beneficial interest of AIP of which the Shareholder or any affiliate (as defined under the Securities Exchange Act of 1934, as amended) of the Shareholder controlled by the Shareholder (a "Controlled Affiliate") is the beneficial owner (the "Shares") and that the Shareholder and the Controlled Affiliates are on the date hereof the lawful owners of the number of Shares set forth in Schedule I, free and clear of all liens, charges, encumbrances, voting agreements and commitments of any kind, except as disclosed in Schedule I. Except for the Shares set forth in Schedule I, neither the Shareholder nor any Controlled Affiliate owns or holds any rights to acquire any additional shares of beneficial interest of AIP (other than pursuant to options or conversion rights with regard to any of the Shares, in each case as disclosed in Schedule I) or any interest therein or any 2 Developers Diversified Realty Corporation July 30, 1998 Page 2 voting rights with respect to any such additional shares. 2. Until the earliest date referred to in Section 12, the Shareholder agrees that it will not, and will not permit any Controlled Affiliate to, contract to sell, sell or otherwise transfer or dispose of any of the Shares or any interest therein or securities convertible into shares of beneficial interest of AIP, or any voting rights with respect thereto, without your prior written consent. 3. The Shareholder agrees that, during the term of this letter agreement, neither it nor any Controlled Affiliate will take any action that AIP would at that time be prohibited from taking under Section 5.4 of the Purchase Agreement. 4. The Shareholder agrees that during the term of this letter agreement (a) all of the shares of beneficial interest of AIP beneficially owned by the Shareholder or any Controlled Affiliate, or over which the Shareholder or any Controlled Affiliate has voting power or control, directly or indirectly, including any such shares acquired after the date hereof at the record date for any meeting of shareholders of AIP called to consider and vote on the Share Purchase and the Agreements and the transactions contemplated thereby or any Competing Transaction (as such term is defined in the Purchase Agreement) will be voted by the Shareholder or such Controlled Affiliates, or any representative or proxy thereof, as applicable, in favor of the approval of the Share Purchase and the Agreements and the transactions contemplated thereby and (b) neither the Shareholder nor any Controlled Affiliate, nor any such representative or proxy will vote any such Shares in favor of any Competing Transaction. 5. The Shareholder agrees that the shares referred to in Section 4 above, owned at the record date for any meeting of shareholders of AIP called to consider and vote on the election of members of the Board of Trust Managers of the Trust (the "Board"), will be voted by the Shareholder or any Controlled Affiliate, or any representative or proxy thereof, as applicable, in favor of the approval of the election of the representatives of DDRC to the Board for so long as DDRC has the right to nominate members of the Board under the Purchase Agreement. 6. The Shareholder hereby appoints Marc A. Simpson to attend the special meeting of the shareholders of AIP held to consider and vote on 3 Developers Diversified Realty Corporation July 30, 1998 Page 3 the Share Purchase and to vote the shares referred to in Section 4 above, with all the power the Shareholder would possess if personally present, in favor of the approval of the Share Purchase, the Agreements and the transactions contemplated thereby. The Shareholder agrees to execute, and to cause each Controlled Affiliate to execute, such proxies and other instruments, and to take and to cause each Controlled Affiliate to take such actions, as may be necessary to cause all of those shares to be so voted. 7. The Shareholder has all necessary power and authority to enter into this letter agreement. This letter agreement is the legal, valid and binding agreement of the Shareholder, and is enforceable against the Shareholder in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and to general principles of equity. This letter agreement shall inure to the benefit of the parties hereto and the successors and assigns of DDRC. 8. The Shareholder agrees that damages are an inadequate remedy for the breach by Shareholder of any term or condition of this letter agreement and that you shall be entitled to a temporary restraining order and preliminary and permanent injunctive relief in order to enforce our agreements herein. 