-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, fsbavGwCA3iE4ezsdHj9Y2NuyiXKciWHesyFpcDM1Xy4a/h542eYlskJ5RrFuAI3 1za4Hi+9IECoLNh2F3kVzQ== 0000950134-94-000168.txt : 19940307 0000950134-94-000168.hdr.sgml : 19940307 ACCESSION NUMBER: 0000950134-94-000168 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 27 FILED AS OF DATE: 19940304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN INDUSTRIAL PROPERTIES REIT INC CENTRAL INDEX KEY: 0000778437 STANDARD INDUSTRIAL CLASSIFICATION: 6798 IRS NUMBER: 756335572 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 33 SEC FILE NUMBER: 033-74292 FILM NUMBER: 94514620 BUSINESS ADDRESS: STREET 1: 6220 N BELTLINE STE 205 STREET 2: 2001 ROSS AVE CITY: IRVING STATE: TX ZIP: 75063 BUSINESS PHONE: 2145506053 MAIL ADDRESS: STREET 1: 6220 N BELTLINE ROAD STREET 2: SUITE 205 CITY: IRVING STATE: TX ZIP: 75063 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN INDUSTRIAL PROPERTIES REIT DATE OF NAME CHANGE: 19931203 FORMER COMPANY: FORMER CONFORMED NAME: TRAMMELL CROW REAL ESTATE INVESTORS DATE OF NAME CHANGE: 19931203 S-4/A 1 AMENDMENT #1 TO FORM S-4 1 As filed with the Securities and Exchange Commission on March 4, 1994 Registration No. 33-74292 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- AMENDMENT NO. 1 TO FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- AMERICAN INDUSTRIAL PROPERTIES REIT, INC. (Exact name of registrant as specified in its charter) MARYLAND 6798 75-6335572 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code No.) Identification No.)
6220 NORTH BELTLINE, SUITE 205, DALLAS, TEXAS 75063 (214) 550-6053 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) --------------------- CHARLES W. WOLCOTT 6220 NORTH BELTLINE, SUITE 205 DALLAS, TEXAS 75063 (214) 550-6053 (Name, address, including zip code, and telephone number of agent for service of process) --------------------- Copies to: BRYAN L. GOOLSBY GINA E. BETTS LIDDELL, SAPP, ZIVLEY, HILL & LABOON, L.L.P. 2200 ROSS AVENUE, SUITE 900 DALLAS, TEXAS 75201 (214) 220-4800 --------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as practicable after the Registration Statement becomes effective. If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. / / --------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 AMERICAN INDUSTRIAL PROPERTIES REIT, INC. CROSS REFERENCE SHEET (PURSUANT TO ITEM 501(B) OF REGULATION S-K)
ITEM NUMBER AND CAPTION OF FORM S-4 LOCATION IN PROXY STATEMENT/PROSPECTUS ----------------------------------------------- ---------------------------------------- A. INFORMATION ABOUT THE TRANSACTION 1. Forepart of the Registration Statement and Outside Front Cover Page of Proxy Statement/Prospectus......................... Outside Front Cover of Registration Statement; Cross Reference Sheet; Front Cover Page 2. Inside Front and Outside Back Cover Pages of Proxy Statement/Prospectus................... Inside Front and Outside Back Cover Pages; Available Information; Table of Contents 3. Risk Factors, Ratio of Earnings to Fixed Charges and Other Information................ Outside Front Cover of Registration Statement; Proxy Statement/Prospectus Summary; Risk Factors; The Special Meeting 4. Terms of the Transaction....................... Outside Front Cover Page of Proxy Statement/Prospectus; Proxy Statement/Prospectus Summary; The Proposal; The Company's Securities; Certain Statutory and Charter Provisions; Summary Comparison of Shares of Beneficial Interest and Common Stock; Federal Income Tax Considerations 5. Pro Forma Financial Information................ Financial Statements 6. Material Contacts With the Company Being Acquired..................................... * 7. Additional Information Required For Reoffering by Persons and Parties Deemed to be Underwriters................................. * 8. Interests of Named Experts and Counsel......... * 9. Disclosure of Commission Position on Indemnification For Securities Act Liabilities.................................. * B. INFORMATION ABOUT THE REGISTRANT 10. Information With Respect to S-3 Registrants.... * 11. Incorporation of Certain Information by Reference.................................... * 12. Information With Respect to S-2 or S-3 Registrants.................................. * 13. Incorporation of Certain Information by Reference.................................... *
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ITEM NUMBER AND CAPTION OF FORM S-4 LOCATION IN PROXY STATEMENT/PROSPECTUS ----------------------------------------------- ---------------------------------------- 14. Information With Respect to Registrants Other Than S-3 or S-2 Registrants.................. Proxy Statement/Prospectus Summary; The Company; The Properties; Management's Discussion and Analysis of Financial Condition and Results of Operations C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED 15. Information With Respect to S-3 Companies...... * 16. Information With Respect to S-2 or S-3 Companies.................................... * 17. Information With Respect to Companies Other Than S-3 or S-2 Companies.................... Proxy Statement/Prospectus Summary; The Company; The Properties; Management's Discussion and Analysis of Financial Condition and Results of Operations; Financial Statements D. VOTING AND MANAGEMENT INFORMATION 18. Information if Proxies, Consents or Authorizations Are to be Solicited........... Front Cover Page of Proxy Statement/Prospectus; Proxy Statement/Prospectus Summary; The Proposal; The Special Meeting; The Company's Securities; Management; Conflicts of Interest 19. Information if Proxies, Consents or Authorizations Are not to be Solicited, or in an Exchange Offer............................ *
- --------------- * Not Applicable 4 PROXY STATEMENT AMERICAN INDUSTRIAL PROPERTIES REIT SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 28, 1994 PROSPECTUS AMERICAN INDUSTRIAL PROPERTIES REIT, INC. 1,915,080 SHARES OF COMMON STOCK This Proxy Statement/Prospectus is being furnished to the holders ("Shareholders") of shares of Beneficial Interest ("Shares") of American Industrial Properties REIT, a Texas real estate investment trust (the "Trust") in connection with the solicitation of proxies by the Trust Managers on behalf of the Trust for use at a special meeting of Shareholders of the Trust (the "Special Meeting") which has been called to consider and vote on a proposal (the "Proposal") to approve and adopt an Agreement and Plan of Merger (the "Merger Agreement") between the Trust and American Industrial Properties REIT, Inc., a Maryland corporation and wholly-owned subsidiary of the Trust (the "Company") and, as contemplated thereby, the merger of the Trust with and into the Company (the "Merger"). Pursuant to the Merger Agreement (a) every five Shares will be converted into one share of Common Stock of the Company, par value $0.01 per share ("Common Stock"); (b) persons that will hold a fractional share in the Company after the Merger must either (i) pay to the Company an amount equal to the fraction necessary to round upward to a whole share of Common Stock times the opening price of the Company's Common Stock on the first trading date after the consummation of the Merger (the "Opening Price") and the fractional share shall be rounded upward to the nearest whole share of Common Stock or (ii) permit the Company to purchase the fractional share at a price equal to the fraction owned times the Opening Price; (c) all rights and obligations of the Trust will be assumed by the Company; and (d) the executive officers of the Trust immediately prior to the Merger shall become the executive officers of the Company and Messrs. Bricker and Wolcott will serve as directors of the Company. See "THE PROPOSAL" and the Merger Agreement, a copy of which is attached hereto as Appendix A. This Proxy Statement/Prospectus is first being mailed or delivered to Shareholders on or about March 15, 1994. This Proxy Statement/Prospectus also constitutes the Prospectus of the Company with respect to its Common Stock to be issued in connection with the Merger. Only Shareholders of record on March 4, 1994 are entitled to notice of and to vote at the Special Meeting. The consummation of the Merger is subject to receipt of the approval of holders of 66 2/3% of the outstanding Shares. Neither the Declaration of Trust nor Texas law provide for dissenters' rights. The sole stockholder of the Company, which is the Trust, acting through the Trust Managers, and the Board of Directors of the Company have unanimously approved the Merger. THE TRUST MANAGERS HAVE UNANIMOUSLY APPROVED THE PROPOSAL AND RECOMMEND THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT AND THE MERGER. SEE "RISK FACTORS" FOR CERTAIN FACTORS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK, INCLUDING: - Suspension of distributions by the Trust on December 15, 1993 - Absence of a provision in the Company's organizational documents limiting the amount of debt that the Company may incur - Dependence on the Texas market - Ability of the Board of Directors to change the investment, financing, borrowing and other policies of the Company at any time without Stockholder approval - Limitations on changes in control of the Company - Real estate acquisition and development risks, such as the property may not perform as expected --------------------- THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. THE SHARES OF COMMON STOCK OF THE COMPANY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMIS- SION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCU- RACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. --------------------- THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS , 1994. 5 AVAILABLE INFORMATION The Trust is presently subject to the information requirements of the Securities Exchange Act of 1934 and in accordance therewith files reports and other information with the Commission. Such reports, proxy statements and other information are available for inspection and copying at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the following regional offices of the Commission: Chicago Regional Office, Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois, 60601, and New York Regional Office, 7 World Trade Center, New York, New York 10048. Copies of such material may be obtained upon payment of the Commission's customary charges by writing to the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, reports and other information concerning the Trust may be inspected at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005. 2 6 TABLE OF CONTENTS
HEADING PAGE - -------------------------------------------------------------------------------------- ---- PROXY STATEMENT/PROSPECTUS SUMMARY.................................................... 5 The Company......................................................................... 5 Risk Factors........................................................................ 5 The Proposal and the Merger......................................................... 6 The Special Meeting; Voting......................................................... 8 Comparative Rights of Shareholders Before and After the Merger...................... 8 Market Price and Distribution Data.................................................. 9 Selected Historical Financial Data.................................................. 10 Distribution Policy................................................................. 11 Federal Income Tax Consequences of the Merger....................................... 11 Tax Status of the Company........................................................... 11 RISK FACTORS.......................................................................... 12 Suspension of Distributions......................................................... 12 No Limitation on Debt............................................................... 12 Dependence on Texas Market.......................................................... 12 Changes in Policies................................................................. 12 Certain Anti-takeover Provisions; Ownership Limits.................................. 12 Risks of Development and Acquisition Activities..................................... 13 History of Operating Losses......................................................... 14 Possible Environmental Liabilities.................................................. 14 Adverse Consequences of a Failure to Qualify as a REIT.............................. 14 Adverse Effect of Market Interest Rates on Price of Common Stock.................... 15 Real Estate Investment Considerations............................................... 15 Severance Compensation In the Event of a Change of Control.......................... 16 Possible Future Dilution............................................................ 16 Texas Franchise Taxes............................................................... 16 Uninsured Loss...................................................................... 16 Market Illiquidity.................................................................. 17 THE PROPOSAL.......................................................................... 17 General............................................................................. 17 Detriments.......................................................................... 17 Benefits............................................................................ 18 Recommendation of the Trust Managers................................................ 19 THE SPECIAL MEETING................................................................... 19 General............................................................................. 19 Record Date; Outstanding Shares; Voting............................................. 19 Quorum.............................................................................. 20 Dissenters' Rights.................................................................. 20 Proxy............................................................................... 20 Solicitation of Proxies............................................................. 20 THE COMPANY........................................................................... 20 Company History..................................................................... 21 Investment Policies................................................................. 21 Operating Policies.................................................................. 22 Distribution Policy................................................................. 23 THE PROPERTIES........................................................................ 24 Additional Information Regarding Certain Properties................................. 25 Other Encumbrances on Real Estate................................................... 26 Terms of Mortgage Indebtedness...................................................... 27 Competition......................................................................... 27 Insurance........................................................................... 27 POLICIES WITH RESPECT TO CERTAIN ACTIVITIES........................................... 28 Disposition......................................................................... 28 Conflict of Interest Policy......................................................... 28 Affiliate Transaction Policy........................................................ 28 Policies With Respect to Other Activities........................................... 29
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HEADING PAGE - -------------------------------------------------------------------------------------- ---- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................................................................... 30 Results of Operations............................................................... 30 Liquidity and Capital Resources..................................................... 31 Other Matters....................................................................... 33 Recent Developments................................................................. 34 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS.......................... 34 MANAGEMENT............................................................................ 35 Directors and Executive Officers.................................................... 35 Compensation of Directors........................................................... 35 Compensation of Executive Officers.................................................. 36 Employment Agreements............................................................... 36 Stock Option Plan................................................................... 37 401(k) Plan......................................................................... 39 Limitation of Liability and Indemnification......................................... 39 SUMMARY COMPARISON OF SHARES OF BENEFICIAL INTEREST AND COMMON STOCK........................................................................ 40 THE COMPANY'S SECURITIES.............................................................. 42 Capital Stock....................................................................... 42 The Notes........................................................................... 44 CERTAIN STATUTORY AND CHARTER PROVISIONS.............................................. 46 Classification of the Board of Directors............................................ 46 Limitation of Liability and Indemnification......................................... 47 Business Combinations............................................................... 48 Control Share Acquisition........................................................... 48 Amendment to the Articles of Incorporation and Bylaws............................... 49 Dissolution of the Company.......................................................... 49 Director Nominations and New Business............................................... 49 Meetings of Stockholders............................................................ 49 FEDERAL INCOME TAX CONSIDERATIONS..................................................... 49 Effect of the Merger................................................................ 49 Taxation............................................................................ 50 Taxation of the Company............................................................. 50 Taxation of the Stockholders of a REIT.............................................. 52 Withholding on Dividends and Sale Proceeds.......................................... 52 Foreign Stockholders................................................................ 53 Tax Exempt Stockholders............................................................. 53 RECENT DEVELOPMENTS................................................................... 54 EXPERTS............................................................................... 54 LEGAL MATTERS......................................................................... 54 STOCKHOLDER PROPOSALS................................................................. 55 ADDITIONAL INFORMATION................................................................ 55 GLOSSARY.............................................................................. 56 INDEX TO FINANCIAL STATEMENTS......................................................... F-1 AGREEMENT AND PLAN OF MERGER.......................................................... A-1
4 8 PROXY STATEMENT/PROSPECTUS SUMMARY The following summary is qualified in its entirety by reference to the more detailed information contained elsewhere in this Proxy Statement/Prospectus, the Exhibits hereto and the Merger Agreement attached hereto as Appendix A. Each Shareholder is urged to read this Proxy Statement/Prospectus in its entirety. Capitalized terms used in this Proxy Statement/Prospectus shall have the meanings set forth in the Glossary. THE COMPANY The Company is a newly-formed Maryland corporation which is a wholly-owned subsidiary of the Trust. The Company was incorporated for the purpose of reorganizing the Trust into a Maryland corporation. See "THE PROPOSAL." The Company, like the Trust, will operate as a self-administered REIT and expects to continue to qualify as a REIT for federal income tax purposes. The Company does not intend to engage a separate REIT advisor. If the Proposal is approved and adopted, the Company will own and operate real estate properties consisting of 14 industrial developments and one enclosed specialty retail mall (collectively, the "Properties"). The Properties contain 1,592,880 net rentable square feet and are located in eight states. For the twelve-month period ended December 31, 1993, the Properties had an average occupancy rate of 88%. At December 31, 1993, the Properties were 90% occupied. As of December 31, 1993, the Properties had average monthly rental from a low of $2.80 to a high of $14.43 per square foot. See "THE PROPERTIES." As with the Trust, industrial properties will be the primary focus of the Company's acquisition policy. The Company will seek to invest in industrial properties in major mid-American markets such as Dallas, Chicago and Atlanta, which are located at the key rail and highway intersects controlling the distribution of goods in the United States. See "THE COMPANY -- Investment Objectives." The principal executive offices of the Trust and the Company are located at 6220 N. Beltline, Suite 205, Irving, Texas 75063, and their telephone number is (214) 550-6053. RISK FACTORS There are numerous risk factors relating to the receipt of Common Stock in connection with the Merger and the operation of the Company which the Shareholders should carefully consider before voting on the Proposal. See "RISK FACTORS." Such risks include, among other things: - risks associated with the suspension of distributions by the Trust on December 15, 1993, which may make the shares of Common Stock less marketable; - the risk of potential increases in leverage due to the absence of a provision in the organizational documents of the Company that limits the amount of debt that the Company may incur, which may result in increases in debt service requirements that could adversely affect the Company's Funds from Operations and the ability to pay dividends to Stockholders and an increase of default in the obligations of the Company; - risks associated with the location of seven of the Company's Properties in Texas, which account for 834,521 leasable square feet of the 1,592,880 total leasable square feet of the Properties (52%); therefore, the Company's performance is largely dependent upon economic conditions in the Texas areas in which the Properties are located; - risks associated with the ability of the Board of Directors of the Company to change the investment, financing, borrowing, distribution and other policies of the Company at any time without Stockholder approval; - risks associated with the potential anti-takeover effect of limiting ownership of Common Stock and Preferred Stock by a single person to 9.8% of the outstanding Common Stock and of certain other provisions contained in the organizational documents of the Company, such as a staggered Board of 5 9 Directors and the ability to issue Preferred Stock, any of which may discourage a change in control and limit the opportunity for Stockholders to receive a premium over then-current market prices for their Common Stock; - risks associated with the acquisition or development of industrial properties, including lease-up and financing risks and the risk that such properties may not perform as expected; - risks associated with continued losses by the Company; - risks of potential liability of the Company for unknown or future environmental liabilities; - the risk of the failure of the Company to qualify as a REIT and therefore be taxed as a corporation and the liability of the Company for certain federal, state and local income taxes in such event; - risk of increases in market interest rates, which may lead prospective purchasers of the Common Stock to demand a higher anticipated annual yield from future dividends, which in turn may adversely affect the market price of the Common Stock; - risks associated with the severance compensation to the executive officers of the Company in the event of a change in control of the Company, which may discourage a potential acquiror from seeking control of the Company thereby affecting the ability of Stockholders to receive a premium for their stock over then-existing market prices; - risks of potential dilution to then-existing Stockholders as a result of the Company's ability to issue additional shares of Common Stock; - risks associated with the Company being subject to Texas franchise taxes; - risk of potential losses in the event of a casualty or other liability that is not insured, uninsurable or not economically insurable; - risks associated with the effect of REIT distribution requirements (mandating that 95% of a REIT's net ordinary taxable income be distributed currently) on the Company's ability to finance future developments, acquisitions and capital improvements; and - real estate investment risks, such as the effect of economic and other conditions on property values (including the dependency of the Properties on the economies of the metropolitan areas where they are located), the ability of tenants to make rent payments, the ability of the Properties to generate revenues sufficient to meet operating expenses, including future debt service, and the illiquidity of real estate investments; THE PROPOSAL AND THE MERGER General. The Shareholders are being asked to consider and approve the Merger Agreement and the Merger thereunder pursuant to which the Trust will merge with and into the Company, a wholly-owned subsidiary of the Trust. The purpose of the Merger is to reorganize the Trust into a Maryland corporation that intends to continue to qualify as a REIT for federal income tax purposes. The costs associated with the Merger, estimated at $400,000, will be borne by the Trust. See "THE SPECIAL MEETING--Solicitation of Proxies." The affirmative vote of the holders of 66 2/3% of the outstanding Shares (at least 6,060,267 Shares) and the Trust Managers are required to approve the Proposal. The Trust Managers and the executive officers of the Trust own a total of 18,000 Shares (.20%). The percentage ownership of the Trust Managers and executive officers of the Trust will not be materially affected by the Merger. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS." The Trust Managers have unanimously approved the Proposal, subject to the approval of the Shareholders. The Board of Directors and the sole Stockholder of the Company have unanimously approved the Merger. 6 10 There are no statutory rights of dissent or appraisal available under Texas law to the Shareholders who object to the Proposal. No federal or state regulatory approvals must be obtained in connection with the Merger. Certain filings will be required in Texas and Maryland in order to consummate the Merger. If the Merger is approved, each Shareholder will receive one share of Common Stock for every five Shares surrendered. Persons that will hold a fractional share in the Company after the Merger must either (i) pay to the Company an amount equal to the fraction necessary to round upward to a whole share of Common Stock times the Opening Price and the fractional share shall be rounded upward to the nearest whole share of Common Stock or (ii) permit the Company to repurchase the fractional share at a price equal to the fraction owned times the Opening Price. Each Shareholder will be entitled to receive, upon surrender of certificates previously representing Shares, certificates representing the number of full shares of Common Stock to which such Shareholder is entitled pursuant to the Merger Agreement. Stockholders holding fractional shares of Common Stock will be contacted by the Company or its Transfer Agent after the Effective Date to determine whether the Stockholder desires to pay the necessary funds to be rounded upward to the nearest whole share, or if the Stockholder desires to receive cash for his or her fractional share of Common Stock as described above. This one-for-five share exchange effected by the Merger will not affect the voting or distribution rights of the Shareholders; however, due to certain differences between the Texas REIT Act and the Maryland General Corporation Law ("MGCL"), not all of the rights of Shareholders will remain the same. See "SUMMARY COMPARISON OF SHARES OF BENEFICIAL INTEREST AND COMMON STOCK." Except for the deminimus number of persons who currently own four or fewer Shares, the number of Stockholders after the Merger will be equal to the number of Shareholders existing prior to the Merger. Two of the Trust Managers (Messrs. Bricker and Wolcott) shall serve on the Board of Directors of the Company along with Mr. Raymond A. Hay, and the executive officers of the Trust shall serve as the executive officers of the Company. See "MANAGEMENT -- Directors and Executive Officers." Benefits and Detriments. The Trust Managers believe the Proposal has the following possible detriments for the Trust and its Shareholders: - Dilution. The Proposal will result in additional authorized shares which may be offered in future capital raising transactions on behalf of the Company without Stockholder approval. Such transactions may result in dilution to then-current Stockholders. See "RISK FACTORS -- Dilution." - Ownership Limitations and Staggered Board. Provisions in the Articles limiting ownership of Common Stock and Preferred Stock by a single person to 9.8%, requiring a staggered Board of Directors and authorizing the issuance of Preferred Stock may discourage a change in control of the Company and thus limit the opportunity for Stockholders to receive a premium over the then-current market price for their Common Stock. - Texas Franchise Taxes. As a corporation doing business in Texas, the Company will be subject to Texas franchise taxes. The Trust is not currently subject to Texas franchise taxes as a REIT formed under the Texas REIT Act. Such amount is not expected to be material for fiscal 1994 (less than $50,000). There can be no assurance, however, that the franchise tax rate will not increase in future years. - Odd Lot Holdings. As a result of the Merger, Shareholders holding round lots of Shares of 400 or fewer will have their holdings reduced to fewer than 100 Shares and will, therefore, become odd lot holders. It is generally more difficult and expensive to sell odd lot holdings than round lot holdings. See "THE PROPOSAL -- Detriments." The Trust Managers believe the Proposal has the following potential benefits for the Trust and its Shareholders: - Improved Capital and Organizational Structure. The Merger would result in an improved capital structure while at the same time affording the Stockholders the benefits of organization as a Maryland corporation, as described below. 7 11 - Established Body of Law. A substantial body of law has developed around the interpretations of the MGCL while the Texas REIT Act has been subject to relatively little judicial interpretation. - Properties No Longer Subject to Mandatory Sale or Improvement. The Texas REIT Act mandates the sale of real property owned by the Trust unless major capital improvements are made to the Property within 15 years of its acquisition. There is no statutory guidance or judicial interpretation as to what constitutes a major capital improvement. The Proposal alleviates the risk of a statutorily mandated sale at a time which is not beneficial to the Shareholders. None of the Properties would be subject to these provisions of the Texas REIT Act prior to the year 2000. - Limited Liability of Stockholders. Although the Texas REIT Act specifically provides that the shareholders of a trust formed under the Texas REIT Act are not liable for the debts of the trust, it is unclear as to whether such protection would be afforded to the shareholders by courts outside Texas. To date, there have been no published cases addressing whether shareholders of a trust formed under the Texas REIT Act are afforded limited liability protection. It is well accepted as a general matter in all jurisdictions that stockholders in a corporation are not personally liable for the debts of a corporation. - Purchase of Property With Stock. The Articles provide for a sufficient number of authorized shares to permit the Company to acquire property for Common Stock, thereby giving the Company more flexibility in negotiating purchases of additional properties. The issuance of additional shares of Common Stock to acquire properties may, however, have a dilutive effect on then-current Stockholders. See "THE PROPOSAL -- Benefits." THE SPECIAL MEETING; VOTING The Special Meeting will be held at 9:00 a.m., Dallas time on April 28, 1994 at the Four Seasons Resort and Club, 4150 North MacArthur Boulevard, Irving, Texas 75038. See "THE SPECIAL MEETING -- General". Only Shareholders of record at the close of business on March 4, 1994 (the "Record Date") will be entitled to notice of and to vote at the Special Meeting or any adjournments thereof. As of January 7, 1994, 9,075,400 Shares were issued and outstanding. See "THE SPECIAL MEETING -- Record Date; Outstanding Shares; Voting." The presence either in person or by properly executed proxy of a majority of the outstanding Shares (4,537,701 Shares) is necessary to constitute a quorum at the Special Meeting. See "THE SPECIAL MEETING -- Quorum." Accompanying this Proxy Statement/Prospectus is a proxy card ("Proxy") that may be used to indicate a Shareholder's vote on the Proposal. All Proxies that are properly completed, signed and returned to the Trust prior to the Special Meeting, and which have not been revoked, will be voted at the Special Meeting as indicated on the Proxy. If the Proxy is signed and returned, but no vote is indicated thereon, the Proxy will be voted FOR the Proposal. A Shareholder may revoke his or her Proxy at any time before it is voted by (i) executing a subsequently dated Proxy; (ii) filing a written request to revoke or amend his or her Proxy with the President of the Trust at the principal executive office of the Trust; or (iii) attending the Special Meeting and revoking the Proxy prior to the start of the Special Meeting. Failure to return the Proxy is the same as voting against the Proposal. See "THE SPECIAL MEETING -- Proxy." COMPARATIVE RIGHTS OF SHAREHOLDERS BEFORE AND AFTER THE MERGER The rights of the Shareholders are currently governed by the Texas REIT Act and by the Declaration of Trust and the By-Laws of the Trust. On the Effective Date, the Shareholders will become Stockholders of the Company, a Maryland corporation, and their rights as Stockholders will be governed by Maryland law and by the Articles and Bylaws of the Company. There are various differences between the rights of Company 8 12 Stockholders and Trust Shareholders. See "SUMMARY COMPARISON OF SHARES OF BENEFICIAL INTEREST AND COMMON STOCK." MARKET PRICE AND DISTRIBUTION DATA The Trust's Shares are listed and traded on the New York Stock Exchange (the "NYSE"). The following table sets forth for the periods indicated the high and low per Share closing sale price of the Trust's Shares, and the cash distributions declared per Share:
QUARTER ENDED: HIGH LOW DISTRIBUTIONS -------------------------------------------------------------- --- --- ------------- December 31, 1993............................................. 3 1/4 2 .04 September 30, 1993............................................ 2 3/8 1 7/8 .04 June 30, 1993................................................. 2 1/2 2 .04 March 31, 1993................................................ 3 1 3/4 .04 December 31, 1992............................................. 2 1 1/2 .04 September 30, 1992............................................ 2 1/8 1 3/4 .04 June 30, 1992................................................. 2 1/4 1 7/8 .04 March 31, 1992................................................ 2 5/8 1 3/4 .08
At February 28, 1994, the last trading day prior to the public announcement of the proposed Merger, the closing sale price per Share as reported on the NYSE Composite Tape was $2.25. On such date, there were 9,075,400 outstanding Shares held by approximately 2,341 holders. 9 13 SELECTED HISTORICAL FINANCIAL DATA (IN THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED) The following table sets forth historical financial information for the Trust and should be read in conjunction with the Financial Statements of the Trust and the Notes thereto which are contained elsewhere in the Proxy Statement/Prospectus. There is not expected to be any material impact to the historical operations of the Trust as a result of the proposed Merger with the Company.
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------ 1989 1990 1991(A) 1992(B) 1993(C) ---------- ---------- ---------- ---------- ---------- OPERATING DATA: Revenues............................................. $ 17,824 $ 17,744 $ 16,488 $ 15,139 $ 10,641 Loss from real estate operations(d).................. (2,708) (4,484) (13,786) (18,719) (5,121) Net loss(d).......................................... (2,708) (2,626) (9,162) (17,593) (7,867) BALANCE SHEET DATA: Total assets......................................... $173,143 $169,465 $147,877 $110,446 $ 88,297 Total long-term debt, net of unamortized discount.... 90,343 94,666 87,141 68,578 57,078 Shareholders' equity................................. 79,486 70,507 57,579 38,171 28,851 OTHER DATA: Funds from (used by) Operations(e)................... $ 9,522 $ 9,032 $ 8,308 $ 2,852 $(590) PER SHARE DATA: Loss from real estate operations..................... $ (0.30) $ (0.49) $ (1.52) $ (2.06) $ (0.57) Net loss............................................. (0.30) (0.29) (1.01) (1.94) (0.87) Book value........................................... 8.76 7.77 6.34 4.21 3.18 Distributions paid................................... 0.98 0.70 0.42 0.20 0.16 Number of shares outstanding........................... 9,075,400 9,075,400 9,075,400 9,075,400 9,075,400
- --------------- (a) On December 30, 1990, the Trust sold two of its 19 original properties, thus operating with only 17 properties during 1991. (b) The Trust sold two of its properties in the fourth quarter of 1992, thus operating with only 15 properties for the remainder of the year. (c) The Trust sold one of its properties in the first quarter of 1993, thus operating with only 14 properties through the end of the third quarter. (d) Loss from real estate operations and net loss for 1991, 1992 and for the nine months ended September 30, 1992, include provisions for writedowns of real estate due to permanent impairments in value of $9,371, $14,094 and $2,836, respectively. (e) Funds from (used by) Operations is computed based on the definition adopted by the National Association of Real Estate Investment Trusts, which is net income (computed in accordance with generally accepted accounting principles), excluding gains (or losses) from debt restructuring and sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Funds from (used by) Operations should not be considered by the reader as an alternative to net income as an indicator of the Trust's operating performance or to cash flows from operations as a measure of liquidity. The 1991-1992 changes in the Trust's debt structure from primarily zero coupon debt to current pay debt negatively impacts Funds from (used by) Operations as the amortization of the zero coupon debt has been previously added back to net income in computing Funds from (used by) Operations, whereas the current pay interest incurred on the notes replacing the zero coupon debt is not added back. 10 14 DISTRIBUTION POLICY On December 15, 1993, the Trust announced its intent to redirect its cash resources to the ultimate elimination of the operating restrictions imposed on the Trust by the terms of the Zero Coupon Notes Due 1997 (the "Notes") through a complete defeasance of the outstanding Notes which would require the Trust to deposit approximately $16,289,000 with the Trustee. For this reason, the Trust determined that it was in the best interest of the Trust and its Shareholders to suspend quarterly distributions (which had been at $.04 per quarter, equivalent to $.20 per quarter for the Company) until such time as the remaining Notes are fully defeased and distributions can be supported from the positive cash flow of the Trust, as measured by its Funds from Operations. See "--Market Price and Distribution Data" and "RISK FACTORS -- Suspension of Distributions." There can be no assurance as to when distributions will be reinstated and when reinstated, that distributions will be at the same level as they were prior to December 15, 1993. The Company's dividend policy is to review operating results, capital requirements and working capital reserves on a quarterly basis and to declare dividends based on the Board of Directors' and management's determination of distributable cash flow. Generally, the Company intends to maintain a dividend equal to approximately 85% of Funds from Operations within these parameters. No dividends on Common Stock are anticipated while the Company pursues a recapitalization and refinancing strategy. In order to satisfy the requirement to distribute 95% of the Company's taxable income, it is management's intent to make sufficient distributions necessary in order to maintain the Company's REIT status. So long as there is no REIT taxable income, suspension of cash distributions will not result in a disqualification of the Company's status as a REIT. For at least the remainder of fiscal 1994, the Company anticipates having net operating losses and, therefore, will have no taxable income required to be distributed under the REIT provisions of the Code in order for the Company to maintain its status as a REIT. For a further discussion of the amount of distributions that must be made in order for the Company to retain REIT status, see "FEDERAL INCOME TAX CONSIDERATIONS -- Taxation of the Company." FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER The Trust and the Company will receive an opinion from counsel, Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P., to the effect that the Merger as contemplated by the Merger Agreement will constitute a reorganization within the meaning of Section 368(a) of the Code, thus neither the Company nor the Trust will recognize any gain or loss upon the Merger and no gain or loss will be recognized by the Shareholders on the receipt of shares of Common Stock in exchange for their Shares pursuant to the Merger Agreement. See "FEDERAL INCOME TAX CONSIDERATIONS." TAX STATUS OF THE COMPANY The Company intends to continue to be taxed as a REIT, like the Trust, under Sections 856 through 860 of the Code. As a REIT, the Company generally will not be subject to federal income tax if it distributes at least 95% of its REIT taxable income (which does not include capital gains) to its Stockholders. REITs are subject to a number of organizational and operational requirements. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate rates. See "RISK FACTORS -- Failure to Qualify as a REIT" for a more detailed discussion of the consequences of the failure of the Company to qualify as a REIT. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property and to federal income and excise taxes on its undistributed income. See "FEDERAL INCOME TAX CONSIDERATIONS." The legality of Common Stock to be issued in connection with the Merger and the qualification of the Company as a REIT for federal income tax purposes will be passed upon by Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. in an opinion to be issued to the Company. 11 15 RISK FACTORS An investment in the Common Stock involves various risks. Prospective investors should consider carefully the risk factors, in addition to the other information set forth in this Proxy Statement/Prospectus, in connection with an investment in the Common Stock offered hereby. SUSPENSION OF DISTRIBUTIONS On December 15, 1993, the Trust suspended quarterly distributions (which had been at $0.04 per quarter, equivalent to $0.20 per quarter for the Company) until such time as the outstanding Notes are fully defeased and distributions can be supported from cash flow. There can be no assurance as to when distributions will be reinstated and when reinstated, that distributions will be at the same level as they were prior to December 15, 1993. Accordingly, the shares of Common Stock may have limited marketability. NO LIMITATION ON DEBT The Company's current financial capitalization policy is to seek to limit its debt-to-asset value ratio to 50% or less. As a general practice, management expects to maintain the Company's debt-to-market capitalization ratio at or below the REIT industry average. The Company's debt-to-market capitalization ratio as of March 3, 1994 was 2.8 to 1. Market capitalization for this purpose is the total trading value of the Trust's outstanding Shares. Management believes that the average debt-to-market capitalization ratio for the REIT industry is less than one-to-one. The Company's organizational documents, however, do not contain any limitation on the amount or percentage of indebtedness the Company can incur. Accordingly, the Company could alter its current debt policy. If this policy were changed, the Company could become more highly leveraged, resulting in an increase in debt service that could adversely affect the Company's ability to make dividend payments to its Stockholders and would result in an increased risk of default on its obligations. Subject to the Indenture and other existing loan documents, the Company may borrow funds in the future and secure such loans with mortgages on the Properties. In the event such mortgage loans require balloon payments, the ability of the Company to make such payments will depend upon its ability to sell or refinance the Properties for amounts sufficient to repay such loans. In addition, the payment of debt service in connection with any borrowings may adversely affect cash flow and the value of the Common Stock. DEPENDENCE ON TEXAS MARKET Seven of the Properties, containing 834,521 leasable square feet (approximately 52% of the total leasable square feet of the Properties owned by the Company), are located in Texas. The Company's performance is, therefore, largely dependent upon economic conditions in the Texas metropolitan areas in which the Properties are located. A decline in the Texas markets may adversely affect the ability of the Company to pay dividends to its Stockholders. CHANGES IN POLICIES The investment and financing policies of the Company and its policies with respect to all other activities, including its growth, debt, capitalization, dividends and operating policies, will be determined by the Board of Directors of the Company. Although the Board of Directors has no present intention to do so, these policies may be amended or revised at any time and from time to time at the discretion of the Board of Directors without a vote of the Stockholders of the Company. See "THE COMPANY -- Investment Objectives -- Operating Strategies." A change in these policies could adversely affect the Company's financial condition or results of operations or the market price of the Common Stock. CERTAIN ANTI-TAKEOVER PROVISIONS; OWNERSHIP LIMITS Charter Provisions. Certain provisions of the Company's Articles may have the effect of discouraging a third party from making an acquisition proposal for the Company and may thereby inhibit a change in control of the Company under circumstances that could give the holders of shares of Common Stock the opportunity 12 16 to realize a premium over the then-prevailing market prices. Furthermore, the ability of the Company's Stockholders to effect a change in management control of the Company would be substantially impeded by such anti-takeover provisions. Moreover, in order for the Company to maintain its qualification as a REIT, not more than 50% in value of its outstanding shares of Common Stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities). For the purpose of preserving the Company's REIT qualification, the Articles prohibit ownership either directly or under the applicable attribution rules of the Code of more than 9.8% of the shares of Common Stock and Preferred Stock by any Stockholder, subject to certain exceptions. Such ownership limit may have the effect of preventing an acquisition of control of the Company without the approval