9. Except to the extent that the laws of the jurisdiction of organization of any party hereto, or any other jurisdiction, are mandatorily applicable to matters arising under or in connection with this letter agreement, this letter agreement shall be governed by the laws of the State of Ohio. All actions and proceedings arising out of or relating to this letter agreement shall be heard and determined in any United States District Court sitting in the Northern District of Ohio. 10. Each of the parties hereto irrevocably submits to the exclusive jurisdiction of any United States District Court located in the Northern District of Ohio, for the purpose of any action or proceeding arising out of or relating to this letter agreement and each of the parties hereto irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined exclusively in any federal court sitting in the Northern District of Ohio. Each of the parties hereto agrees that a final judgment in any action or proceeding shall be conclusive and may 4 Developers Diversified Realty Corporation July 30, 1998 Page 4 be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Shareholder hereby irrevocably appoints CT Corporation as its lawful agent in and for the State of Ohio, for and in its behalf, to accept and acknowledge service of, and upon whom may be served, all necessary processes in any action, suit, or proceeding arising under this Agreement that may be had or brought against it in any federal court in the Northern District of Ohio, such service of process or notice, or the acceptance thereof by said agent endorsed thereon, to have the same force and effect as if served upon such corporation or individual. Nothing in this Section 10 shall affect the right of any party hereto to serve legal process in any other manner permitted by law. Shareholder hereby waives all defenses of improper venue and forum non conveniens with respect to any action, suit, or proceeding brought in the any United States District Court located in the Northern District of Ohio and arising under this letter agreement. 11. This letter agreement constitutes the entire agreement between the parties hereto with respect to the matters covered hereby and supersedes all prior agreements, understandings or representations between the parties, written or oral, with respect to the subject matter hereof. 12. This letter agreement and the proxy granted pursuant to Section 6 hereof shall become effective upon the execution and delivery of the Agreements by the respective parties thereto. Except as otherwise provided herein, this letter agreement and the proxy granted pursuant to Section 6 hereof shall terminate automatically, without the need for any notice or other action by either party upon the earliest of (i) the date on which the Purchase Agreement and the Merger Agreement are terminated, (ii) the Second Closing Date, as defined in the Purchase Agreement, and (iii) the date that is 240 days after the date hereof. 13. Each of the parties hereto intends that AIP shall be a third party beneficiary of this letter agreement, and shall be entitled to the benefits hereof and shall have the ability to enforce the rights granted to DDRC herein as fully as if it were a signatory of this letter agreement. 14. Notwithstanding anything to the contrary contained herein, neither AIP nor any representative of the Shareholder serving on the Board of Trust Managers of AIP shall be deemed to be a Controlled Affiliate. 5 Developers Diversified Realty Corporation July 30, 1998 Page 5 Please confirm that the foregoing correctly states the understanding between us by signing and returning to me a counterpart hereof. Morgan Stanley Asset Management Inc., on behalf of certain of its clients with respect to shares of AIP over which it exercises investment discretion, and MS Real Estate Special Situations, Inc. By: /s/ Russell Platt -------------------------------------- Name: Russell Platt ------------------------------------- Title: Managing Director ------------------------------------ Confirmed on the date first above written Developers Diversified Realty Corporation By: /s/ Scott A. Wolstein ------------------------------- Name: Scott A. Wolstein ----------------------------- Title: President ---------------------------- 6 Schedule I Ownership of Shares of Beneficial Interest Owned Beneficially (including Options to Purchase Shares) Trust Common Shares 1,999,653 EX-10.9 12 LETTER AGREEMENT DATED JULY 30, 1998 1 EXHIBIT 10.9 July 30, 1998 Developers Diversified Realty Corporation 34555 Chagrin Boulevard Moreland Hills, Ohio Re: Voting Agreement Ladies and Gentlemen: The undersigned understands that Developers Diversified Realty Corporation, an Ohio corporation ("DDRC"), and American Industrial Properties REIT, a Texas real estate investment trust ("AIP"), are entering into a Share Purchase Agreement to be dated on or about the date hereof (the "Purchase Agreement"), and, together with DDR Office Flex Corporation, a Delaware corporation, a Merger Agreement to be dated on or about the date hereof (the "Merger Agreement" and, together with the Purchase Agreement, the "Agreements"), providing for, among other things, the purchase of common shares, $.10 par value per share, of AIP by DDRC (the "Share Purchase"). Under the rules of the New York Stock Exchange, consummation of the Share Purchase will require the approval of the shareholders of AIP. The undersigned is a shareholder of AIP (the "Shareholder") and is entering into this letter agreement at your request, in exchange for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, to induce you to enter into the Agreements and to consummate the transactions contemplated thereby. The Shareholder confirms its agreement with you as follows: 1. The Shareholder represents and warrants that is the beneficial owner of the shares of beneficial interest AIP listed on Schedule I annexed hereto (the "Shares") of which the Shareholder or any affiliate (as defined under the Securities Exchange Act of 1934, as amended) of the Shareholder controlled by the Shareholder (a "Controlled Affiliate") that has the power to vote or to make recommendations regarding voting, and that the Shareholder and the Controlled Affiliates, or the clients on whose behalf the Shareholder or any Controlled Person acts as a fiduciary, are, to the best of the Shareholder's knowledge, on the date hereof the lawful owners of the number of Shares set forth in Schedule I, free and clear of all liens, charges, encumbrances, voting agreements and commitments of any kind, except as disclosed in Schedule I. Except for the Shares set forth in Schedule I, neither the Shareholder nor any Controlled Affiliate owns or holds any rights to acquire any additional shares of beneficial interest of 2 Developers Diversified Realty Corporation July 30, 1998 Page 2 AIP (other than pursuant to options or conversion rights with regard to any of the Shares, in each case as disclosed in Schedule I) or any interest therein or any voting rights with respect to any such additional shares. 2. Until the earliest date referred to in 12, the Shareholder agrees that it will not, and will not permit any Controlled Affiliate to, contract to sell, sell or otherwise transfer or dispose of any of the Shares or any interest therein or securities convertible into shares of beneficial interest of AIP, or any voting rights with respect thereto, without your prior written consent. 3. The Shareholder agrees that, during the term of this letter agreement, neither it nor any Controlled Affiliate will take any action that AIP would be prohibited from taking under Section 5.4 of the Purchase Agreement. 4. The Shareholder agrees that during the term of this letter agreement (a) all of the shares of beneficial interest of AIP beneficially owned by the Shareholder or any Controlled Affiliate, or over which the Shareholder or any Controlled Affiliate has voting power or control, directly or indirectly, including any such shares acquired after the date hereof at the record date for any meeting of shareholders of AIP called to consider and vote on the Share Purchase and the Agreements and the transactions contemplated thereby or any Competing Transaction (as such term is defined in the Purchase Agreement) will be voted by the Shareholder or such Controlled Affiliates, or any representative or proxy thereof, or that the Shareholders will recommend that such Shares be voted, as applicable, in favor of the approval of the Share Purchase and the Agreements and the transactions contemplated thereby and (b) neither the Shareholder nor any Controlled Affiliate, nor any such representative or proxy will vote any such Shares or recommend that such Shares be voted, in favor of any Competing Transaction, in each case except to the extent that the Shareholder determines in its good faith judgment, after consultation with its legal counsel, that it is prudent to vote or recommend otherwise in the exercise of its fiduciary obligations. 5. The Shareholder agrees that the shares referred to in Section 4 above, owned at the record date for any meeting of shareholders of AIP called to consider and vote on the election of members of the Board of Trust Managers of the Trust (the "Board"), will be voted by the Shareholder or any Controlled Affiliate, or any representative or proxy 3 Developers Diversified Realty Corporation July 30, 1998 Page 3 thereof, or that the Shareholder will recommend that such Shares be voted, as applicable, in favor of the approval of the election of the representatives of DDRC to the Board for so long as DDRC has the right to nominate members of the Board under the Purchase Agreement, in each case except to the extent that the Shareholder determines in its good faith judgment, after consultation with its legal counsel, that it is prudent to vote or recommend otherwise in the exercise of its fiduciary obligations. 6. The Shareholder hereby appoints Marc A. Simpson to attend the special meeting of the shareholders of AIP held to consider and vote on the Share Purchase and to vote the shares referred to in Section 4 above, with all the power the Shareholder would possess if personally present, in favor of the approval of the Share Purchase, the Agreements and the transactions contemplated thereby. The Shareholder agrees to execute, and to cause each Controlled Affiliate to execute, such proxies and other instruments, and to take and to cause each Controlled Affiliate to take such actions, as may be necessary to cause all of those shares to be so voted. 7. The Shareholder has all necessary power and authority to enter into this letter agreement. This letter agreement is the legal, valid and binding agreement of the Shareholder, and is enforceable against the Shareholder in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and to general principles of equity. This letter agreement shall inure to the benefit of the parties hereto and the successors and assigns of DDRC. 8. The Shareholder agrees that damages are an inadequate remedy for the breach by Shareholder of any term or condition of this letter agreement and that you shall be entitled to a temporary restraining order and preliminary and permanent injunctive relief in order to enforce our agreements herein. 