of the Board of Directors. See "THE COMPANY'S SECURITIES -- Capital Stock," "CERTAIN STATUTORY AND CHARTER PROVISIONS" and "FEDERAL INCOME TAX CONSIDERATIONS." Staggered Board. The Board of Directors will be divided into three classes. The terms of the first, second and third classes will expire in 1995, 1996 and 1997, respectively. Directors of each class will be elected for a three-year term upon the expiration of the term of the current class. See "MANAGEMENT." The staggered terms for directors may affect the ability of the Stockholders to effect a change in control of the Company even if a change of control were in the Stockholders' best interest. See "CERTAIN STATUTORY AND CHARTER PROVISIONS -- Classification of the Board of Directors." Preferred Stock. The Articles authorize the Board of Directors to issue up to 10,000,000 shares of Preferred Stock and to establish the preference and rights of any such shares issued. See "THE COMPANY'S SECURITIES -- Preferred Stock." The issuance of Preferred Stock could have the effect of delaying or preventing a change in control of the Company even if a change in control were in the best interests of the Stockholders. No shares of Preferred Stock will be issued or outstanding upon consummation of the Merger. Business Combination Provision. Certain provisions of the MGCL regarding business combinations require approval of the holders of 80% of the outstanding voting shares of the Company. See "CERTAIN STATUTORY AND CHARTER PROVISIONS -- Business Combinations." These statutory provisions may discourage a change in control and limit the opportunity for Stockholders to receive a premium over the then-current market prices for their Common Stock. RISKS OF DEVELOPMENT AND ACQUISITION ACTIVITIES The Company will incur risks associated with any development activities it undertakes, including the risks that (i) occupancy rates and rents at a newly completed project may not be sufficient to make the project profitable; (ii) financing may not be available on favorable terms for the project; (iii) construction and lease-up may not be completed on schedule, resulting in increased debt service expense and construction costs; (iv) construction costs of a project may exceed original estimates, possibly making the project uneconomical; (v) zoning, occupancy and other required governmental approvals or authorizations may not be granted and development costs associated therewith may not be recovered; and (vi) development opportunities explored by the Company may be abandoned. Acquisitions of properties entail risks that investments will fail to perform in accordance with expectations and that judgments with respect to the costs of improvements to bring an acquired property up to standards established for the market position intended for that property will prove inaccurate, as well as general investment risks associated with any new real estate investment. The Company anticipates that its new developments and acquisitions will be financed under lines of credit or other interim forms of secured or unsecured financing. There is no assurance that permanent financing for such newly developed or acquired projects will be available or might be available only on disadvantageous terms. In addition, the fact that the Company must distribute 95% of its taxable income in order to maintain its qualification as a REIT will limit the ability of the Company to rely upon income from operations or cash flow from operations to finance new development or acquisitions. As a result, if permanent debt or equity financing is not available on acceptable terms to refinance new developments or acquisitions undertaken without permanent financing, further development activities or acquisitions might be curtailed or 13 17 cash available for distribution might be adversely affected. In the case of an unsuccessful development or acquisition, the Company's loss could exceed its investment in the project. See "THE COMPANY." HISTORY OF OPERATING LOSSES The Trust has reported operating losses in each year since 1985. There can be no assurance that the Company will not experience operating losses in the future. POSSIBLE ENVIRONMENTAL LIABILITIES Under various federal, state and local environmental laws, ordinances and regulations, an owner or operator of real estate may become liable for the costs of removal or remediation of certain hazardous substances released on or in its property. Such laws typically impose cleanup responsibility and liability without regard to whether the owner knew of or was responsible for the presence of the contaminants. The costs of investigation, remediation or removal of such substances may be substantial, and the presence of such substances, or the failure to properly remediate such property, may adversely affect the owner's ability to sell or rent such property or to borrow using such property as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic substances also may be liable for the costs of removal or remediation of such substances at the disposal or treatment facility, whether or not such facility is owned or operated by such person. Finally, the owner of a site may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from a site. Management has been notified of the possible existence of underground contamination at Tamarac Square, the Trust's Denver retail Property. The source of the possible contamination is apparently related to underground storage tanks located on an adjacent property. This adjacent property was placed on Colorado's list of leaking underground storage tanks. A second potential source of contamination is a nearby tract on which a service station was formerly operated. The owner of the adjacent property is currently conducting studies under the direction of the Colorado Department of Health in an attempt to define the contamination and institute an appropriate plan to address the situation. At this time, management does not anticipate any exposure to the Trust relative to this issue. Certain federal, state and local laws, regulations and ordinances govern the removal, encapsulation or disturbance of asbestos-containing materials ("ACMs") when such materials are in poor condition or in the event of building remodeling, renovation or demolition. Such laws may impose liability for release of ACMs and may provide for third parties to seek recovery from owners or operators of real estate for personal injuries associated with ACMs. In connection with its ownership, management and operation of the Properties, the Company may be potentially liable for such costs. Except as described above, the Company has not been notified by any governmental authority or any other third party of any noncompliance, liability or other claim in connection with any of the Properties. Management believes that the Properties are in compliance in all material respects with all federal, state and local laws, ordinances and regulations regarding hazardous or toxic substances or petroleum products. The Company has not been notified (except with respect to Tamarac Square), and is not otherwise aware, of any material non-compliance, liability or claim relating to hazardous or toxic substances in connection with any of the Properties. ADVERSE CONSEQUENCES OF A FAILURE TO QUALIFY AS A REIT The Trust has historically operated as a REIT and maintained its qualification as a REIT under the Code. The Company intends to operate so as to qualify as a REIT under the Code. Although management of the Company believes that the Company will be organized and will operate in such a manner, no assurance can be given that the Company will qualify or remain qualified as a REIT. Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial or administrative interpretations. The determination of various factual matters and circumstances not entirely within the Company's control may affect the Company's ability to qualify as a REIT. If in any taxable year the Company were to fail to qualify as a REIT, it would be taxed as a corporation and distributions to Stockholders would not be deductible by the Company in computing its taxable income. Failure to qualify for 14 18 even one taxable year could result in the Company incurring indebtedness (to the extent that borrowings are feasible and permitted by limitations relating to the Notes and other indebtedness of the Trust assumed by the Company) or liquidating investments should the Company not have sufficient funds to pay the resulting federal income tax liabilities, and the Company would also be disqualified from taxation as a REIT for the next four taxable years. As a result, the funds available for distribution to the Company's Stockholders would be reduced for each of the years involved. In addition, dividends would no longer be required to be paid. To the extent the dividends to Stockholders would have been paid in anticipation of the Company's qualification as a REIT, the Company might be required to borrow funds or to liquidate certain of its investments to pay the applicable tax. Although the Company currently intends to operate in a manner designed to qualify as a REIT, it is possible that future economic, market, legal, tax or other considerations may cause the Company's Board of Directors to revoke the REIT election. See "FEDERAL INCOME TAX CONSIDERATIONS." ADVERSE EFFECT OF MARKET INTEREST RATES ON PRICE OF COMMON STOCK One of the factors that may influence the price of the Common Stock in the public markets will be the annual yield from dividend payments by the Company on the price paid for the Common Stock. Thus, an increase in market interest rates may lead prospective purchasers of Common Stock to demand a higher anticipated annual yield from future dividends. Such an increase in the required anticipated dividend yield may adversely affect the market price of the Common Stock. REAL ESTATE INVESTMENT CONSIDERATIONS Effect of Economic and Real Estate Conditions. Investments in real estate typically involve a high level of risk. One of the risk of investing in real estate is the possibility that the Properties will not generate income sufficient to meet operating expenses or will generate income and capital appreciation, if any, at rates lower than those anticipated or available through investment in comparable real estate or other investments. Income from properties and yields from investments in properties may be affected by many factors, including the type of property involved, the form of investment, conditions in financial markets, over-building, a reduction in rental income as the result of the inability to maintain occupancy levels, adverse changes in applicable tax laws, changes in general economic conditions, adverse local conditions (such as changes in real estate zoning laws that may reduce the desirability of real estate in the area) and acts of God, such as earthquakes or floods. Some or all of the foregoing conditions may affect the Properties. Renewal of Leases and Reletting of Space. The Company will be subject to the risks that, upon expiration of leases of the Properties, the leases may not be renewed, the space may not be relet or the terms of renewal or reletting (including the costs of required renovation or concessions to tenants) may be less favorable than current lease terms. If the Company were unable to promptly relet or renew the leases for all or a substantial portion of the space, if the rental rate upon such renewal or reletting were significantly lower than expected or if its reserves proved inadequate, then the Company's Funds from Operations and ability to make expected dividend payments to Stockholders may be adversely affected. Leases on approximately 20% of the total Property owned by the Company will expire in 1994. The expiring leases represent approximately 19% of the total Property annualized base rent received by the Company. Management will attempt to negotiate renewals with certain of the tenants with expiring leases; however, no assurance can be given that such negotiations will be successful. Market Illiquidity. Equity real estate investments are relatively illiquid. Such illiquidity will tend to limit the ability of the Company to vary its portfolio promptly in response to changes in economic or other conditions. In addition, federal income tax provisions applicable to REITs limit the Company's ability to sell Properties held for fewer than four years, which may affect the Company's ability to sell Properties at a time which would be in the best interest of the Stockholders. Operating Risks. The Properties will be subject to all operating risks common to real estate developments in general, any or all of which might adversely affect occupancy or rental rates. In addition, increases in operating costs due to inflation and other factors may not necessarily be offset by increased rents. If operating expenses increase, the local rental market for industrial properties may limit the extent to which rents may be 15 19 increased to meet increased expenses without decreasing occupancy rates. If any of the above occur, the Company's ability to make expected payments of dividends to Stockholders could be adversely affected. Competition. All of the Properties are located in areas that include competing properties. The number of competitive properties in a particular area could have a material effect on both the Company's ability to lease space at the Property or at any newly developed or acquired properties and the rents charged. The Company may be competing with other owners that have greater resources than the Company. SEVERANCE COMPENSATION IN THE EVENT OF A CHANGE OF CONTROL Effective January 12, 1994, the Company entered into Employment Agreements with its executive officers (Messrs. Wolcott and Warner) which provide for severance payments in the event of a change of control of the Company in the amount of one times the average of the total cash compensation, inclusive of base salary and cash bonuses, received by such employee during each of the preceding five calendar years. See "MANAGEMENT -- Employment Agreements." These Employment Agreements may discourage a potential acquiror from seeking control of the Company thereby affecting the ability of Stockholders to receive a premium for their Common Stock over then-existing market prices. POSSIBLE FUTURE DILUTION The Company has a substantially greater number of authorized shares than the Trust. The Company's authorized Common Stock may be offered in capital raising transactions on behalf of the Company. Such transactions may result in dilution to then-current Stockholders. The authorized but unissued capital stock of the Company may be issued for any corporate purpose, including the purchase of additional properties and the investment in, or acquisition of, interests in other entities, including other REITs or limited partnerships whose assets consist of investments suitable for the Company. Authorized and unissued capital stock could also be issued in one or more transactions which would make it more difficult, and therefore less likely, to effect a takeover of the Company. See "THE COMPANY'S SECURITIES" and "CERTAIN STATUTORY AND CHARTER PROVISIONS." Any such issuance of additional Common Stock or other capital stock could have the effect of diluting the earnings per share, book value per share, voting power of existing shares of Common Stock and the ownership of persons seeking to obtain control of the Company. See "-- Certain Anti-Takeover Provisions; Ownership Limits." TEXAS FRANCHISE TAXES By doing business as a corporation rather than as a trust, the Company may become subject to certain state taxes that it would not have been subject to as a trust. As a corporation doing business in Texas, the Company will be subject to Texas franchise taxes. Based upon the Company's current portfolio and the current franchise tax rates, the Company estimates its franchise tax liability for 1994 at less than $50,000. There can be no assurance that the Company's franchise tax liability will not increase due to additional purchases of Texas properties, increases in the capital base subject to Texas franchise tax or changes in Texas law which would increase the scope and amount of tax. As a trust organized under the Texas REIT Act, the Trust is not currently subject to Texas franchise taxes; however, there can be no assurance that the State of Texas will not expand the scope of persons subject to franchise taxes to include trusts. UNINSURED LOSS The Company will seek to maintain comprehensive liability, fire and extended coverage insurance of the type and in the amount customarily obtained for similar properties. There are, however, certain types of losses (generally of a catastrophic nature, such as earthquakes, floods and wars) that either may be uninsurable or not economically insurable. Should an uninsurable loss occur, the Company could lose both its invested capital and anticipated future revenues related to the affected Property (and may also be required to defease a certain percentage of the Notes), and would continue to be obligated on any mortgage indebtedness or other obligations related to the affected Property. Any such loss could adversely affect the Company. Management believes the Properties are currently adequately insured in accordance with industry standards. 16 20 MARKET ILLIQUIDITY Real estate investments are relatively illiquid. Such illiquidity will tend to limit the ability of the Company to vary its portfolio promptly in response to changes in economic or other conditions. In addition, provisions of the Code relating to REIT qualification limit the Company's ability to sell Properties held for fewer than four years, which may affect the Company's ability to sell Properties. See "FEDERAL INCOME TAX CONSEQUENCES -- Taxation of the Company." THE PROPOSAL The following discussion summarizes certain aspects of the Proposal. This summary is not intended to be complete and is subject to, and qualified in its entirety by, reference to the Merger Agreement, a copy of which is attached hereto as Appendix A. GENERAL Shareholders are being asked to consider and approve the Merger Agreement and the Merger thereunder pursuant to which the Trust will merge with and into the Company, a wholly-owned subsidiary of the Trust which intends to qualify as a REIT for federal income tax purposes. The Company will be the surviving entity. If the Merger is approved, the Trust's Shareholders will receive one share of the Company's Common Stock for every five Trust Shares owned by the Shareholder. Persons that will hold a fractional share in the Company after the Merger must either (i) pay to the Company an amount equal to the fraction necessary to round upward to a whole share of Common Stock times the Opening Price and the fractional share shall be rounded upward to the nearest whole share of Common Stock or (ii) permit the Company to cash out the fractional share at a price equal to the fraction owned times the Opening Price. Stockholders holding fractional shares of Common Stock will be contacted by the Company or its Transfer Agent after the Effective Date to determine whether the Stockholder desires to pay the necessary funds to be rounded upward to the nearest whole share or if the Stockholder desires to receive to cash for his or her shares of Common Stock, as described above. This one-for-five share exchange effected by the Merger will not affect the voting or distribution rights of the Shareholders; however, due to certain differences between the Texas REIT Act and the MGCL, not all of the rights of Shareholders will remain the same. See "SUMMARY COMPARISON OF SHARES OF BENEFICIAL INTEREST AND COMMON STOCK." Except for the deminimus number of persons who currently own four or fewer Shares, the number of Stockholders after the Merger will be equal to the number of Shareholders existing prior to the Merger. Pursuant to the Merger Agreement, the Company will assume all rights and obligations of the Trust, including, without limitation, the Trust's obligations under the Notes. The Trust Managers have unanimously approved the Proposal subject to Shareholder approval. Shareholder approval is the only condition precedent to the consummation of the Merger. The Board of Directors and the sole Stockholder (the Trust acting through the Trust Managers) of the Company have unanimously approved the Merger. DETRIMENTS The Trust Managers believe the Proposal presents the following potential detriments for the Trust and its Shareholders: Dilution. The Proposal will result in additional authorized shares which may be offered in capital raising transactions on behalf of the Company. Such transactions may result in dilution to then current Stockholders. See "RISK FACTORS -- Dilution." Ownership Limitations and Staggered Board. Provisions in the Articles limiting ownership of Common Stock by a single person to 9.8%, requiring a staggered Board of Directors and authorizing the issuance of Preferred Stock may discourage a change in control and thus limit the opportunity for Stockholders to receive a premium over the then-current market price for their Common Stock. 