9. Except to the extent that the laws of the jurisdiction of organization of any party hereto, or any other jurisdiction, are mandatorily applicable to matters arising under or in connection with this letter agreement, this letter agreement shall be governed by the laws of the State of Ohio. All actions and proceedings arising out of or relating to this letter agreement shall be heard and determined in any United States District Court sitting in the Northern District of Ohio. 4 Developers Diversified Realty Corporation July 30, 1998 Page 4 10. Each of the parties hereto irrevocably submits to the exclusive jurisdiction of any United States District Court located in the Northern District of Ohio, for the purpose of any action or proceeding arising out of or relating to this letter agreement and each of the parties hereto irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined exclusively in any federal court sitting in the Northern District of Ohio. Each of the parties hereto agrees that a final judgment in any action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Shareholder hereby irrevocably appoints A.G.C. Co., 1900 East 9th Street, Suite 3200, Cleveland, Ohio, as its lawful agent in and for the State of Ohio, for and in its behalf, to accept and acknowledge service of, and upon whom may be served, all necessary processes in any action, suit, or proceeding arising under this Agreement that may be had or brought against it in any federal court in the Northern District of Ohio, such service of process or notice, or the acceptance thereof by said agent endorsed thereon, to have the same force and effect as if served upon such corporation or individual. Nothing in this Section 10 shall affect the right of any party hereto to serve legal process in any other manner permitted by law. Shareholder hereby waives all defenses of improper venue and forum non conveniens with respect to any action, suit, or proceeding brought in the any United States District Court located in the Northern District of Ohio and arising under this letter agreement. 11. This letter agreement constitutes the entire agreement between the parties hereto with respect to the matters covered hereby and supersedes all prior agreements, understandings or representations between the parties, written or oral, with respect to the subject matter hereof. 12. This letter agreement and the proxy granted pursuant to Section 6 hereof shall become effective upon the execution and delivery of the Agreements by the respective parties thereto. Except as otherwise provided herein, this letter agreement and the proxy granted pursuant to Section 6 hereof shall terminate automatically, without the need for any notice or other action by either party upon the earliest of (i) the date on which the Purchase Agreement and the Merger Agreement are terminated, (ii) the Second Closing Date, as defined in the Purchase Agreement, and (iii) the date that is 240 days after the date hereof. 13. Each of the parties hereto intends that AIP shall be a third party beneficiary of this letter agreement, and shall be entitled to the benefits hereof and shall have the ability to exercise the rights granted to DDRC herein as fully as if it were a signatory of this letter agreement. 5 Developers Diversified Realty Corporation July 30, 1998 Page 5 14. Notwithstanding anything to the contrary contained herein, neither AIP nor any representative of the Shareholder serving on the Board of Trust Managers of AIP shall be deemed to be a Controlled Affiliate. Please confirm that the foregoing correctly states the understanding between us by signing and returning to me a counterpart hereof. LaSalle Advisors Limited Partnership By: /s/ [Illegible] ----------------------------------------- Name: Illegible --------------------------------------- Title: Illegible -------------------------------------- ABKB/LaSalle Securities Limited Partnership By: /s/ [Illegible] ----------------------------------------- Name: [Illegible] --------------------------------------- Title: [Illegible] -------------------------------------- Confirmed on the date first above written Developers Diversified Realty Corporation By: /s/ Scott A. Wolstein ---------------------------------------- Name: Scott A. Wolstein -------------------------------------- Title: President ------------------------------------- 6 Schedule I Ownership of Shares of Beneficial Interest Owned Beneficially (including Options to Purchase Shares)
Total Number of Shares Beneficiallly Owned ------------------- LaSalle Securities 960,425 LaSalle Advisors 542,153
EX-10.10 13 LETTER AGREEMENT DATED JULY 30, 1998 1 EXHIBIT 10.10 July 30, 1998 Developers Diversified Realty Corporation 34555 Chagrin Boulevard Moreland Hills, Ohio Re: Voting Agreement Ladies and Gentlemen: The undersigned understands that Developers Diversified Realty Corporation, an Ohio corporation ("DDRC"), and American Industrial Properties REIT, a Texas real estate investment trust ("AIP"), are entering into a Share Purchase Agreement to be dated on or about the date hereof (the "Purchase Agreement"), and, together with DDR Office Flex Corporation, a Delaware corporation, a Merger Agreement to be dated on or about the date hereof (the "Merger Agreement" and, together with the Purchase Agreement, the "Agreements"), providing for, among other things, the purchase of common shares, $.10 par value per share, of AIP by DDRC (the "Share Purchase"). Under the rules of the New York Stock Exchange, consummation of the Share Purchase will require the approval of the shareholders of AIP. The undersigned is a shareholder of AIP (the "Shareholder") and is entering into this letter agreement at your request, in exchange for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, to induce you to enter into the Agreements and to consummate the transactions contemplated thereby. The Shareholder confirms its agreement with you as follows: 1. The Shareholder represents and warrants that Schedule I annexed hereto sets forth the shares of beneficial interest of AIP of which the Shareholder is the beneficial owner (the "Shares") and that the Shareholder is on the date hereof the lawful owner of the number of Shares set forth in Schedule I, free and clear of all liens, charges, encumbrances, voting agreements and commitments of any kind, except as disclosed in Schedule I. Except for the Shares set forth in Schedule I, the Shareholder does not own or hold any rights to acquire any additional shares of beneficial interest of AIP (other than pursuant to options or conversion rights with regard to any of the Shares, in each case as disclosed in Schedule I) or any interest therein or any voting rights with respect to any such additional shares. The Shareholder represents and warrants that there are no affiliates of the Shareholder controlled by the Shareholder. The Shareholder covenants that, in the event that an affiliate of the Shareholder controlled by the Shareholder exists during the term of this letter agreement, the Shareholder will cause such affiliate to act in accordance with the terms of this letter agreement as if such affiliate were the Shareholder. The Shareholder may, during the term of this letter agreement, pledge the Shares, provided that each pledgee or transferee of such Shares has agreed to be bound by the terms of this letter agreement. 2 Developers Diversified Realty Corporation July 30, 1998 Page 2 2. Until the earliest date referred to in Section 12, the Shareholder agrees that it will not contract to sell, sell or otherwise transfer or dispose of any of the Shares or any interest therein or securities convertible into shares of beneficial interest of AIP, or any voting rights with respect thereto, without your prior written consent. 3. The Shareholder agrees that, during the term of this letter agreement it will not take any action that AIP would at that time be prohibited from taking under Section 5.4 of the Purchase Agreement. 4. The Shareholder agrees that during the term of this letter agreement (a) all of the shares of beneficial interest of AIP beneficially owned by the Shareholder or over which the Shareholder has voting power or control, directly or indirectly, including any such shares acquired after the date hereof at the record date for any meeting of shareholders of AIP called to consider and vote on the Share Purchase and the Agreements and the transactions contemplated thereby or any Competing Transaction (as such term is defined in the Purchase Agreement) will be voted by the Shareholder or any representative or proxy thereof, as applicable, in favor of the approval of the Share Purchase and the Agreements and the transactions contemplated thereby and (b) neither the Shareholder nor any such representative or proxy will vote any such Shares in favor of any Competing Transaction. 5. The Shareholder agrees that the shares referred to in Section 4 above, owned at the record date for any meeting of shareholders of AIP called to consider and vote on the election of members of the Board of Trust Managers of the Trust (the "Board"), will be voted by the Shareholder or any representative or proxy thereof, as applicable, in favor of the approval of the election of the representatives of DDRC to the Board for so long as DDRC the term of this letter agreement. 6. The Shareholder hereby appoints Marc A. Simpson to attend the special meeting of the shareholders of AIP held to consider and vote on the Share Purchase and to vote the shares referred to in Section 4 above, with all the power the Shareholder would possess if personally present, in favor of the approval of the Share Purchase, the Agreements and the transactions contemplated thereby. The Shareholder agrees to execute such proxies and other instruments as may be necessary to cause all of those shares to be so voted. 7. The Shareholder has all necessary power and authority to enter into this letter agreement. This letter agreement is the legal, valid and binding agreement of the Shareholder, and is enforceable against the Shareholder in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and to general principles of equity. This letter agreement shall inure to the benefit of the parties hereto and the successors and assigns of DDRC. 3 Developers Diversified Realty Corporation July 30, 1998 Page 3 8. The Shareholder agrees that damages are an inadequate remedy for the breach by Shareholder of any term or condition of this letter agreement and that you shall be entitled to a temporary restraining order and preliminary and permanent injunctive relief in order to enforce our agreements herein. 