17 21 Texas Franchise Taxes. By doing business as a corporation rather than as a trust, the Company may become subject to certain state taxes that it would not have been subject to as a trust. As a foreign corporation engaged in business in Texas, the Company will be subject to the payment of Texas franchise taxes. Had the Trust been subject to Texas franchise taxes in fiscal 1993, the Trust would have paid approximately $50,000 in franchise taxes to the State of Texas. Based on the existing franchise tax rates and the existing property portfolio, it is estimated that the Company's Texas franchise tax liability will not be material for fiscal 1994 (less than $50,000). There can be no assurance that the Company's franchise tax liability would not increase due to additional purchases of Texas properties, increases in the capital base subject to the Texas franchise tax or changes in Texas law which could increase the scope and amount of tax. Odd Lot Holdings. As a result of the Merger, Shareholders holding round lots of Shares of 400 or fewer will have their holdings reduced to fewer than 100 Shares and will, therefore, become odd lot holders. It is generally more difficult and expensive to sell odd lot holdings than round lot holdings. BENEFITS The Trust Managers believe it is in the best interests of the Trust and its Shareholders for the Shareholders to vote in favor of the Proposal. The Trust Managers believe that the Proposal should be adopted at this time in order to continue the Trust's strategy of pursuing the opportunities available in today's real estate and capital markets. These opportunities include the ability to acquire and develop industrial properties at investment yields in excess of the Company's cost of capital, in order to achieve positive spread investing and increased cash flow to the Company. In addition, current interest rates could provide the Company the opportunity to refinance its existing debt at reduced rates. The Trust Managers also believe that the Proposal offers several potential benefits for the Trust and its Shareholders and few detriments. These benefits include the following: Improved Capital and Organizational Structure. The Declaration of Trust currently authorizes the issuance of 10,000,000 Shares, of which 9,075,400 are outstanding at March 1, 1994. The Declaration of Trust does not authorize the issuance of additional types of securities such as warrants, rights to purchase Shares and preferred shares of beneficial interest. In order to authorize additional Shares and to authorize the issuance of additional types of securities, the Declaration of Trust would have to be amended with the approval of the holders of at least 66 2/3% of the Shares. Rather than amend the Declaration of Trust and remain under the Texas REIT Act (and be subject to the detriments of the Texas REIT Act described above), the Merger accomplishes the improved capital structure discussed above in addition to affording the Stockholders the benefits of organization as a Maryland corporation described below. Maryland Corporate Law. In recent years, the State of Maryland has adopted a policy of encouraging incorporation in that state and, in furtherance of that policy, has adopted comprehensive, modern and flexible corporate laws which are periodically updated and revised to meet changing business needs. As a result, many corporations, including numerous recently formed REITs, have chosen Maryland for their domicile. Maryland courts have developed a body of case law construing Maryland law and establishing public policies with respect to corporations incorporated in Maryland. In contrast, a body of case law construing the Texas REIT Act has not developed. Consequently, reorganization of the Trust into a Maryland corporation should provide greater predictability with respect to the Company's corporate affairs. Properties No Longer Subject to Mandatory Sale or Improvement. The Declaration of Trust, as required by the Texas REIT Act, provides that with respect to any real property owned by the Trust, major capital improvements must be made within 15 years of purchase of the property or the property must be sold. If the property was purchased as unimproved property or the property is outside the city, town or village limits, the major capital improvements must be equal to or exceed the purchase price of the property. While these provisions of the Declaration of Trust were unobjectionable when the Trust was a finite-life entity with a maximum term of 15 years of existence, the subsequent conversion of the Trust to infinite-life status has rendered such provisions potentially contrary to the best interests of the Trust 18 22 and of its Shareholders. These requirements, which are unique to the Texas REIT Act, could potentially force the Trust Managers and officers to either (i) sell the property without regard to economic conditions existing at such time, or (ii) make "major capital improvements" regardless of whether such improvements are needed. Such action may not be in the best interests of the Trust or its Shareholders. If the property at issue was not unimproved property on the date of purchase or the property is located within city limits, there are no statutory guidelines or judicial interpretations as to what constitute "major capital improvements." None of the Properties would be subject to these provisions of the Texas REIT act prior to the year 2000. Neither the MGCL nor the Articles impose such a requirement on the Company. Limited Liability. Although the Texas REIT Act specifically provides that the shareholders of a trust formed under the Texas REIT Act are not liable for the debts of the trust, it is unclear as to whether such protection would be afforded to the shareholders by courts outside Texas. To date, there have been no published cases addressing whether shareholders of a trust formed under the Texas REIT Act are afforded limited liability protection. It is well accepted as a general matter of law that stockholders in a corporation are not personally liable for the debts of the corporation. Purchase of Property With Stock. The Company has a greater number of authorized shares than the Trust which could be used by the Company to acquire additional properties which meet the investment objectives and policies of the Company. The availability of these shares allows for additional flexibility in negotiating and structuring an acquisition from a potential seller. As discussed above under "Detriments -- Dilution," the issuance of additional shares of Common Stock by the Company may result in dilution of ownership to then current Stockholders. See "RISK FACTORS -- Possible Future Dilution." RECOMMENDATION OF THE TRUST MANAGERS THE TRUST MANAGERS RECOMMEND THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL. THE SPECIAL MEETING GENERAL The Special Meeting will be held on April 28, 1994, at 9:00 a.m. Dallas time, at the Four Seasons Resort and Club, 4150 North MacArthur Boulevard, Irving, Texas 75038 (or such other time and place to which such meeting is adjourned), to consider and vote on the Proposal. See "THE PROPOSAL." In order for the Proposal to be adopted, it must be approved by the holders of 66 2/3% of the outstanding Shares (6,050,569 Shares). Shareholder approval is the only condition to the consummation of the Merger. RECORD DATE; OUTSTANDING SHARES; VOTING The Trust Managers have fixed the close of business on March 4, 1994 as the Record Date. As of the Record Date, there were 9,075,400 Shares outstanding held of record by approximately 2,341 Shareholders. Shareholders are entitled to cast one vote per Share. The affirmative vote of Shareholders holding at least 66 2/3% of the outstanding Shares (6,050,569 Shares) is necessary to approve the Proposal. The Trust Managers and the executive officers of the Trust own .20% of the issued and outstanding Shares (18,000 Shares). 19 23 QUORUM In accordance with the By-Laws of the Trust, Shareholders holding at least a majority of the issued and outstanding Shares (4,537,701 Shares) must be present or represented by properly executed proxies at the Special Meeting to constitute a quorum. If a quorum is not present or represented at the Special Meeting, the meeting may be adjourned from time to time, without further notification, until a quorum is obtained. DISSENTERS' RIGHTS Under Texas law, Shareholders objecting to the Proposal and the Merger thereunder do not have any statutory rights of dissent or appraisal. PROXY The Proxy, which is enclosed with this Proxy Statement/Prospectus, contains a space where each Shareholder may indicate whether such Shareholder chooses to vote his or her Shares in favor of or against the Proposal or to abstain from voting. If the Proxy is duly completed and returned to the Trust, the Proxy will be voted in accordance with this instruction. If a Shareholder returns the Proxy duly executed, but does not indicate the manner in which the Proxy is to be voted, the Proxy will be voted in favor of the Proposal. FAILURE TO RETURN THE PROXY OR TO VOTE AT THE SPECIAL MEETING OR ABSTAINING FROM VOTING WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE PROPOSAL. BROKER NON-VOTES HAVE THE SAME EFFECT AS A VOTE AGAINST THE PROPOSAL. A Shareholder may revoke his or her Proxy at any time before it is voted by (i) executing a subsequently dated Proxy; (ii) filing a written request to revoke or amend his or her Proxy with the President of the Trust at the principal executive office of the Trust; or (iii) attending the Special Meeting and revoking the Proxy prior to the start of the Special Meeting. SOLICITATION OF PROXIES This Proxy Statement/Prospectus is submitted, and Proxies are being solicited by, the Trust Managers on behalf of the Trust in support of the Proposal. The expense of solicitation of Proxies, as well as all other expenses associated with the Merger, which are estimated at $400,000 (inclusive of solicitation fees), will be borne by the Trust. See "FEES AND EXPENSES." The Trust will enlist the help of banks and brokerage houses in soliciting Proxies from their customers. The Trust will reimburse these institutions for out-of-pocket expenses. In addition to being solicited through the mails, Proxies may also be solicited personally or by telephone by officers and employees of the Trust. These officers and employees will not receive compensation for such services other than their regular salaried compensation. The Trust has engaged the firms of D.F. King & Co., Inc. and Proveaux, Stephen & Spencer, Inc. to assist in soliciting Proxies for the Special Meeting for fees of approximately $10,000 and $40,000, respectively, plus reasonable out-of-pocket expenses. THE COMPANY The Company is a newly-organized Maryland corporation which was incorporated on January 12, 1994 as a wholly-owned subsidiary of the Trust. The Trust was originally organized on September 26, 1985, and currently owns and operates 15 commercial real estate Properties consisting of 14 industrial Properties and one retail Property. The Company intends to operate as a self-administered REIT. The Company has been formed to succeed to and continue the property ownership and acquisition activities of the Trust. If the Merger is approved, the Company will own and operate the Properties. It is anticipated that industrial properties will continue to be the primary focus for investment by the Company. The Company intends to qualify as a REIT for federal income tax purposes and will be operated by the management of its predecessor in interest, the Trust. Approximately six officers and employees will be 20 24 involved in the administration of the Company. The executive officers will be responsible for the day to day administration of the Company and the Board of Directors will be responsible for the overall direction and supervision of the Company. The investment and financing policies of the Company and its policies with respect to certain activities, including its growth, capitalization, distributions, REIT status and investment and operating policies will be determined by the Board of Directors. See "MANAGEMENT." The Trust and the Company maintain their principal executive offices at 6220 North Beltline, Suite 205, Irving, Texas 75063, and their telephone number is (214) 550-6053. COMPANY HISTORY The Trust was formed in September, 1985, as Trammell Crow Real Estate Investors, a finite-life real estate investment trust due to liquidate by December 31, 1997. The Trust's initial portfolio consisted of 19 properties, including 18 industrial properties and one retail mall, located throughout the United States. The Trust was advised initially by Trammell Crow Ventures, Ltd., an affiliate of Trammell Crow Company, under an advisory agreement that provided for the payment of an annual advisory fee and reimbursements for certain expenses as well as transaction fees for asset acquisitions and dispositions. As part of its initial capitalization, the Trust issued approximately $180 million of Notes. Beginning in 1991, the Trust commenced a program designed to reposition the Trust in order to participate in the growth taking place in the real estate investment trust industry. The first part of this process was to reduce the amount of Notes outstanding. By December 1992, approximately $160 million of the Trust's outstanding Notes were repurchased by the Trust in part through the proceeds of the sales of five of the Trust's 19 properties, and through the issuance of a $53.2 million unsecured note. With the completion of the acquisitions of the Notes described above, the Trust commenced the second part of its repositioning program with a transition to self-administration, which was concluded in June 1993, with the establishment of a new management team for the Trust and the termination of the advisory agreement with Trammell Crow Ventures. As part of this change, the Trust adopted the new name, American Industrial Properties REIT, and changed its ticker symbol on the New York Stock Exchange to "IND." In July 1993, the Trust presented its Shareholders with a set of proposals related to the Trust's change to self-administration, and a proposal to make the life of the Trust perpetual through the removal of a limited term restriction in the Trust's Declaration of Trust and By-Laws. This second proposal, which required an affirmative vote of 80% of the Trust's outstanding Shares for approval, was passed on October 22, 1993, by 81.2% of the Trust's outstanding Shares. With these changes, and the prospective completion of its reorganization as a Maryland corporation and the other proposed changes, management believes the Company will be well positioned to attract new investment capital to increase its asset base, its cash flow and its value for the Company Stockholders. INVESTMENT POLICIES The Company's primary business objective is to maximize the total return to Stockholders through the acquisition, leasing, management and eventual disposition of its Properties. In doing so, the Company will seek to provide quarterly distributions and achieve long-term appreciation through increases in cash flow and in the values of its Properties. The Company's investment program will focus on industrial properties, both through the acquisition of existing properties and the development of build-to-suit properties for credit worthy tenants, primarily in the major mid-American markets. These markets, such as Dallas, Chicago and Atlanta, are located at the key rail and highway intersects that control the distribution of goods throughout the United States. The secondary markets within the Mid-American region will also be considered if the investment otherwise meets the business objectives of the Company. Industrial properties consist of distribution warehouses, service centers, office/showroom properties, research and development properties and light manufacturing facilities. Industrial properties are generally characterized by relatively simple configurations, thus allowing for a high degree of flexibility to meet the 21 25 changing needs of tenants. As a result, management believes that industrial properties are generally more resistant to obsolescence than other types of real estate property. Industrial properties typically have limited amounts of office finish-out and other customized improvements. For this reason, the capital requirements of bringing in new tenants are relatively small. Finally, industrial properties are highly location sensitive, requiring direct access to major transportation arteries which are well known. For this reason and others, industrial properties have tended not to attract the speculative overbuilding characteristic of other types of real estate property. The Company will focus on markets characterized by steady economic growth rates, positive demographic trends and locations at the key highway and rail intersects in the middle part of the United States. It will be the Company's goal, over time, to establish dominant market positions in selective sub-markets of each of these large, super-regional distribution centers. Short term leases of three to five years, which are typical for industrial properties, will provide the Company with the flexibility to adjust rents to meet changing market conditions, and often to increase rents as leases roll-over at maturity. While the Company intends to focus its efforts on multi-tenanted properties, it will also seek to invest selectively in the development of single-tenant, build-to-suit properties for credit worthy companies. The Company believes that the scarcity of capital from traditional sources in this important sector of the industrial property market provides significant opportunities to achieve above market returns on investments at relatively moderate levels of risk. The Company's investment policies, as described above, do not differ from the policies of the Trust. OPERATING POLICIES A key element of the Company's investment strategy is to acquire properties which provide significant opportunities to add value through effective operating programs. Such properties generally under perform their true economic potential as a result of deferred maintenance and cosmetic deficiencies. In many cases, the strategic application of capital, property improvements and intense management can substantially increase the appeal of the property to prospective tenants, thus increasing the revenue potential of the property. A significant advantage of industrial properties is that recurring internal capital requirements tend to be moderate. Industrial tenant spaces are typically used for the storage and handling of intermediary and finished products, and as such, spaces are configured in simple, efficient layouts with relatively little space, generally no more than 5-10% of the total, finished out for offices or other customized applications. The Company will establish annual business plans for each property that will include operating objectives, budgets, resource allocations and financial performance objectives. Management of the Company believes that such a formal planning process increases portfolio performance in that operating strategies are reviewed regularly and adjusted as needed to meet changing market conditions. In addition, the use of such a planning process in conjunction with a performance based compensation program ensures greater accountability among the asset managers, property managers and leasing personnel responsible for each property. The Company intends to continue the Trust's policy of maintaining very low direct overhead by employing third-party property managers and leasing personnel to manage the Company's Properties. The level of competition in the marketplace today for providers of such services is very intense. As a result, the quality of service is typically very high while operating costs are low in that they can be spread over many millions of square feet of property under management. The Company will continue to evaluate the merits of providing its own leasing and management services to the Company's Properties; however, it is management's belief that these services can be acquired currently at much lower costs though the marketplace than if the Company were to attempt to provide these services internally. The Company's operating policies, as described above, do not differ from the operating policies of the Trust. 22 26 DISTRIBUTION POLICY On December 15, 1993, the Trust announced its intent to redirect its cash resources to the ultimate elimination of the operating restrictions imposed on the Trust by the terms of the Notes through a complete defeasance of the outstanding Notes which would require the Trust to deposit approximately $16,289,000 with the Trustee. For this reason, the Trust determined that it was in the best interest of the Trust and its Shareholders to suspend quarterly distributions (which had been at $.04 per quarter, equivalent to $.20 per quarter for the Company) until such time as the remaining Notes are fully defeased and distributions can be supported from the positive cash flow of the Trust, as measured by its Funds from Operations. See "RISK FACTORS -- Suspension of Distributions." There can be no assurance as to when distributions will be reinstated and when reinstated, that distributions will be at the same level as they were prior to December 15, 1993. The Company's dividend policy is to review operating results, capital requirements and working capital reserves on a quarterly basis and to declare dividends based on the Board of Directors' and management's determination of distributable cash flow. Generally, the Company intends to maintain a dividend equal to approximately 85% of Funds from Operations within these parameters. No dividend payments on Common Stock are anticipated while the Company pursues a recapitalization and refinancing strategy. In order to satisfy the requirement to distribute 95% of the Company's taxable income, it is management's intent to make sufficient distributions necessary in order to maintain the Company's REIT status. So long as there is no REIT taxable income, suspension of cash distributions will not result in a disqualification of the Company's status as a REIT. For at least the remainder of fiscal 1994, the Company anticipates having net operating losses and, therefore, will have no taxable income required to be distributed under the REIT provisions of the Code in order for the Company to maintain its status as a REIT. For a further discussion of the amount of distributions that must be made in order for the Company to retain REIT status, see "FEDERAL INCOME TAX CONSIDERATIONS -- Taxation of the Company." 23 27 THE PROPERTIES The Trust currently owns and manages 15 industrial and retail Properties in eight states. Set forth below is a brief description of each of the Properties. The information set forth in the following table assumes that all leases perform according to their stated terms and assumes that there are no tenant defaults.
NUMBER OCCUPANCY LEASABLE CONSTRUCTION OF AT REGION PROPERTY NAME LOCATION SQ. FT. PHYSICAL DESCRIPTION DATE TENANTS 12/31/93 - --------------- ------------- -------------- --------- ------------------------------ ------------ ------- --------- Baltimore Patapsco Linthicum 95,151 Five building, two-phase 1980-1984 23 86% Industrial Center(2) Heights, industrial park on 8.3 acres Maryland Dallas Beltline Irving, Texas 60,526 Three industrial office 1984 22 75% Industrial Center buildings on 5.0 acres in Las Colinas Gateway 5 & 6 Irving, Texas 78,786 Two industrial buildings 1984-1985 8 79% within a six-building industrial park on 5.0 acres in Las Colinas Northgate II Dallas, Texas 235,827 Four industrial buildings on 1982-1983 13 94% 12.5 acres within a 21 building office and industrial park Northview Dallas, Texas 174,793 Two industrial buildings on 1980 6 100% Distribution 9.42 acres Center(3) Denver Retail Tamarac Denver, 197,152 An enclosed specialty retail 1976-1979 (4) 55 88% Square Colorado mall, convenience center and four restaurant pad sites on 18.9 acres Ft. Lauderdale Quadrant Deerfield 73,597 Two industrial buildings on 1986 8 100% Industrial Beach, 5.4 acres within a Florida seven-building industrial park Houston Plaza Houston, Texas 149,680 Five industrial buildings on 1970-1974 36 91% Industrial Southwest 10.3 acres Commerce Park Houston, Texas 87,279 Two-building industrial 1984 7 61% complex on 5.5 acres Westchase Houston, Texas 47,630 Two-building industrial park 1983 9 100% Park on 4.2 acres Los Angeles Huntington Monrovia, 62,218 A two-story office building 1985 6 83% Industrial Drive Center California and an industrial building on 4.0 acres Milwaukee Northwest Milwaukee, 143,120 Three industrial buildings on 1983 17 98% Industrial Business Wisconsin 10.7 acres Park Minneapolis Burnsville Burnsville, 46,066 One industrial building on 3.8 1985 4 68% Industrial Minnesota acres Cahill Edina, 60,082 One industrial building on 3.9 1981 4 100% Minnesota acres Seattle Springbrook Kent, 80,973 One industrial building on 5.5 1984 10 85% Industrial Washington acres comprising Phase II of the two-phased Springbrook Industrial Park --------- --- -- Totals 1,592,880 228 89% --------- --- -- --------- --- --
AVERAGE ANNUALIZED BASE FIRST BASE RENT MORTGAGE RENTAL PER SQ. DEBT REGION REVENUE FT. 9/30/93(1) - --------------- ---------- ------- ---------- Baltimore $ 541,000 $6.61 $1,429,000 Industrial Dallas 263,000 5.79 None Industrial 276,000 4.43 None 641,000 2.89 None 490,000 2.80 None Denver Retail 2,264,000 13.05 1,213,000 (5) Ft. Lauderdale 321,000 4.36 1,200,000 Industrial Houston 566,000 4.16 None Industrial 314,000 5.90 None 238,000 5.00 None Los Angeles 754,000 14.43 None Industrial Milwaukee 737,000 5.25 1,342,000 (6) Industrial Minneapolis 199,000 6.35 1,973,000 (7) Industrial 283,000 4.71 None Seattle 441,000 6.10 None Industrial ---------- ------- ---------- Totals $8,328,000 $5.87 $7,157,000 ---------- ------- ---------- ---------- ------- ----------
- --------------- (1) All properties are subject to either a first or second mortgage lien arising from the Zero Coupon Notes due November 1997. Mortgages reflected above are only those which encumber individual properties as a first mortgage other than the lien and mortgage associated with the Zero Coupon Notes. (2) The Trust owns 99.99% of the limited partnership interests in a limited partnership that owns Patapsco Center. This interest entitles the Trust to 100% of the income generated by Patapsco Center, 100% of any appreciation in the value of Patapsco Center, and 99.99% of the return of capital in any sale of Patapsco Center. The remaining interest in the limited partnership is a limited partner's interest held by Trammell Crow Ventures, Ltd., the former Advisor to the Trust. The limited partner has no rights to participate in the management of Patapsco Center. (3) Northview Distribution Center was acquired by the Trust in December 1993. (4) Tamarac Square underwent a $2.1 million renovation during 1992-1993. (5) The first mortgage debt encumbers the convenience center only. (6) Only one building of Northwest Business Park is subject to the first mortgage. (7) The Burnsville mortgage is also recourse to the Trust. Management of the Trust has implemented an aggressive leasing program specifically targeting properties with significant vacancies for lease-up. This program includes incentives to brokers, rental concessions and enhanced marketing for certain properties. 24 28 The following table shows as of September 30, 1993 scheduled lease expirations commencing with the fourth quarter of 1993 and for the next nine years, assuming that no tenants exercise renewal options.