9. Except to the extent that the laws of the jurisdiction of organization of any party hereto, or any other jurisdiction, are mandatorily applicable to matters arising under or in connection with this letter agreement, this letter agreement shall be governed by the laws of the State of Ohio. All actions and proceedings arising out of or relating to this letter agreement shall be heard and determined in any United States District Court sitting in the Northern District of Ohio. 10. Each of the parties hereto irrevocably submits to the exclusive jurisdiction of any United States District Court located in the Northern District of Ohio, for the purpose of any action or proceeding arising out of or relating to this letter agreement and each of the parties hereto irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined exclusively in any federal court sitting in the Northern District of Ohio. Each of the parties hereto agrees that a final judgment in any action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Shareholder hereby irrevocably appoints CSC/United States Corporation Companies, 16 East Broad Street, Columbus, Ohio 43215, as its lawful agent in and for the State of Ohio, for and in its behalf, to accept and acknowledge service of, and upon whom may be served, all necessary processes in any action, suit, or proceeding arising under this Agreement that may be had or brought against it in any federal court in the Northern District of Ohio, such service of process or notice, or the acceptance thereof by said agent endorsed thereon, to have the same force and effect as if served upon the Shareholder. Nothing in this Section 10 shall affect the right of any party hereto to serve legal process in any other manner permitted by law. Shareholder hereby waives all defenses of improper venue and forum non conveniens with respect to any action, suit, or proceeding brought in the any United States District Court located in the Northern District of Ohio and arising under this letter agreement. 11. This letter agreement constitutes the entire agreement between the parties hereto with respect to the matters covered hereby and supersedes all prior agreements, understandings or representations between the parties, written or oral, with respect to the subject matter hereof. 12. This letter agreement and the proxy granted pursuant to Section 6 hereof shall become effective upon the execution and delivery of the Agreements by the respective parties thereto. Except as otherwise provided herein, this letter agreement and the proxy granted pursuant to Section 6 hereof shall terminate automatically, without the need for any notice or other action by either party upon the earliest of (i) the date on which the Purchase Agreement and 4 Developers Diversified Realty Corporation July 30, 1998 Page 4 the Merger Agreement are terminated, (ii) the Second Closing Date, as defined in the Purchase Agreement, and (iii) the date that is 240 days after the date hereof. 13. Each of the parties hereto intends that AIP shall be a third party beneficiary of this letter agreement, and shall be entitled to the benefits hereof and shall have the ability to enforce the rights granted to DDRC herein as fully as if it were a signatory of this letter agreement. 5 Developers Diversified Realty Corporation July 30, 1998 Page 5 Please confirm that the foregoing correctly states the understanding between us by signing and returning to me a counterpart hereof. Praedium II Industrial Associates LLC By: The Praedium Opportunity Fund II, L.P., its member By: Praedium Advisors, Inc., its managing general partner By: /s/ Christoper Hughes ----------------------------- Name: Christopher Hughes --------------------------- Title: Vice President -------------------------- By: Praedium Partners, LLC, its investment general partner By: /s/ Christopher Hughes ----------------------------- Name: Christopher Hughes --------------------------- Title: Vice President -------------------------- Confirmed on the date first above written Developers Diversified Realty Corporation By: /s/ Scott A. Wolstein ---------------------------------------- Name:Scott A. Wolstein -------------------------------------- Title: President ------------------------------------- 6 Schedule I Ownership of Shares of Beneficial Interest
Owned Beneficially (including Options to Purchase Shares) - --------------------------------------------------------- Options None Trust Common Shares 733,945
EX-10.11 14 LETTER AGREEMENT DATED JULY 30, 1998 1 EXHIBIT 10.11 July 30, 1998 Developers Diversified Realty Corporation 34555 Chagrin Boulevard Moreland Hills, Ohio Re: Voting Agreement Ladies and Gentlemen: The undersigned understands that Developers Diversified Realty Corporation, an Ohio corporation ("DDRC"), and American Industrial Properties REIT, a Texas real estate investment trust ("AIP"), are entering into a Share Purchase Agreement to be dated on or about the date hereof (the "Purchase Agreement"), and, together with DDR Office Flex Corporation, a Delaware corporation, a Merger Agreement to be dated on or about the date hereof (the "Merger Agreement" and, together with the Purchase Agreement, the "Agreements"), providing for, among other things, the purchase of common shares, $.10 par value per share, of AIP by DDRC (the "Share Purchase"). Under the rules of the New York Stock Exchange, consummation of the Share Purchase will require the approval of the shareholders of AIP. The undersigned is a shareholder of AIP (the "Shareholder") and is entering into this letter agreement at your request, in exchange for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, to induce you to enter into the Agreements and to consummate the transactions contemplated thereby. The Shareholder confirms its agreement with you as follows: 1. The Shareholder represents and warrants that Schedule I annexed hereto sets forth the shares of beneficial interest of AIP of which the Shareholder or any affiliate (as defined under the Securities Exchange Act of 1934, as amended) of the Shareholder controlled by the Shareholder (a "Controlled Affiliate") is the beneficial owner (the "Shares") and that the Shareholder and the Controlled Affiliates are on the date hereof the lawful owners of the number of Shares set forth in Schedule I, free and clear of all liens, charges, encumbrances, voting agreements and commitments of any kind, except as disclosed in Schedule I. Except for the Shares set forth in Schedule I, neither the Shareholder nor any Controlled Affiliate owns or holds any rights to acquire any additional shares of beneficial interest of AIP (other than pursuant to options or conversion rights with regard to any of the Shares, in each case as disclosed in Schedule I) or any interest therein or any 2 Developers Diversified Realty Corporation July 30, 1998 Page 2 voting rights with respect to any such additional shares. 2. Until the earliest date referred to in Section 12, the Shareholder agrees that it will not, and will not permit any Controlled Affiliate to, contract to sell, sell or otherwise transfer or dispose of any of the Shares or any interest therein or securities convertible into shares of beneficial interest of AIP, or any voting rights with respect thereto, without your prior written consent. 3. The Shareholder agrees that, during the term of this letter agreement, neither it nor any Controlled Affiliate will take any action that AIP would at that time be prohibited from taking under Section 5.4 of the Purchase Agreement. 4. The Shareholder agrees that during the term of this letter agreement (a) all of the shares of beneficial interest of AIP beneficially owned by the Shareholder or any Controlled Affiliate, or over which the Shareholder or any Controlled Affiliate has voting power or control, directly or indirectly (including any such shares acquired after the date hereof) at the record date for any meeting of shareholders of AIP called to consider and vote on the Share Purchase and the Agreements and the transactions contemplated thereby or any Competing Transaction (as such term is defined in the Purchase Agreement) will be voted by the Shareholder or such Controlled Affiliates, or any representative or proxy thereof, as applicable, in favor of the approval of the Share Purchase and the Agreements and the transactions contemplated thereby and (b) neither the Shareholder nor any Controlled Affiliate, nor any such representative or proxy, will vote any such Shares in favor of any Competing Transaction. 5. The Shareholder agrees that the shares referred to in Section 4 above that are owned at the record date for any meeting of shareholders of AIP called to consider and vote on the election of members of the Board of Trust Managers of the Trust (the "Board") will be voted by the Shareholder or any Controlled Affiliate, or any representative or proxy thereof, as applicable, in favor of the approval of the election of the representatives of DDRC to the Board for so long as DDRC has the right to nominate members of the Board under the Purchase Agreement. 6. The Shareholder hereby appoints Marc A. Simpson to attend the special meeting of the shareholders of AIP held to consider and vote on 3 Developers Diversified Realty Corporation July 30, 1998 Page 3 the Share Purchase and to vote the shares referred to in Section 4 above, with all the power the Shareholder would possess if personally present, in favor of the approval of the Share Purchase, the Agreements and the transactions contemplated thereby. The Shareholder agrees to execute, and to cause each Controlled Affiliate to execute, such proxies and other instruments, and to take and to cause each Controlled Affiliate to take such actions, as may be necessary to cause all of those shares to be so voted. 