AVERAGE EXPIRATION AS A RENT ----------------- PER % OF ANNUALIZED SQ. % OF TOTAL NO. SQ. FT. BASE RENT FT. TOTAL PROPERTY OF OF OF OF PROPERTY ANNUALIZED YEAR ENDING LEASES EXPIRING EXPIRING EXPIRING SQ. BASE DECEMBER 31, EXPIRING LEASES LEASES LEASES FT. RENT - --------------------------------- --- ------- --------- ------ ------ ------ 1994.......................... 56 307,107 1,525,000 5.02 19.28% 18.31% 1995.......................... 49 303,498 1,434,339 4.73 19.05% 17.22% 1996.......................... 49 251,631 1,492,000 5.93 15.80% 17.92% 1997.......................... 23 154,426 813,000 5.26 9.69% 9.77% 1998.......................... 30 202,732 1,300,000 6.41 12.73% 15.62% 1999.......................... 5 56,668 279,000 4.92 3.56% 3.35% 2000.......................... 4 31,622 305,000 9.65 1.99% 3.66% 2001.......................... 2 20,850 157,000 7.53 1.31% 1.89% 2002.......................... 2 5,630 73,000 12.97 0.35% 0.88%
ADDITIONAL INFORMATION REGARDING CERTAIN PROPERTIES One of the Trust's Properties has rental revenues and a book value in excess of 10% of the Trust's total rental revenues and total assets, respectively. Information concerning this Property is set forth below. Tamarac Square. Tamarac Square is an approximately 134,000 square-foot two-level enclosed specialty retail mall with an adjacent approximately 33,000-square-foot convenience center and four free-standing restaurant sites totaling 29,800 square feet. Tamarac Square is located at 7777 and 7293 East Hampden Avenue and 3333 South Tamarac Drive, approximately 11 miles southeast of downtown Denver, in a commercial retail district. The mall and convenience center feature a contemporary design of all brick exteriors, skylights and landscaping. The initial occupancy of Tamarac Square commenced in December 1976 and the property was one of the Trust's initial acquisitions in connection with its formation in 1985. Tamarac's federal income tax basis was approximately $30,800,000 (net of approximately $6,700,000 in accumulated depreciation) at December 31, 1993. Annualized minimum rentals are approximately $2,264,000 based on leases currently in effect. An approximate $2.5 million renovation of the specialty retail mall was completed during 1992 and 1993 which created new entryways, replaced stairs with escalators and enhanced the mall's interiors with paint and other new amenities and new signage. No significant additional renovations are currently planned for this property. The following tables sets forth information with respect to the occupancy of this Property for each of the five years ending December 31, 1993 and the average effective annual base rental per square foot for each of such periods:
AVERAGE RENT PER PHYSICAL SQ. PERIOD ENDING OCCUPANCY FT. ----------------------------------------------------------- ---- ------ December 31, 1993.......................................... 88% $13.05 December 31, 1992.......................................... 92% $12.69 December 31, 1991.......................................... 80% $14.26 December 31, 1990.......................................... 83% $13.72 December 31, 1989.......................................... 94% $13.27
25 29 Tamarac Square is currently leased to 55 tenants. The following table sets forth certain information with respect to the expiration of leases at this Property:
AVERAGE EXPIRATIONS AS A RENT ----------------- PER % OF ANNUALIZED SQ. % OF TOTAL NO. SQ. BASE FT. TOTAL PROPERTY OF FT. OF RENT OF OF PROPERTY ANNUALIZED YEAR ENDING LEASES EXPIRING EXPIRING EXPIRING SQ. BASE DECEMBER 31, EXPIRING LEASES LEASES LEASES FT. RENT - ---------------------------------- --- ------ -------- ------ ------ ------ 1994........................... 7 15,646 $270,000 $17.26 7.94% 11.93% 1995........................... 11 29,474 359,000 12.18 14.95% 15.86% 1996........................... 12 35,775 400,000 11.18 18.15% 17.67% 1997........................... 6 19,247 192,000 9.98 9.76% 8.48% 1998........................... 9 20,158 262,000 13.00 10.22% 11.57% 1999........................... 1 4,090 73,000 17.85 2.07% 3.22% 2000........................... 3 8,927 144,000 16.13 4.53% 6.36% 2001........................... 1 8,000 98,000 12.25 4.06% 4.33% 2002........................... 2 5,630 73,000 12.97 2.86% 3.22%
One Tenant's lease is in excess of 10% of the gross leasable area of Tamarac Square. Mann Theatres, a national movie theatre concern, leases 19,934 square feet for a six screen theatre running first-run films. The lease provides for minimum base rents at $5.70 per square foot ($113,624 annually) and expires in December 1996. The tenant has three five-year options to renew upon expiration. Property taxes are assessed on Tamarac based on 29% of assessed value at the applicable tax rate (estimated at 8.379% in 1993). Property taxes paid in 1993 with respect to Tamarac were approximately $415,000. OTHER ENCUMBRANCES ON REAL ESTATE Each of the Properties is subject to a mortgage securing the Notes (a "Mortgage"), as required by the Indenture. In the case of Tamarac Square, Burnsville, Northwest Business Park and Quadrant, the Mortgage is a second mortgage; in the case of Patapsco, the Mortgage is a first lien on the Trust's partnership interest; and for all other Properties, the Mortgage is a first lien. 26 30 TERMS OF MORTGAGE INDEBTEDNESS
PRINCIPAL AMOUNT AMOUNT OUTSTANDING DUE AT DEC. MATURITY INTEREST AT PAYMENT PREPAYMENT PROPERTY 31, 1993 DATE RATE MATURITY TERMS TERMS - -------------- --------- ---------- -------- --------- -------------- ---------------------------- Tamarac $1,213,000 July 9.63% $ 0 Monthly Prepayable after Aug. 1989 Convenience 2006 payments with a 5% penalty which Center of principal declines 1/2 of 1% each and interest year until penalty reaches to maturity 1%, which continues in of $13,905 effect to maturity Northwest $1,342,000 March 11.00% $1,227,676 Monthly Prepayable in March 1994 at Business 1999 payments 100% of principal. Park of principal Subsequent to March 1994, and interest prepayment is at 105% of to maturity principal, declining by 1% of $13,811 annually until maturity. Patapsco $1,429,000 September 10.00% $ 0 Monthly Prepayable after Sept. 1992 2010 payments with a 5% penalty which of principal declines 1/2 of 1% each and interest year until penalty reaches to maturity 1%, which continues in of $14,279. effect to maturity Quadrant $1,200,000 October 9.63% $1,200,000 Monthly Prepayable at any time prior 1996 payments to maturity subject to yield of interest maintenance based on current only to Treasury yield maturity Burnsville $1,973,000 May Prime + $1,948,800 Monthly Prepayable at any time with 1995 2% payments no penalty of principal and interest based on variable rate and a 30 year amortization of principal. Payments as of 9/30/93 were $14,994
COMPETITION All of the Properties are located in areas that include numerous other industrial and retail properties, many of which may be deemed to be more suitable to a potential tenant than the Properties. The resulting competition could have a material adverse effect on the Company's ability to lease the Properties and to increase rentals charged under existing leases. The Company may be competing with others that have greater resources than the Company. INSURANCE The Company will seek to maintain comprehensive liability, fire and extended coverage insurance of the type and in the amount customarily obtained for similar properties. There are, however, certain types of losses (generally of a catastrophic nature, such as earthquakes, floods and wars) that either may be uninsurable or not economically insurable. Should an uninsurable loss occur, the Company could lose both its invested capital and anticipated future revenues related to the affected Property (and may also be required to defease a certain percentage of the Notes), and would continue to be obligated on any mortgage indebtedness or other obligations related to the affected Property. Any such loss could adversely affect the Company. Management believes the Properties are currently adequately insured in accordance with industry standards. See "RISK FACTORS -- Uninsured Loss." 27 31 POLICIES WITH RESPECT TO CERTAIN ACTIVITIES The Company's policies with respect to the following activities have been determined by the Board of Directors of the Company and may be amended or revised from time to time at the discretion of the Board of Directors without a vote of the Stockholders if they determine in the future that such a change is in the best interest of the Company and its Stockholders. See "RISK FACTORS -- Changes in Policies." While the Company has emphasized equity real estate investments, it may, in its discretion, invest in mortgage and other real estate interests, including securities of other real estate investment trusts, consistent with its qualification as a REIT. The Company has not previously invested in mortgages or securities of other entities, including other REITs, and does not presently intend to invest to a significant extent in mortgages or securities of other entities, including other REITs. The Company may invest in participating or convertible mortgages if it concludes that it may benefit from the cash flow or any appreciation in the value of the subject property. Such mortgages are similar to equity participation. The mortgages in which the Company may invest may be either first mortgages or junior mortgages and may or may not be insured by a governmental agency. Subject to the percentage of ownership limitations and gross income tests necessary for qualification as a REIT (see "FEDERAL INCOME TAX CONSIDERATIONS"), the Company also may invest in securities of concerns engaged in real estate activities or securities of other issuers. The Company may also invest in the securities of other issuers in connection with acquisitions of indirect interests in properties (normally general or limited partnership interests in special purpose partnerships owning properties). The Company may in the future acquire all or substantially all of the securities or assets of other REITs or similar entities where such investments would be consistent with the Company's investment policies. The Company will not be limited as to the percentage of securities of any one issuer it may acquire. However, the Company does not anticipate investing in issuers of securities (other than REITs and to acquire interests in real property) for the purpose of exercising control or acquiring any investments primarily for sale in the ordinary course of business or holding any investments with a view to making short-term profits from their sale. In any event, the Company does not intend that its investments in securities will require the Company to register as an "investment company" under the Investment Company Act of 1940, and the Company intends to divest securities before any such registration would be required. The Company does not intend to underwrite the securities of other issuers. The Company may, but has no present intention to, make investments other than as previously described. At all times, the Company intends to make investments in a manner consistent with the requirements of the Code to qualify as a REIT unless, because of circumstances or changes in the applicable law, the Board of Directors determines that it is no longer in the best interests of the Company to qualify as a REIT. See "FEDERAL INCOME TAX CONSIDERATIONS." DISPOSITION Management will periodically review the assets comprising the Company's portfolio. The Company has no current intention to dispose of any of the Properties unless the sale of Properties is necessary or appropriate because of liquidity problems. The Company reserves the right to dispose of any of the Properties or any property that may be acquired in the future if the Board of Directors, based in part upon management's periodic reviews, determines that the disposition of such property is in the best interests of the Company. CONFLICT OF INTEREST POLICY Each of Messrs. Wolcott and Warner are prohibited from engaging in any real estate acquisitions, development or management activities, except on behalf of the Company, during their employment with the Company. AFFILIATE TRANSACTION POLICY The Company will not enter into any transactions, including without limitation, loans, acquisitions or sales of property, joint ventures and partnerships, in which the Company or a subsidiary is a party and in which 28 32 any Director, officer, principal security holder or affiliate has any direct or indirect pecuniary interest, unless such transaction is approved by a majority of the disinterested Directors after full disclosure of such interests to the disinterested members of the Board of Directors. In determining whether to approve the transaction, the Board of Directors will condition such approval on the transaction being fair and reasonable to the Company and, to the extent deemed relevant by such Directors, on terms no less favorable to the Company than prevailing market terms and conditions for comparable transactions. Directors who are also officers of the Company will be considered to be disinterested for this purpose provided they have no direct or indirect pecuniary interest in the transaction. POLICIES WITH RESPECT TO OTHER ACTIVITIES The Company has authority to issue additional Common Stock or other securities in exchange for property and other valid consideration, and to repurchase or otherwise reacquire its shares or any other securities and may engage in such activities in the future. Pursuant to the terms of the Merger, the Company will succeed to the obligations of the Trust under the Trust's dividend reinvestment plan, and may from time to time repurchase Common Stock in the open market for the purposes of fulfilling its obligations under the program or may elect to issue additional Common Stock. 29 33 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Below is a summary of net income and funds from operations for the Trust for the years ended December 31, 1993, 1992, and 1991. Management believes that the presentation of funds from operations will enhance the reader's understanding of the Trust's financial condition because it provides the reader with an additional measure of the Trust's operating performance which excludes nonrecurring activities (i.e., gains or losses from debt restructuring and sales of property) as well as certain non-cash items (i.e., depreciation and amortization). Funds from operations is disclosed for the purpose of providing readers with additional information with which to compare performance. Funds from operations, however, should not be considered an alternative to net income as an indicator of the Trust's operating performance or to cash flows from operations as a measure of liquidity. The determination of funds from operations is based on the definition adopted by the National Association of Real Estate Investment Trusts which is 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 (the Trust adds back the amortization of the original issue discount on its Zero Coupon Notes due 1997), and after adjustments for unconsolidated partnerships and joint ventures.
YEAR ENDING DECEMBER 31, ------------ 1993 1992 1991 ------- ------------ ------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net Loss........................................... $(7,867) $(17,593) $(9,162) Net Loss Per Share................................. $ (.87) $ (1.94) $ (1.01) Funds From Operations.............................. $ (590) $ 2,852 $ 8,308
Comparison of 1993 to 1992 The net loss in 1993 declined to $7,867,000 from $17,593,000 in 1992 due in part to the writedowns for permanent impairments in value recognized in 1992 in the amount of $14,094,000. The benefit from the absence of this writedown in 1993 was partially offset by the extraordinary loss recognized by the Trust in 1993 in the amount of $2,530,000 as a result of a partial in-substance defeasance of the Trust's Zero Coupon Notes (see discussion under Liquidity and Capital Resources). In addition, the Trust recognized extraordinary gains in 1992 in the amount of $1,910,000 related to the repurchase of Zero Coupon Notes which caused a favorable impact to 1992 net loss when compared to 1993. The remaining variance in net loss between 1993 and 1992 of approximately $2.5 million (greater loss in 1993 than 1992 after considering the previous items) can be attributed to the sales of the Woodland Industrial Park in Charlotte, North Carolina and the Southland industrial property in Houston, Texas, at the end of 1992, and the sale of the Royal Lane Business Park in Dallas, Texas in January, 1993 as well as the incremental administrative costs attributable to the termination fee paid to the Advisor in the amount of $435,000 as further discussed below and the proxy solicitation effort to remove the finite life restriction of the Trust in the amount of approximately $250,000. On a same property basis, rental revenues remained flat during the year, although in the third and fourth quarter the Trust began to see some strengthening in the leasing markets in most of the areas in which the Trust operates in terms of both traffic and rental rates (other than in Southern California). Same property occupancy improved to 89% at December 31, 1993 from 88% at December 31, 1992. The Trust terminated its Advisory Agreement with the Advisor effective June 12, 1993. In accordance with the terms of the Advisory Agreement, a one-time termination fee of $435,000 was paid to the Advisor on June 12, 1993. The Trust is now self-managed and employs six full-time employees to conduct and manage the business affairs of the Trust. The overall costs to the Trust over time under self-management related to managerial, administrative and other services are expected to be lower than fees previously paid to the Advisor under the Advisory Agreement. For example, under self-management, the Trust will be able to provide, through its management 30 34 group, certain services, including restructuring activities and certain transaction services, without the need to pay the fees previously provided for in the Advisory Agreement. Comparison of 1992 to 1991 The Trust had a net loss of $17,593,000 in 1992 compared to a net loss of $9,162,000 in 1991. The 1992 net loss included writedowns due to impairments in value of real estate of $14,094,000, an extraordinary gain from partial repurchases of Zero Coupon Notes of $1,910,000 and a net loss on sales of real estate of $784,000. Excluding the 1992 and 1991 provisions for possible losses, the extraordinary gains, and the gain or loss on sales of real estate, the net loss would have been $4,625,000 and $4,415,000 in 1992 and 1991, respectively. Net loss before extraordinary gain and gain or loss on sales of real estate was $18,719,000 in 1992 and $13,786,000 in 1991. The writedowns for impairments in value of real estate of $4,211,000 which were recognized in 1992 resulted from the Trust's decision to place certain properties on the market for sale in order to provide liquidity. The decision to classify these properties as being held for sale on the Trust's balance sheet required that Management state the properties at their estimated market values. The remaining $9,883,000 in writedowns are attributable to the fact that Management had determined that on certain properties, the future income to be generated by those properties would be insufficient for the Trust to recover its recorded value of the property over the property's expected holding period. This was the result of continuing declines in rents from these properties with no reasonable expectation for a full recovery during the holding period of the asset. Management does not anticipate that additional writedowns for impairment will be required at this time, however should Management decide to sell additional properties, it may become necessary to reflect further writedowns due to the continuing disparity between the recorded book value of the properties and their estimated fair market values which would have resulted in writedowns of approximately $10,400,000 had all of the Trust's properties been reflected as held for sale at December 31, 1993. Total revenue decreased to $15,139,000 in 1992 from $16,488,000 in 1991. Average occupancy levels were the same in both years, at 89%; however, the sales of the Southland and Woodland properties negatively impacted revenue and earnings. Total real estate expenses, excluding $14,094,000 and $9,371,000 of write-downs for impairments in value of real estate, in 1992 and 1991, respectively, decreased to $19,754,000 in 1992 from $20,903,000 in 1991 primarily as a result of the sales of the Southland and Woodland properties. LIQUIDITY AND CAPITAL RESOURCES The principal source of funds for the Trust's liquidity requirements is funds generated from operations of the Trust's real estate assets and unrestricted cash reserves. As of December 31, 1993 the Trust had $1,119,000 in unrestricted cash on hand. The Trust presently anticipates that cash on hand and funds from operations will provide sufficient funds for all known liabilities and commitments relating to the Trust's operations during 1994. However, certain discretionary uses of the Trust's cash, including: (i) the costs of the Trust's reorganization into a Maryland corporation via merger (estimated at approximately $400,000, see below), (ii) the loss of the income producing ability of the $10.2 million expected to be used to defease Zero Coupon Notes (see discussion below), and (iii) certain capital leasing costs, will likely require that the Trust seek alternative sources of financing in 1994. Management is currently negotiating with lenders in an effort to obtain debt to refinance the first and second mortgage liens presently encumbering the Trust's properties and incremental financing to pursue additional property acquisitions. If successful, Management intends to use the cash to fund current operations and pursue potential debt or equity capital. Presently, the Trust must seek a waiver from the lender under its 8.8% Notes Payable in order to borrow funds in excess of those necessary to retire the principal amount of outstanding secured debt. The retirement of all secured debt (inclusive of the Zero Coupon Notes due 1997) would make available to the Trust a portion of the cash presently held in the Defeasance Account by the Indenture Trustee, estimated to be at least $6 million, without requiring the consent of the lender on the 8.8% Notes Payable. Management may seek the 8.8% Notes Payable lender's consent in order to borrow additional funds with 31 35 which to acquire property. Should the lender not consent, the Trust may consider a default on its May 1994 scheduled interest payment on the Notes as an alternative to achieve liquidity. In the event that a default on the unsecured debt obligation occurs, the Trust expects to continue to operate and will continue to seek to: (a) restructure the terms of the unsecured debt obligation, (b) generate sufficient funds from operations in order to bring the Trust current on the unsecured debt obligation or (c) obtain financing to fund the deficiency in the debt service on the unsecured obligation. Distributions made and declared to date during 1993 in the amount of $1,453,000 ($.16 per share), have been paid out of cash reserves of the Trust. In December, 1993, the Trust Managers announced the suspension of the Trust's quarterly dividend in order to redirect the Trust's resources to the ultimate defeasance of the Trust's Zero Coupon Notes due in 1997 (see discussion below). The initial capitalization of the Trust included $179,698,000 face amount of Zero Coupon Notes due November 27, 1997 secured by first liens on all of the Trust's initial investments. Amortization of the original issue discount on the Zero Coupon Notes is a non-cash charge against net income of the Trust, compounding semiannually at 12% (see the Notes to Financial Statements for additional detail concerning the Zero Coupon Notes). During 1991 and 1992 the Trust repurchased a substantial amount of the Zero Coupon Notes, decreasing the remaining face amount outstanding to a total of $19,956,000. Subsequent to September 30, 1993, the Trust Managers authorized management to utilize the Trust's available cash reserves to provide liquidity for the repurchase of outstanding Zero Coupon Notes at their accreted value from Noteholders desiring to sell their notes and unable to find a market for them. In 1993, the Trust acquired approximately $500,000 face amount of the Zero Coupon Notes at their accreted value. No other purchases of significance are planned at this time, however, should the Trust identify an opportunity to purchase significant amounts of the Zero Coupon Notes at a discount to their defeasance amount (the amount that would be required to Defease the Notes under the Indenture), additional purchases may be made out of cash reserves of the Trust. Pursuant to the terms of the Indenture covering the Trust's Zero Coupon Notes due 1997, the Trust is required to deposit the net proceeds of any property sale or refinancing into a Property Acquisition Account administered by a Trustee to the extent deemed necessary or appropriate by the Trust Managers to secure the interests of the Noteholders. Prior to November 27, 1993 (the Defeasance Commencement Date), funds in the Property Acquisition Account could be used to make additional investments as allowed under the Trust's By-laws. After the Defeasance Commencement Date, any remaining funds in the Property Acquisition Account must be used to derease the Holders of the remaining Zero Coupon Notes. Subsequent to September 30, 1993, the Trust reinvested all of the funds held in the Property Acquisition Account (approximately $13.6 million) into short-term commercial paper and Treasury Notes which are pledged as additional collateral to the Noteholders. On December 10, 1993, pursuant to a court order directing the Indenture Trustee to release certain of these funds, the Trust acquired a 175,000 square foot multi-tenant distribution center in Dallas for a purchase price of approximately $3,400,000. Consistent with all of the properties owned by the Trust, the acquired property is pledged under a first mortgage lien and Deed of Trust to the Noteholders. Management believes the acquisition will further enhance funds from operations of the Trust in fiscal 1994. The property is 100% occupied and expected 1994 rental revenues are approximately $450,000. The Trust has determined that it is in the best interest of the Shareholders to use the remaining $10.2 million of cash pledged as collateral to the Noteholders which is currently invested in short-term securities due to mature in February of 1994, to partially defease the Zero Coupon Notes outstanding in the first quarter of 1994. The result of a partial defeasance of the Zero Coupon Notes would be a reduction in the accreted value of the Zero Coupon debt on the Trust's balance sheet from approximately $13.0 million to approximately $4.7 million, with a loss of approximately $2.5 million being recognized by the Trust. In acquiring its existing properties, the Trust assumed a total of $8,075,000 in mortgage debt, of which $7,157,000 remained outstanding as of December 31, 1993. The debt service on the Trust's mortgages amounts to approximately $800,000 annually (see the Notes to Financial Statements for additional detail concerning the terms of the mortgage notes payable). 32 36 In accordance with the terms of the Trust's 8.8% Notes payable due 1997, the Trust paid its first installment of accrued interest on the Notes on May 27, 1993 in the amount of $1,974,000 (see the Notes to Financial Statements for additional discussion regarding the terms of the 8.8% Notes). Accrued interest in the amount of approximately $1,990,000 will be payable each May and November until these Notes become due in November 1997. Tenant and capital improvements were $1,414,000 for the year ended December 31, 1993 as compared to $3,379,000 for the same period of 1992. The improvements during 1992 primarily related to renovations under way at the Trust's Tamarac Square retail property in Denver, Colorado. Current year capital expenditures relate primarily to leasing activity, including tenant improvements and lease commissions arising from the new lease with The GAP at Tamarac Square. The nature of the Trust's operating properties, which generally provide for leases with a term of between three and seven years, results in an approximate turnover rate of 20% of the Trust's tenants annually (generally representing a similar proportion of the Trust's rental revenues). This requires capital outlays for re-leasing related to tenant improvements and leasing commissions in an amount of approximately $1.3 million annually in order to maintain the Trust's occupancy at or above historical levels. These costs have historically been funded out of the Trust's operating cash flow, however, should cash generated from operations be insufficient to provide the funds necessary to lease and re-lease the Trust's properties in 1994, the Trust may seek to obtain financing for a portion of these costs. The Trust has made no commitments for additional capital expenditures beyond those related to normal leasing and re-leasing activity. No capital improvements or renovations of significance are anticipated in the near future for any of the Trust's properties. The Trust's successful conversion from a finite-life entity required to liquidate in 1997 to a perpetual-life entity (which was announced after the Trust received in excess of the required 80% positive vote of all Shareholders on October 22, 1993) is expected to enhance the Trust's ability to take advantage of the capital and investment markets available to real estate investment trusts. Management intends to pursue a strategy which will lower the Trust's cost of capital and enable the Trust to make additional investments in industrial real estate. This can be accomplished through raising additional equity and or debt capital from various sources, including the public markets. At this time, however, management has obtained no commitments for funding or underwriting additional equity or debt capital and there can be no assurances that sources of capital will become available in the future. Management believes that the reorganization of the Trust into a Maryland corporation is a necessary step towards a future financial restructuring because it removes existing barriers of the Trust's organization to additional debt and equity capital by increasing the authorized shares of the Trust and allowing for different classes of equity capital, among other things. Concurrent with this reorganization, Management will continue to pursue capital raising opportunities. However, there can be no assurances that a successful recapitalization will occur upon a reorganization into a Maryland corporation. On January 12, 1994, the Trust incorporated American Industrial Properties REIT, Inc. (the "Company"), a Maryland corporation as its wholly owned subsidiary. The Trust intends to seek the approval of the required 66 2/3% of its Shareholders to merge with the Company (the "Merger"). Management has estimated the cost of completing the Merger at approximately $400,000. The Trust Managers have determined that it is in the best interest of the Trust and its Shareholders to suspend quarterly distributions to Shareholders until such time as the remaining Zero Coupon Notes are fully defeased and distributions can be supported from the available funds from operations of the Trust. OTHER MATTERS On January 8, 1993, the Trust sold its Royal Lane Business Park in Dallas, Texas. The sales price was $7,500,000, and the net proceeds of approximately $1,800,000, after reduction for the existing first mortgage loan and the related sales costs, were deposited into the Property Acquisition Account under the terms of the Zero Coupon Note Indenture. In 1992, Royal Lane contributed approximately $200,000 to the net cash flow of the Trust. As discussed above, the Trust has suspended quarterly distributions to Shareholders until such time as the remaining Zero Coupon Notes are fully defeased and distributions can be supported from the available 33 37 funds from operations of the Trust. In the event that the Trust does not refinance its existing debt or raise additional equity capital, it is unlikely that the Trust will make any distributions to Shareholders during 1994. Distributions to Shareholders are charges against Shareholders' equity, and therefore, Shareholders' equity will continue to decrease due to distributions made and net losses incurred by the Trust. Distributions in excess of taxable net income, or to the extent of net loss, constitute a return of capital to Shareholders. For Federal income tax purposes, the taxable portion of distributions is determined on a calendar year basis, and is computed based on actual distributions for the year. It is presently estimated that the entire amount of the distributions paid by the Trust in 1993 will constitute a return of capital. RECENT DEVELOPMENTS Effective February 7, 1994, the Board of Directors of the Company authorized, contingent upon approval of the Merger, the issuance of rights ("Rights") to each Stockholder following the Merger. As currently contemplated, each Stockholder will be entitled to receive one Right for each share of Common Stock owned on a record date to be determined by the Board of Directors. The Rights, if issued, will entitle the Stockholders to purchase additional shares of Common Stock at a price below the then-current market price, such price to be set by the Board of Directors at the time of issuance. Such Rights would be exercisable for a fixed period of time that has yet to be declared. Although the Board of Directors has authorized the issuance of the Rights, the Board of Directors may, in its sole discretion, determine not to issue the Rights based upon market and economic conditions or other factors. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS The following table sets forth certain information as to the number of Trust Shares and the number of shares of Company Common Stock beneficially owned before and after the Merger by (a) each person (including any "group" as that term is used in Section 13(d) of the Exchange Act) who is known by the Trust to own beneficially 5% or more of the Shares, (b) each Trust Manager, (c) each executive officer, and (d) all executive officers and Trust Managers as a group.
AMOUNT AND NATURE OF BENEFICIAL PERCENTAGE OWNERSHIP OF CLASS BEFORE/AFTER BEFORE/AFTER NAMES OF BENEFICIAL OWNERS THE MERGER THE MERGER ---------------------------------------------- --------------- --------- W. H. Bricker............................... 2,000/400 * George P. Jenkins........................... 500/100 * Charles W. Wolcott.......................... 15,500/3,100 * David B. Warner............................. -- * American Holdings, Inc. 376 Main Street Bedminster, New Jersey 07921............. 523,700/104,740 5.77/5.77%(1) All Trust Managers and executive officers as a group.................................. 18,000/3,600 .20/.20%
- --------------- * Ownership is less than 1% of the outstanding Shares/Common Stock. (1) This information was obtained from the Schedule 13D filed by American Holdings, Inc. with the Commission on February 11, 1994. 34 38 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The persons who serve as executive officers and directors of the Company, their ages and their respective positions are as follows:
NAME AGE POSITION(S) AND OFFICE(S) HELD ------------------------- --- ------------------------------------------------- W. H. Bricker 61 Director Raymond A. Hay 65 Director Charles W. Wolcott 41 Director, President and Chief Executive Officer David B. Warner 35 Vice President and Chief Operating Officer, Secretary
The term of Mr. Hay will expire at the Annual Meeting of Stockholders to be held in 1995. The term of Mr. Wolcott will expire at the Annual Meeting of Stockholders to be held in 1996. The term of Mr. Bricker will expire at the Annual Meeting of Stockholders to be held in 1997. In each case, the directors will serve until the election and qualification of their respective successors. Executive officers of the Company are elected annually by the Board of Directors and serve at the Board's discretion. Messrs. Bricker and Hay serve on both the Audit Committee and the Compensation Committee of the Board of Directors. The following is a biographical summary of the experience of the persons that will serve as executive officers and directors of the Company: WILLIAM H. BRICKER has served as President of D.S. Energy Services Incorporated (consulting in the energy field; international trade) since 1987. In May 1987, Mr. Bricker retired as the Chairman and Chief Executive Officer of Diamond Shamrock Corporation where he held various management positions from 1969 through May, 1987. Mr. Bricker is a director of the LTV Corporation, the Eltech Systems Corporation and the National Paralysis Foundation. He received his Bachelor of Science and Masters of Science degrees from Michigan State University. RAYMOND A. HAY became Chairman of Aberdeen Associates (investments) after his retirement in 1991 as Chairman and Chief Executive Officer of the LTV Corporation (steel, aerospace, defense and energy) where he worked for 16 years. Mr. Hay previously served as Executive Vice President of the Xerox Corporation (office equipment) where he worked from 1961 through 1975. Mr. Hay is director of National Medical Enterprises, Inc. and Maxus Energy Corporation. He has a Bachelor of Science degree in Economics from Long Island University. CHARLES W. WOLCOTT was hired as the President and Chief Executive Officer of the Trust on May 4, 1993. For the six months immediately prior to his election as President of the Trust, Mr. Wolcott was engaged in developing various personal business enterprises. Mr. Wolcott was President and Chief Executive Officer of Trammell Crow Asset Services, a real estate asset and portfolio management affiliate of Trammel Crow Company, from 1990 to 1992. He served as Vice President and Chief Financial and Operating Officer of the Trust from 1988 to 1991. From 1988 to 1990, Mr. Wolcott was a partner in Trammell Crow Ventures Operating Partnership. Prior to joining the Trammell Crow Company in 1984, Mr. Wolcott was President of Wolcott Corporation, a firm engaged in the development and management of commercial real estate properties. Mr. Wolcott graduated from the University of Texas at Austin in 1975 with a Bachelor of Science degree and received a Masters of Business Administration degree from Harvard University in 1977. DAVID B. WARNER was hired as Vice President and Chief Operating Officer of the Trust on May 24, 1993. From 1989 through the date of his accepting a position with the Trust, Mr. Warner was Director of the Equity Investment Group for The Prudential Realty Group. From 1985 to 1989, he served in the Real Estate Banking Group of NCNB Texas National Bank. Mr. Warner graduated from the University of 35 39 Texas at Austin in 1981 with a degree in Finance and received a Masters of Business Administration from the same institution in 1984. COMPENSATION OF DIRECTORS In fiscal 1993, the Trust paid each of the Trust Managers a fee of $15,000 per year for services as a Trust Manager plus $1,000 for each meeting of the Trust Managers or a committee of the Trust Managers attended in person. In addition, the Trust Managers were reimbursed for their expenses incurred in connection with their duties as Trust Managers. Mr. Wolcott did not receive any compensation for his services as a Trust Manager. The Company will pay each independent director a fee of $20,000 per year for services as a director plus $1,000 for each meeting of the directors or a committee of the Board of Directors attended in person. In addition, the Company will reimburse the directors for their expenses incurred in connection with their duties as directors. Payment by the Company for services will not commence until the first meeting following consummation of the Merger. Mr. Wolcott will not receive any compensation for his services as a director. COMPENSATION OF EXECUTIVE OFFICERS The following table sets forth certain information regarding the compensation paid to the Trust's Chief Executive Officer since the commencement of his employment with the Trust on March 23, 1993 through December 31, 1993: SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION NAME AND FISCAL ---------------------- PRINCIPAL POSITION YEAR SALARY BONUS - --------------------------------------------------------------- ------ -------- ------- Charles W. Wolcott President and Chief Executive Officer........................ 1993 $115,000(1) $50,000
- --------------- (1) Mr. Wolcott's annualized salary for 1993 was $150,000. No other executive officer's salary and bonus exceeded $100,000 for fiscal 1993. No executive officers or Trust Managers were granted Share options by the Trust. The Company was organized on January 12, 1994. Accordingly, the Company did not pay any cash compensation to its executive officers for the year ended December 31, 1993. The Company will not pay compensation to its executive officers prior to the Effective Date. Effective January 12, 1994, the Company awarded stock options under the Omnibus Plan to purchase Common Stock as follows:
NUMBER OF SHARES OF COMMON STOCK COVERED EXERCISE NAME AND OFFICE BY OPTIONS PRICE ------------------------------------------------------- -------------------- -------- Charles W. Wolcott..................................... 62,000 $10.63 President and Chief Executive Officer David B. Warner........................................ 26,500 $10.63 Vice President and Chief Operating Officer, Secretary
EMPLOYMENT AGREEMENTS Messrs. Wolcott and Warner have entered into Employment Agreements with the Company (each an "Employment Agreement"), effective as of January 12, 1994. In general, the Employment Agreements provide for certain incentive bonus compensation and severance compensation in order to encourage these key-employees of the Company to remain as employees of the Company. In the event that such employee is terminated, voluntarily or involuntarily, as a direct result of a change in control of the Company, the employee 36 40 will be entitled to receive severance compensation in an amount equal to one times the average of the total cash compensation, inclusive of base salary and cash bonuses, received by such employee during each of the preceding five calendar years. Each Employment Agreement is for an initial term of three years, renewable for unlimited terms of one year with the agreement of both the Company and the employee. For purposes of the Employment Agreements, the term "change in control" means the consolidation or merger of the Company with or into another entity (other than a merger with a subsidiary or a merger in which the Company is the surviving entity) or the sale of all or substantially all of the assets of the Company to a third-party unaffiliated with the Company. In the event of the expiration of the term of the Employment Agreement, or the termination of the employee for any reason at any time at least 90 days prior to the time that a change in control of the Company occurs, the employee shall not be entitled to receive severance compensation. Each Employment Agreement also provides that key-employees shall be eligible for an annual incentive bonus, subject to certain conditions being satisfied. Annual incentive bonuses will be awarded as follows: for every incremental specified increase (the "Increase Multiple") in Funds from Operations per share earned by the Company in each calendar year during the term of the Employment Agreement, key-employees shall receive an additional fixed percentage of such employee's base salary (the "Bonus Percentage") as incentive bonus compensation. The Increase Multiple and the Bonus Percentage shall be determined by the Compensation Committee of the Company for each calendar year for which an incentive bonus is calculated. In no event may any employee's incentive bonus exceed 25% of such employee's base salary for each calendar year. In the event of the expiration of the term of an Employment Agreement, employees shall not be entitled to receive any further incentive bonus, provided, however, that in the event an employee's employment is terminated for any reason prior to the expiration of the Employment Agreement or any renewal, such employee shall be entitled to receive any previously unpaid annual incentive bonus, prorated for the portion of such year which elapsed prior to the date of such termination. In addition to the annual incentive bonus, the Employment Agreement provides that the employee is also entitled to receive an annual achievement bonus of up to 15% of employee's base salary during the year in which the annual achievement bonus is awarded. The employee is entitled to receive an annual achievement bonus in each year that the Company achieves specific targets established annually by the Compensation Committee of the Company. The Employment Agreement also provides that the employee is eligible to receive annually a merit bonus at the discretion of the Compensation Committee. The merit bonus may not exceed 10% of the employee's base salary for the year in which the merit bonus is awarded. The Compensation Committee determines if an employee should be awarded a merit bonus based upon an evaluation of employee's work by his direct supervisor and the recommendation of the President and Chief Executive Officer of the Company. The Compensation Committee determines whether the President and Chief Executive Officer should receive a merit bonus without being required to review an evaluation or receiving any recommendations as described above. The Employment Agreements provide further that each key-employee is employed by the Company on an at-will basis, which means that their employment with the Company is terminable at the will of either the Company or such employee without prior notice to the other. STOCK OPTION PLAN The Company has adopted an Omnibus Common Stock Incentive Plan (the "Omnibus Plan") to assist the Company in recruiting, retaining and rewarding employees with ability and initiative by enabling employees to participate in its future success and to associate their interests with those of the Company and its Stockholders. The summary of the Omnibus Plan set forth below is qualified in its entirety by reference to the text of the Omnibus Plan, a copy of which has been filed as an exhibit to the Registration Statement of which this Proxy Statement/Prospectus constitutes a part. The Board of Directors of the Company approved and adopted the Omnibus Plan as of January 12, 1994, and the sole Stockholder of the Company approved and adopted the Omnibus Plan as of January 12, 1994. The Omnibus Plan will be administered by a committee of the Board of Directors (the "Committee"). A total of 182,000 shares of Common Stock have been reserved for issuance under the Omnibus Plan pursuant to the 37 41 exercise of incentive and non-incentive stock options (collectively, "Options"), stock appreciation rights ("SARs") and the award of Common Stock of the Company subject to forfeiture and limitations on transferability ("Restricted Shares"). The maximum number of shares of Common Stock authorized for issuance under the Omnibus Plan will be increased each year beginning January 1, 1995, by 6% of the amount, if any, by which the total number of shares of Common Stock outstanding as of the last day of the Company's fiscal year exceeds the total number of shares of Common Stock outstanding as of the first day of such fiscal year. The Committee has complete authority to interpret all provisions of the Omnibus Plan, to prescribe the form of agreements, to adopt, amend and rescind rules and regulations pertaining to the administration of the Omnibus Plan, and to make all other determinations necessary or advisable for the administration of the Omnibus Plan. A member of the Committee may not participate in the Omnibus Plan during the time that his or her participation would prevent the Committee from being "disinterested" within the meaning of Rule 16b-3, as from time to time amended, under the Exchange Act. Under the terms of the Omnibus Plan, any employee of the Company or of any Affiliate of the Company is eligible to participate in the Omnibus Plan if the Committee, in its sole discretion, determines that such person has contributed or can be expected to contribute to the profits or growth of the Company or an Affiliate. Options and SARs. The number of shares of Common Stock which may be granted under the Omnibus Plan or for which any outstanding Options and SARs are exercisable are subject to customary anti-dilution adjustment provisions. The maximum term of any Option or SAR granted pursuant to the Omnibus Plan is ten years. If an Option or SAR is terminated or forfeited, in whole or in part, for any reason other than its exercise, Common Stock allocated to such Options or SARs (or portion thereof) may be reallocated to other awards to be granted under the Omnibus Plan. The Omnibus Plan provides that the exercise price of an Option shall be determined by the Committee on the date of grant; provided, however, that the exercise price of any Option that is an incentive stock option shall not be less than the fair market value of the underlying Common Stock on the date of grant of the Option. No participant in the Omnibus Plan may be granted incentive options or related SARs (under any incentive option plan of the Company or its Affiliates) which are first exercisable in any calendar year for stock having an aggregate fair market value (determined as of the date of grant) exceeding $100,000. Any Option or SAR granted under the Omnibus Plan shall be nontransferable except by will or by laws of descent and distribution. Any Option or SAR may only be exercised by the participant to whom they were granted during the lifetime of such participant. Restricted Share Awards. The Committee may, in its discretion, designate eligible employees to receive awards of Restricted Shares. The Committee may prescribe that a participant's rights in the Restricted Shares are forfeitable or otherwise restricted for a period of time set forth in the agreement applicable to each such award. Prior to their forfeiture, in accordance with the terms of each award agreement, a participant will have all of the rights of a Stockholder with respect to such