7. The Shareholder has all necessary power and authority to enter into this letter agreement. This letter agreement is the legal, valid and binding agreement of the Shareholder, and is enforceable against the Shareholder in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and to general principles of equity. This letter agreement shall inure to the benefit of the parties hereto and the successors and assigns of DDRC. 8. The Shareholder agrees that damages are an inadequate remedy for the breach by Shareholder of any term or condition of this letter agreement and that you shall be entitled to a temporary restraining order and preliminary and permanent injunctive relief in order to enforce our agreements herein. 9. Except to the extent that the laws of the jurisdiction of organization of any party hereto, or any other jurisdiction, are mandatorily applicable to matters arising under or in connection with this letter agreement, this letter agreement shall be governed by the laws of the State of Ohio. All actions and proceedings arising out of or relating to this letter agreement shall be heard and determined in any United States District Court sitting in the Northern District of Ohio. 10. Each of the parties hereto irrevocably submits to the exclusive jurisdiction of any United States District Court located in the Northern District of Ohio, for the purpose of any action or proceeding arising out of or relating to this letter agreement and each of the parties hereto irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined exclusively in any federal court sitting in the Northern District of Ohio. Each of the parties hereto agrees that a final judgment in any action or proceeding shall be conclusive and may 4 Developers Diversified Realty Corporation July 30, 1998 Page 4 be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. The Shareholder hereby irrevocably appoints Jones, Day, Reavis & Pogue, Cleveland, Ohio, as its lawful agent in and for the State of Ohio, for and in its behalf, to accept and acknowledge service of, and upon whom may be served, all necessary processes in any action, suit, or proceeding arising under this Agreement that may be had or brought against it in any federal court in the Northern District of Ohio, such service of process or notice, or the acceptance thereof by said agent endorsed thereon, to have the same force and effect as if served upon the Shareholder, provided that any such process or notice that may be so served shall include a conspicuous statement to the effect that is to be forwarded immediately to USAA Real Estate Company, 9830 Colonnade Boulevard, Suite 600, San Antonio, Texas 78230-2239, Attention: Legal Counsel (with a copy to Patricia J. Villareal, Jones, Day, Reavis & Pogue, 2001 Ross Avenue, Suite 2300, Dallas, Texas 75201). Nothing in this Section 10 shall affect the right of any party hereto to serve legal process in any other manner permitted by law. Shareholder hereby waives all defenses of improper venue and forum non conveniens with respect to any action, suit, or proceeding brought in the any United States District Court located in the Northern District of Ohio and arising under this letter agreement. 11. This letter agreement constitutes the entire agreement between the parties hereto with respect to the matters covered hereby and supersedes all prior agreements, understandings or representations between the parties, written or oral, with respect to the subject matter hereof. 12. This letter agreement and the proxy granted pursuant to Section 6 hereof shall become effective upon the execution and delivery of the Agreements by the respective parties thereto. Except as otherwise provided herein, this letter agreement and the proxy granted pursuant to Section 6 hereof shall terminate automatically, without the need for any notice or other action by either party, upon the earliest of (i) the date on which the Purchase Agreement and the Merger Agreement are terminated, (ii) the Second Closing Date, as defined in the Purchase Agreement, and (iii) the date that is 240 days after the date hereof. 13. Each of the parties hereto intends that AIP shall be a third party beneficiary of this letter agreement, and shall be entitled to the benefits hereof and shall have the ability to enforce the rights granted to DDRC herein as fully as if it were a signatory of this letter agreement. 14. Notwithstanding anything to the contrary contained herein, neither AIP nor any representative of the Shareholder serving on the Board of Trust Managers of AIP shall be deemed to be a Controlled Affiliate. 5 Developers Diversified Realty Corporation July 30, 1998 Page 5 Please confirm that the foregoing correctly states the understanding between us by signing and returning to me a counterpart hereof. USAA Real Estate Company By: /s/ T. Patrick Duncan -------------------------------- Name: T. Patrick Duncan ------------------------------ Title: SVP Operations & Finance ----------------------------- Confirmed on the date first above written Developers Diversified Realty Corporation By: /s/ Scott A. Wolstein ------------------------------------- Name: Scott A. Wolstein ----------------------------------- Title: President ---------------------------------- 6 Schedule I Ownership of Shares of Beneficial Interest Owned Beneficially (including Options to Purchase Shares)
Shares Shares Owned of Subject to Total Record Options Shares --------- ---------- --------- USAA Real Estate Company 1,674,086 6,000 1,680,086
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