Restricted Shares, including the right to receive dividends and vote; provided, however, that (i) a participant may not sell, transfer, pledge, exchange, hypothecate or otherwise dispose of Restricted Shares, (ii) the Company shall retain custody of the certificates evidencing the Restricted Shares, and (iii) a participant will deliver to the Company a stock power endorsed in blank, with respect to each award of Restricted Shares. The Omnibus Plan may be amended or terminated by the Board of Directors of the Company, provided, however, that no amendment may become effective until approved by the Stockholders of the Company if (i) the amendment increases the aggregate number of shares of Common Stock that may be issued under the Omnibus Plan, or (ii) the amendment changes the class of individuals eligible to become participants. No amendment to the Omnibus Plan may, without a participant's consent, adversely affect any rights of such participant under any outstanding Restricted Share award or under any Option or SAR outstanding at the time such amendment is made. 38 42 401(K) PLAN The Trust has adopted a Retirement and Profit Sharing Plan (the "Profit Sharing Plan") (to be assumed by the Company upon consummation of the Merger) for the benefit of employees of the Trust. Employees who were employed by the Trust on January 1, 1993, and who have attained the age of 21 are immediately eligible to participate in the Profit Sharing Plan. All other employees of the Trust are eligible to participate in the Plan after they have completed one year of service with the Trust and attained the age of 21. The summary of the Profit Sharing Plan set forth below is qualified in its entirety by reference to the text of the Profit Sharing Plan, a copy of which has been filed as an exhibit to the Registration Statement of which this Proxy Statement/Prospectus is a part. Each participant may make contributions to the Profit Sharing Plan by means of a pre-tax salary deferral which may not be more than 15% of the employee's compensation. The Trust will contribute, on behalf of each non-highly compensated employee and non-key employee who is actively employed on the last day of each plan year, a special discretionary contribution equal to a percentage of such employee's compensation, which will be determined each year by the Trust. The Code limits the annual amount of salary deferrals that may be made by any employee. An employee's salary deferral contribution will always be 100% vested and nonforfeitable, although such contributions will be affected by any investment gains or losses to the Profit Sharing Plan. In general, in the event of retirement, death or disability, 100% of a participating employee's account would be available for distribution to either the employee or such employee's beneficiary, as applicable. The Trust Managers may amend the Profit Sharing Plan at any time. In no event, however, may any amendment (i) authorize or permit any part of the Profit Sharing Plan assets to be used for purposes other than the exclusive benefit of participating employees or their beneficiaries, or (ii) cause any reduction in the amount credited to each participating employee's account. Likewise, the Trust Managers have the right to terminate the Profit Sharing Plan at any time. In the event of such termination, all amounts credited to each employee's account will continue to be 100% vested. A complete discontinuance of contributions to the Profit Sharing Plan by the Trust will also constitute an event of termination of the Profit Sharing Plan. LIMITATION OF LIABILITY AND INDEMNIFICATION The Company's Articles limit the liability of the Company's directors and officers to the Company and its Stockholders to the fullest extent permitted from time to time by Maryland law. Maryland law presently permits the liability of directors and officers to a corporation or its stockholders for money damages to be limited, except (i) to the extent that it is proved that the director or officer actually received an improper benefit or profit or (ii) if a judgment or other final adjudication is entered against the director or officer in a proceeding based on a finding that the director's or officer's action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding. This provision does not limit the ability of the Company or its Stockholders to obtain other relief, such as an injunction or rescission. The Company's Articles require the Company to indemnify its directors, officers and certain other parties to the fullest extent permitted from time to time by the MGCL. The MGCL permits a corporation, subject to certain exceptions, to indemnify its directors, officers and certain other parties against judgments, penalties, fines, settlements and reasonable expenses, including attorneys' fees, actually incurred by or at the request of the corporation, unless it is established that (i) the act or omission of the indemnified party was material to the matter giving rise to the proceeding and was committed in bad faith or was the result of active and deliberate dishonesty, (ii) the indemnified party actually received an improper personal benefit, or (iii) in the case of any criminal proceeding, the indemnified party had reasonable cause to believe that the act or omission was unlawful. Indemnification may be made against judgments, penalties, fines, settlements and reasonable expenses actually incurred by the director or officer in connection with the proceeding; provided, however, that if the proceeding is one by or in the right of the corporation, indemnification may not be made with respect to any proceeding in which the director or officer has been adjudged to be liable to the corporation. In addition, a director or officer may not be indemnified with respect to any proceeding charging improper personal benefit to 39 43 the director or officer in which the director or officer was adjudged to be liable on the basis that personal benefit was improperly received. The termination of any proceeding by conviction, or upon a plea of nolo contendere or its equivalent, or an entry of any order of probation prior to judgment, creates a rebuttable presumption that the director or officer did not meet the requisite standard of conduct required for indemnification to be permitted. It is the position of the Commission that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act. The Company has entered into Indemnification Agreements with its directors and executive officers, Messrs. Bricker, Hay, Wolcott and Warner, requiring the Company to indemnify them, and advance expenses, to the maximum extent permitted by Maryland law. See "CERTAIN STATUTORY AND CHARTER PROVISIONS -- Limitation of Liability and Indemnification." SUMMARY COMPARISON OF SHARES OF BENEFICIAL INTEREST AND COMMON STOCK There are a number of differences in the investment attributes and legal rights associated with the ownership of Trust Shares and shares of Company Common Stock. The principal differences are summarized below.
SHARES OF BENEFICIAL INTEREST COMMON STOCK - -------------------------------------------- -------------------------------------------- PREFERENCES All holders of Shares participate equally in All holders of Common Stock participate distributions and have no preference rights. equally in distributions and have no preference rights; however, the Company may issue Preferred Stock with priorities or preferences with respect to dividends and liquidation proceeds. CUMULATIVE VOTING Cumulative voting in the election of Trust There is no cumulative voting in the Managers is prohibited except when the Trust election of directors. is aware that a person beneficially owns more than 30% of the outstanding Shares. EXCHANGE LISTING The Shares are listed for trading on the The Company will apply to list the Common NYSE. Stock on the NYSE. STAGGERED BOARD OF DIRECTORS The Texas REIT Act does not specifically The MGCL specifically authorizes the Company authorize the Trust to stagger the terms of to stagger the terms of office of the Board office of the Trust Managers, and the of Directors, and the Articles of the Declaration of Trust does not provide for Company provide for staggered terms. staggered terms.
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SHARES OF BENEFICIAL INTEREST COMMON STOCK - -------------------------------------------- -------------------------------------------- BUSINESS COMBINATIONS Certain business combinations between the Certain business combinations between the Trust and a beneficial holder of 10% or Company and an Interested Stockholder (as more of the Trust's outstanding Shares (an hereinafter defined) or an affiliate "Interested Shareholder") must be approved thereof, are prohibited for five years after by the affirmative vote of the holders of at the most recent date on which the Interested least 80% of the voting power of the Stockholder became an Interested outstanding Shares. "Business Combinations" Stockholder. Thereafter, any such business include liquidations, mergers or combination must be recommended by the Board consolidations with or into an Interested of Directors of the Company and approved by Shareholder, the sale of substantially all the affirmative vote of at least (i) 80% of the Trust's assets to an Interested the votes entitled to be cast by holders of Shareholder, and certain issuances of outstanding voting shares of the Company and securities to an Interested Shareholder. (ii) two-thirds of the votes entitled to be cast by the holders of outstanding voting shares of the Company other than shares held by the Interested Stockholder with whom the business combination is to be affected unless, among other things, the Company's stockholders receive a minimum price for their shares and the consideration is received in cash or the same form as previously paid by the Interested Stockholder for its shares. See "CERTAIN STATUTORY AND CHARTER PROVISIONS -- BUSINESS COMBINATIONS." SPECIAL MEETINGS Special meetings of Shareholders may be Special meetings may be called by the called by the holders of not less than holders of not less than 25% of the stock 1/10 of all Shares entitled to vote at the entitled to vote at the special meeting. meeting. DIVIDENDS The Trust Managers may declare dividends on The Board of Directors may declare dividends the outstanding Shares in cash, property on outstanding stock in cash, property or or Shares except when the Trust is insolvent its own stock except when the Company would or the payment thereof would render the not be able to pay its indebtedness as it Trust insolvent. becomes due or if liabilities exceed assets. VOTING REQUIREMENTS Under the Declaration of Trust, a two-thirds Under the Articles, a majority vote of vote of outstanding Shares is required to outstanding stock is required to approve approve mergers (other than business mergers and consolidations (other than combinations), dissolution of the Trust and business combinations), transfers of assets, amendment of the Declaration of Trust. dissolution of the Company and amendment of the Articles. MAJOR CAPITAL IMPROVEMENTS Major capital improvements must be made to There is no requirement that capital real property within 15 years of purchase improvements be made to real property. or the property must be sold.
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SHARES OF BENEFICIAL INTEREST COMMON STOCK - -------------------------------------------- -------------------------------------------- LIMITATIONS ON OWNERSHIP The Trust's By-Laws contain restrictions on The Articles contain provisions identical to transfer designed to preserve the Trust's those contained in the Trust's By-Laws which status as a REIT. restrict transferability of the Company's Common Stock and Preferred Stock in order to preserve the Company's status as a REIT. See "THE COMPANY'S SECURITIES -- Capital Stock."
THE COMPANY'S SECURITIES The description of the Company's securities set forth below does not purport to be complete and is qualified in its entirety by reference to the Company's Articles and Bylaws, copies of which are filed as Exhibits to this Registration Statement of which this Proxy Statement/Prospectus is a part. See "ADDITIONAL INFORMATION." CAPITAL STOCK General. Under the Articles, the Company has the authority to issue up to 60,000,000 shares of capital stock, consisting of 50,000,000 shares of Common Stock, par value $.01 per share and 10,000,000 shares of Preferred Stock, par value $.01 per share. Shares of Common Stock and Preferred Stock may be automatically deemed "Excess Stock" as described below. Under the MGCL, stockholders generally are not responsible for the corporation's debts or obligations. Upon completion of the Merger, there will be approximately 1,815,080 shares of Common Stock issued and outstanding, and no shares of Preferred Stock will be issued or outstanding. Common Stock. All shares of Common Stock received by Shareholders in connection with the Merger will be duly authorized, fully paid and non-assessable. Subject to the preferential rights of any other shares or series of shares and to the provisions of the Articles regarding Excess Shares, holders of shares of Common Stock will be entitled to receive dividends on the stock if, as and when authorized and declared by the Board of Directors out of assets legally available therefor and to share ratably in the assets of the Company legally available for distribution to its Stockholders in the event of its liquidation, dissolution or winding-up after payment of, or adequate provision for payment of, all known debts and liabilities of the Company. Subject to the provisions of the Articles regarding Excess Shares, each outstanding share of Common Stock entitles the holder to one vote on all matters submitted to a vote of Stockholders, including the election of directors, and, except as otherwise required by law or except as provided with respect to any other class or series of stock, the holders of shares of Common Stock will possess the exclusive voting power. There is no cumulative voting in the election of directors, which means that the holders of a majority of the outstanding shares of Common Stock can elect all of the directors then standing for election and the holders of the remaining shares will not be able to elect any directors. Holders of shares of Common Stock have no conversion, sinking fund, redemption rights or preemptive rights to subscribe for any securities of the Company. The Company intends to furnish its Stockholders with annual reports containing audited consolidated financial statements and an opinion thereon expressed by an independent public accounting firm and quarterly reports for the first three quarters of each fiscal year containing unaudited financial information. Subject to the provisions of the Articles regarding Excess Shares, shares of Common Stock will have equal dividend, distribution, liquidation and other rights and will have no preference, appraisal or exchange rights. The transfer agent and registrar for the Common Stock is Society Shareholder Services, Inc., Dallas, Texas. 42 46 Preferred Stock. Shares of Preferred Stock may be issued from time to time, in one or more series, as authorized by the Board of Directors without the consent of Stockholders. Prior to the issuance of shares of each series, the Board of Directors is required by the MGCL and the Articles to fix for each series, subject to the provisions of the Articles regarding Excess Shares, the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption, as are permitted by the MGCL. The Board of Directors could authorize the issuance of Preferred Shares with terms and conditions that could have the effect of discouraging a takeover or other transaction that holders of shares of Common Stock might believe to be in their best interests or in which holders of some, or a majority, of shares of Common Stock might receive a premium for their shares over the then-current market price of such shares. As of the date hereof, no Preferred Shares are outstanding, and the Company has no present plans to issue any Preferred Shares. Restrictions on Transfers. For the Company to qualify as REIT under the Code, among other things, not more than 50% of the value of its issued and outstanding shares of capital stock may be owned, directly or indirectly, by five or fewer individuals (defined in the Code to include certain entities) during the last half of a taxable year or during a proportionate part of a shorter taxable year, and such shares of Common Stock must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months or during a proportionate part of a shorter taxable year. See "FEDERAL INCOME TAX CONSIDERATIONS." Since the Board of Directors believes it is essential for the Company to maintain its status as a REIT under the Code, the Articles provide that no holder (other than persons approved by the directors at their option and in their discretion) may own, or be deemed to own by virtue of the attribution provisions of the Code, more than 9.8% percent (the "Ownership Limit") of the number or value of the issued and outstanding capital stock of the Company. The Board of Directors may waive the Ownership Limit if evidence satisfactory to the Board of Directors is presented that the changes in ownership will not then or in the future jeopardize the Company's status as a REIT. As a condition to this waiver, the intended transferee must give written notice to the Company of the proposed transfer no later than the 50th day prior to any transfer which, if effected, would result in the intended transferee owning shares in excess of the Ownership Limit. The Board of Directors may require opinions of counsel, affidavits, undertakings or agreements as it may deem necessary or advisable in order to determine or ensure the Company's status as a REIT. Any transfer of shares of stock that would create a direct or indirect ownership of shares of stock in excess of the Ownership Limit or that would result in the disqualification of the Company as a REIT, including any transfer that results in the shares of Common Stock being owned by fewer than 100 persons or that results in the Company being "closely-held" within the meaning of Section 856(h) of the Code, shall be null and void, and the intended transferee will acquire no rights to the shares of stock. The foregoing restrictions on transferability and ownership will not apply if the Board of Directors determines that it is no longer in the best interests of the Company to attempt to qualify, or to continue to qualify, as a REIT. Shares of stock owned, or deemed to be owned, or transferred to a Stockholder in excess of the Ownership Limit or which cause the Company to become "closely-held" under Section 856(h) of the Code except as permitted above, will automatically be deemed Excess Shares that will be transferred, by operation of law, to the trustee of a trust for the exclusive benefit of the transferees for whom such shares of stock may be ultimately transferred without violating the Ownership Limit. Subject to the Ownership Limit, the Excess Shares may be transferred by the intended transferee to any person (if the Excess Shares would not be Excess Shares in the hands of that person) at a price not to exceed the price paid by the intended transferee (or, if no consideration was paid, fair market value at the time of the original attempted transfer) at which point the Excess Shares will automatically be deemed shares of stock. In addition, Excess Shares held in trust are subject to purchase by the Company at a purchase price equal to the lesser of: (i) the price paid for the shares of stock by the intended transferee (or, if no consideration was paid, fair market value of the shares of stock by the attempted transfer of which resulted in Excess Shares, measured on the date of the transfer); or (ii) the average daily per share closing price on a national securities exchange or NASDAQ NMS of the shares of stock the attempted transfer of which resulted in Excess Shares measured during the 30 day calendar period ending on the business day immediately preceding the redemption date, or if not then traded on the NYSE, a national securities exchange or NASDAQ NMS, the mean between the average per share closing bid prices and the average per share closing asked prices measured during the 30 day calendar period ending on the 43 47 business day immediately preceding the redemption date, then the market price of the shares of stock on the relevant date as determined in good faith by the Board of Directors. From and after the intended transfer to the intended transferee of the Excess Shares, the intended transferee shall cease to be entitled to distributions (except upon liquidation), voting rights and other benefits with respect to the Excess Shares except the right to payment of the purchase price for the shares of stock. Any dividend or distribution paid to a proposed transferee on Excess Shares prior to the discovery by the Company that the shares have been transferred in violation of the Articles shall be repaid to the Company upon demand. If the foregoing transfer restrictions are determined to be void or invalid by virtue of any legal decision, statute, rule or regulation, then the intended transferee of any Excess Shares may be deemed, at the option of the Company, to have acted as an agent on behalf of the Company in acquiring the Excess Shares and to hold the Excess Shares on behalf of the Company. All certificates representing shares of Common Stock and Preferred Stock will bear a legend referring to the restrictions described above. The Board of Directors may require an affidavit from each Stockholder or proposed transferee of Common or Preferred Stock setting forth the number of shares already beneficially owned by such person. If, in the opinion of the Board of Directors, a proposed transfer jeopardizes the qualification of the Company as a REIT, the Board has the right, but not the duty, to refuse to permit the transfer of Stock to such person. All persons who own, directly or by virtue of the attribution provisions of the Code, more than 9.8% of the number or value of the outstanding shares of Common Stock must give the Company written notice by January 31st of each year. In addition, each Stockholder shall, upon demand, be required to disclose to the Company in writing all information regarding the direct, indirect and constructive ownership of shares of Common Stock as the Board of Directors deems reasonably necessary to comply with the provisions of the Code applicable to a REIT, to comply with the requirements of any taxing authority or governmental agency or to determine any such compliance. These ownership limitations could have the effect of discouraging a takeover or other transaction in which holders of some, or a majority, of shares of Common Stock might receive a premium for their shares over the then prevailing market price or which these holders might believe to be otherwise in their best interest. THE NOTES General. The Trust issued the Notes pursuant to an Indenture (the "Indenture") dated as of November 15, 1985, between the Trust and IBJ Schroder Bank & Trust (formerly known as J. Henry Schroder Bank & Trust Company), as Trustee (the "Indenture Trustee"). The Notes are sold in registered form, without coupons, in minimum denominations of $1,000 and integral multiples thereof. In connection with the acquisition of the Properties, the Trust granted Mortgages (defined below) to or for the benefit of the Indenture Trustee for the ratable benefit of the Noteholders pursuant to the provisions of the Indenture. See "--Collateral." Under the Merger Agreement, the Company will assume the obligations of the Trust under the Indenture and will assume the Mortgages, through the execution of a supplemental indenture and amendments to the Mortgages. If all currently outstanding Notes remain outstanding, the Notes will accrue at stated maturity to $19,491,000 on the twelfth anniversary of date of issuance, and there are no periodic payments of interest. Collateral. The Notes are secured by first or second mortgages on the Properties to be acquired by the Company in the Merger (the "Mortgages"). Pursuant to the Indenture and Mortgages on the Properties, the Noteholders will have a claim prior to that of the Stockholders with respect to the Company's Properties. See "--Events of Default." In addition, the Indenture Trustee will hold a security interest on funds in the defeasance account (as described below), excluding income earned on such funds, which income will be distributed at least annually to the Company. Subject to its investment policies and the limitations set forth in "--Proceeds from Sale of Assets and Refinancing" below, the Company will have the right from time to time to sell or dispose of for cash any or all of the Properties subject to the Mortgages. In the event of a sale or other disposition of any of the Properties, the Company will be entitled to the release thereof from the lien of the Indenture and the applicable Mortgage 44 48 upon delivery to the Indenture Trustee of funds generally equal to not less than the purchase price of the Property (less debt assumed on the purchase) to be released, and compliance with certain other conditions precedent. In any such event, funds delivered shall be deposited in the defeasance account (as described below). Insurance; Uninsured Losses. Until all Notes are defeased or redeemed, the Mortgages require the Company to maintain adequate insurance coverage for the Properties from an insurance company having a claims paying rating of "AA" or better by Standard & Poor's Corporation. The insurance policies covering the Properties will not cover certain types of losses (generally of a catastrophic nature, such as earthquakes, floods and wars). Should such an uninsured loss occur, the Company could lose both its invested capital and anticipated profits relating to the affected Property, and the Company would be required to defease an amount of the Notes having an aggregate principal amount at stated maturity equal generally to the purchase price (less debt assumed on the purchase) to the Company of the affected Property. In that event, the Company might be required to use reserves, seek additional funds, sell a Property at unfavorable terms or suffer a foreclosure of a Property. Because of the restrictions contained in the Indenture, there can be no assurance, however, that additional funds would be available or, if available, that such funds would be on acceptable terms. See "RISK FACTORS--Uninsured Loss." Proceeds from Sale of Assets and Refinancing. Pursuant to the Indenture, until all Notes are defeased or redeemed, the Board of Directors shall deposit with the Indenture Trustee such portion of the proceeds of any sale, refinancing or other disposition of any of the Company's Properties as they deem necessary or appropriate to protect the interests of the Noteholders but in no event less than the original purchase price of the Property being sold, refinanced or otherwise disposed of (less debt assumed on purchase). In the event of a sale or other disposition of property, such Property may only be released from the lien of the Indenture and the applicable Mortgage upon compliance with the conditions set forth in Article 13 of the Indenture. See "--Collateral." Until the eleventh anniversary of the issuance of the Notes, the Company shall not make distributions to Stockholders out of the proceeds of the sale, refinancing or other disposition of any Property, or insurance payment or condemnation proceeding, if the principal amount of the Notes at stated maturity (reduced by the amount, if any, of the funds in the defeasance account and the redemption account (excluding income earned on such funds)) would be greater than 100% of the sum of the most recent appraisal report on the Company's Properties (reduced by the amount of debt assumed on purchase of the Properties and the amount attributable to the gain, if any, or the proposed sale, refinancing or other disposition, based on the most recent appraisal report on such Property or to the gain, if any, from the insurance payment or condemnation proceeding) and the gross value of all other Properties. Notwithstanding the foregoing, this limitation shall not prevent the Company from making any distributions to Stockholders deemed necessary by the Board of Directors to maintain the Company's qualification as a REIT under the Code. If, by November 27, 1996, the Notes have not been redeemed or defeased in full and refinancing commitments from bona fide creditors are not sufficient to repay the outstanding Notes at stated maturity, the Company will be required to sell Properties to raise cash sufficient to retire the Notes at stated maturity. Redemption, Defeasance and Discharge. From and after November 27, 1995, the Notes may be redeemed at the option of the Trust, in whole or in part, upon not less than 30 nor more than 60 days notice at their stated principal amounts at maturity. Funds deposited in the redemption account are held for the persons entitled thereto, do not constitute part of the collateral pursuant to the Indenture, and may be used solely to redeem the Notes subject to redemption. Pursuant to the Indenture, a defeasance account will be established. In order to defease all or any portion of the Notes, at or before maturity, the Trust must deposit cash and government obligations in the defeasance account, in principal amounts sufficient to pay the aggregate principal amount of the defeased Notes at stated maturity. The amounts in the defeasance account may be transferred to the redemption account to be used to redeem the Notes subject to redemption. 45 49 Events of Default. The following events constitute Events of Default pursuant to the terms of the Notes and the Indenture: (i) Any failure to pay principal on the Notes when due; (ii) Any nonpayment of taxes or insurance or failure to perform any other obligation under any of the Mortgages involving solely the payment of money occurring for a period of 30 calendar days after proper notice; (iii) Any default in the performance or breach of any warranty or of any other obligation contained in the Indenture or any Mortgage for a period of 30 calendar days after proper notice (provided that the 30-day cure period will be extended for another single 30-day period if the default is not cured within the initial period but the Company has commenced efforts to cure the default and thereafter proceeds to cure the same with due diligence); (iv) Events of bankruptcy, insolvency, reorganization or other similar events, of the Company; and (v) Any default under any indebtedness for borrowed money by the Company under any mortgage, indenture or other instrument which secures such indebtedness, whether now-existing or hereafter incurred, which default shall constitute a monetary default or result in such indebtedness being declared due and payable prior to its maturity after expiration of applicable grace periods, without such indebtedness being discharged, rescinded or waived within a period of 20 calendar days after proper notice. Upon the occurrence and continuance of an Event of Default as described above, the Indenture Trustee or the holders of not less than 25% in principal amount of the Notes may declare to be due and payable immediately an amount of principal equal to the then accreted aggregate principal amount of the Notes using the interest method of computation. After declaration of acceleration but before judgment or decree thereon, holders of a majority in principal amount of the Notes by notice may rescind such acceleration if certain monies are deposited for payment of Notes which are due otherwise than by acceleration, payments of certain Indenture Trustee fees are made and all Events of Default other than non-payment of principal of Notes which have become due as a result of acceleration are cured or waived. Upon such declaration, such amount of principal will become immediately due and payable and the Indenture Trustee may foreclose on the Properties subject to Mortgages. Overdue principal will bear interest at an annual rate equal to 14.70% (to the extent that the payment of such interest is legally enforceable). Limitations on Consolidation, Merger. The Trust, without the consent of Noteholders, may consolidate with or merge into any entity or convey or transfer its properties and assets substantially as an entirety, if its successor is a domestic trust or corporation and assumes the Trust's obligations on the Notes and under the Indenture, and after giving effect to such transaction the Trust or its successor would not be in default under the Indenture. CERTAIN STATUTORY AND CHARTER PROVISIONS The following is a summary of certain provisions of the MGCL and the Company's Articles and Bylaws and does not purport to be complete and is qualified in its entirety by reference to the MGCL and the Company's Articles and Bylaws. Copies of the Company's Articles and Bylaws have been filed as exhibits to the Registration Statement of which this Proxy Statement/Prospectus is a part. See "ADDITIONAL INFORMATION." CLASSIFICATION OF THE BOARD OF DIRECTORS The Company's Bylaws provide that the number of directors of the Company may be established by the Board of Directors but may not be fewer than the number required under the MGCL. Any vacancy will be filled, at any regular meeting or at any special meeting called for that purpose, by a majority of the remaining directors, except that a vacancy resulting from an increase in the number of directors will be filled by a 46 50 majority of the entire Board of Directors. The Stockholders may fill vacancies resulting from the removal of a director. Pursuant to the terms of the Articles, the directors are divided into three classes. One class will hold office initially for a term expiring at the annual meeting of Stockholders to be held in 1995, another class will hold office initially for a term expiring at the annual meeting of Stockholders to be held in 1996 and another class will hold office initially for a term expiring at the annual meeting of Stockholders to be held in 1997. As the term of each class expires, directors in that class will be elected for a term of three years until their successors are duly elected and qualified. The Company believes that classification of the Board of Directors will help to assure the continuity and stability of the Company's business strategies and policies as determined by the Board of Directors. The classified director provision could have the effect of making the removal of incumbent directors more time-consuming and difficult, which could discourage a third party from making a tender offer or otherwise attempting to obtain control of the Company, even though such an attempt might be beneficial to the Company and its Stockholders. At least two annual meetings of Stockholders, instead of one, will generally be required to effect a change in a majority of the Board of Directors. Thus, the classified board provision could increase the likelihood that incumbent directors will retain their positions. Further, holders of shares of Common Stock will have no right to cumulative voting for the election of directors. Consequently, at each annual meeting of Stockholders, the holders of a majority of shares of Common Stock will be able to elect all of the successors of the class of directors whose term expires at that meeting. LIMITATION OF LIABILITY AND INDEMNIFICATION The Company's Articles limit the liability of the Company's directors and officers to the Company and its Stockholders to the fullest extent permitted from time to time by Maryland law. Maryland law presently permits the liability of directors and officers to a corporation or its Stockholders for money damages to be limited, except (i) to the extent that it is proved that the director or officer actually received an improper benefit or profit or (ii) if a judgment or other final adjudication is entered against the director or officer in a proceeding based on a finding that the director's or officer's action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding. This provision does not limit the ability of the Company or its Stockholders to obtain other relief, such as an injunction or rescission. The Company's Articles require the Company to indemnify its directors, officers and certain other parties to the fullest extent permitted from time to time by the MGCL. The MGCL permits a corporation, subject to certain exceptions, to indemnify its directors, officers and certain other parties against judgments, penalties, fines, settlements and reasonable expenses, including attorneys' fees, actually incurred by or at the request of the corporation, unless it is established that (i) the act or omission of the indemnified party was material to the matter giving rise to the proceeding and was committed in bad faith or was the result of active and deliberate dishonesty, (ii) the indemnified party actually received an improper personal benefit, or (iii) in the case of any criminal proceeding, the indemnified party had reasonable cause to believe that the act or omission was unlawful. Indemnification may be made against judgments, penalties, fines, settlements and reasonable expenses actually incurred by the director or officer in connection with the proceeding; provided, however, that if the proceeding is one by or in the right of the corporation, indemnification may not be made with respect to any proceeding in which the director or officer has been adjudged to be liable to the corporation. In addition, a director or officer may not be indemnified with respect to any proceeding charging improper personal benefit to the director or officer in which the director or officer was adjudged to be liable on the basis that personal benefit was improperly received. The termination of any proceeding by conviction, or upon a plea of nolo contendere or its equivalent, or an entry of any order of probation prior to judgment, creates a rebuttable presumption that the director or officer did not meet the requisite standard of conduct required for indemnification to be permitted. It is the position of the Commission that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act. 47 51 BUSINESS COMBINATIONS Under the MGCL, certain "business combinations" (including a merger, consolidation, share exchange or, in certain circumstances, an asset transfer or issuance or reclassification of equity securities) between a Maryland corporation and any person who beneficially owns 10% or more of the voting power of the corporation's shares or an affiliate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then-outstanding voting stock of the corporation (an "Interested Stockholder") or an affiliate thereof, are prohibited for five years after the most recent date on which the Interested Stockholder became an Interested Stockholder. Thereafter, any such business combination must be recommended by the board of directors of such corporation and approved by the affirmative vote of at least (i) 80% of the votes entitled to be cast by holders of outstanding voting shares of the corporation voting together as a single group; and (ii) two-thirds of the votes entitled to be cast by holders of outstanding voting shares of the corporation other than shares held by the Interested Stockholder with whom the business combination is to be effected, unless, among other things, the corporation's stockholders receive a minimum price (as defined in the MGCL) for their shares and the consideration is received in cash or in the same form as previously paid by the Interested Stockholder for its shares. These provisions of Maryland law do not apply, however, to business combinations that are approved or exempted by the board of directors of the corporation prior to the time that the Interested Stockholder becomes an Interested Stockholder. The Articles contain a provision exempting from these provisions of the MGCL any business combination involving the Trust (or its affiliates). CONTROL SHARE ACQUISITION The MGCL provides that "control shares" of the Maryland corporation acquired in a "control share acquisition" have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter, excluding shares of stock owned by the acquirer, by officers or by directors who are employees of the corporation. "Control shares" are voting shares of stock which, if aggregated with all other such shares of stock previously acquired by such person, or in respect of which such person is able to exercise or direct the exercise of voting power, would entitle the acquirer to exercise voting power in electing directors within one of the following ranges of voting power: (i) one-fifth or more but less than one-third; (ii) one-third or more but less than a majority; or (iii) a majority or more of all voting power. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A "control share acquisition" means the acquisition of control shares, subject to certain exceptions. A person who has made or proposes to make a control share acquisition, upon satisfaction of certain conditions (including an undertaking to pay expenses), may compel the board of directors to call a special meeting of stockholders to be held within 50 days of demand to consider the voting rights of the shares. If no request for a meeting is made, the corporation may itself present the question at any stockholders meeting. If voting rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the statute, then, subject to certain conditions and limitations, the corporation may redeem any and all of the control shares (except those for which voting rights have previously been approved) for fair value determined, without regard to the absence of voting rights for control shares, as of the date of the last control share acquisition or of any meeting of stockholders at which the voting rights of such shares are considered and not approved. If voting rights for control shares are approved at a stockholders meeting and the acquirer becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights. The fair value of the shares as determined for purposes of such appraisal rights may not be less than the highest price per share paid in the control share acquisition, and certain limitations and restrictions otherwise applicable to the exercise of dissenters' rights do not apply in the context of a control share acquisition. The control share acquisition statute does not apply to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction, or to acquisitions approved or exempted by the charter or bylaws of the corporation. 48 52 The Articles contain a provision exempting from the control share acquisition statute any and all acquisitions by the Trust (or its affiliates). AMENDMENT TO THE ARTICLES OF INCORPORATION AND BYLAWS The Company's Articles, including their provisions on classification of the Board of Directors and removal of directors, may not be amended without the affirmative vote of the holders of at least a majority of all of the votes entitled to be cast on the matter. The Company's Bylaws may be amended by either the affirmative vote of a majority of all shares outstanding and entitled to vote or by the affirmative vote of a majority of the Company's directors then holding office. Neither the Board of Directors nor the Stockholders may amend the indemnification provisions of the Bylaws without the consent of the persons whose right to indemnification under the Bylaws would be adversely affected by the amendment. DISSOLUTION OF THE COMPANY The MGCL permits the dissolution of the Company by (i) the affirmation or vote of a majority of the entire Board of Directors declaring such dissolution to be advisable and directing that the proposed dissolution be submitted for consideration at an annual or special meeting of Stockholders; and (ii) upon proper notice, Stockholder approval by the affirmative vote of the holders of not less than a majority of all of the votes entitled to be cast on the matter or the written consent of all shares entitled to vote on the matter. DIRECTOR NOMINATIONS AND NEW BUSINESS The Company's Bylaws provide that (i) with respect to an annual meeting of Stockholders, nominations of persons for election to the Board of Directors may be made only by the Board of Directors; and (ii) with respect to special meetings of Stockholders, only the business specified in the Company's notice of meeting may be brought before the meeting of Stockholders. The provisions in the Company's Articles on classification of the Board of Directors and removal of directors, the business combination and, if the applicable provision in the Bylaws is rescinded, control share acquisition provisions of the MGCL could have the effect of discouraging a takeover or other transaction in which holders of some, or a majority, of the shares of Common Stock might receive a premium for their shares of Common Stock over the then prevailing market price or which such holders might believe to be otherwise in their best interests. MEETINGS OF STOCKHOLDERS Beginning in 1995, an annual meeting of the Stockholders for the election of directors and the transaction of any business within the powers of the Company shall be held during May of each calendar year at the time set by the directors. Subject to the rights which may be granted to the holders of any series of Preferred Stock to elect additional directors under specified circumstances, special meetings of the Stockholders may be called by the Chairman of the Board of Directors, by the President or by a resolution adopted by a majority of the directors, assuming no vacancies, and by the holders of 25% or more of the outstanding Common Stock. FEDERAL INCOME TAX CONSIDERATIONS EFFECT OF THE MERGER In the opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P., special counsel to the Company, the Merger will be treated as a reorganization within the meaning of Section 368(a) of the Code, and accordingly (i) no gain or loss will be recognized by the Trust as a result of the Merger; (ii) except for Stockholders who elect to receive cash in lieu of fractional shares or who own less than 10 shares of the Company's Common Stock after the Merger and elect to have the Company repurchase those shares, no gain or loss will be recognized by the Trust's Shareholders upon receipt of the Company's Common Stock in exchange for the 49 53 Trust's Shares in connection with the Merger; (iii) the tax basis of the Company's Common Stock to be received by the Trust's Shareholders in connection with the Merger will be the same as the basis in the Trust's Shares surrendered in exchange therefor; and (iv) the holding period of the Company's Common Stock to be received by the Trust's Shareholders in connection with the Merger will include the holding period of the Trust's Shares surrendered in exchange therefor, provided that the Trust's Shares are held as a capital asset at the Effective Date. TAXATION This section is a general summary of the material federal income tax considerations that may be relevant to prospective purchasers of Common Stock of the Company and is based upon applicable Code provisions, rules and regulations promulgated thereunder, and reported judicial and administrative interpretations pertaining thereto, all of which are subject to change (possibly on a retroactive basis). The following discussion does not include all matters that may be relevant to any particular holder of Common Stock in light of such holder's particular facts and circumstances. Certain Stockholders, such as foreign persons, tax-exempt entities, insurance companies and financial institutions, may be subject to special rules not discussed below. In particular, the following discussion does not address issues under the Employee Retirement Income Security Act of 1974, as amended, the Foreign Investment in Real Property Tax Act of 1980, and foreign, state and local tax laws. Each prospective purchaser should consult his own tax advisor regarding the specific tax consequences to him of the purchase, ownership, and sale of the Common Stock, including the federal, state, local, foreign and other tax consequences of such purchase, ownership, sale and of potential changes in applicable tax laws. TAXATION OF THE COMPANY To qualify as a REIT under the Code for a taxable year, the Company must meet certain requirements relating to its assets, income, stock ownership and distributions to Stockholders. Generally, at the end of each calendar quarter, (i) at least 75% of the value of the total assets of the Company must consist of real estate assets, cash or government securities, (ii) not more than 25% of the value of its total assets may consist of non-governmental securities, and (iii) the Company may not own more than 10% of the outstanding voting securities of any one issuer and may not own securities of any one issuer whose value represents more than 5% of the total value of the Company's assets (shares of qualified REITs and of certain wholly-owned subsidiaries are exempt from the requirements described in clauses (ii) and (iii) above). The Company must also satisfy three separate income tests. First, at least 75% of a REIT's gross income must be derived from specified real estate sources for each taxable year. Income that qualifies under the 75% test includes certain qualified rents from real property, gains from the sale of real property not held primarily for sale to customers in the ordinary course of business, dividends on REIT shares, interest on loans secured by mortgages on real property, and certain qualified temporary investment mortgages on real property, certain income from foreclosure property, and certain qualified temporary investment income attributable to the investment of new capital received by the REIT in exchange for either stock or certain debt instruments during the one-year period following the receipt of such new capital. In order for rents to qualify under the 75% test, they may not be derived from tenants having certain relationships with the Company and may not be based on the income or profits of any person, except that they may be based on a fixed percentage or percentages of gross income or receipts. Further, a REIT may not manage the property or furnish services to the tenants from whom the rents are received unless either (i) the property is managed by an independent contractor which is paid an arm's-length fee for its services and from which the REIT derives no income, or (ii) any services performed are of a type customarily rendered in connection with the rental of space for occupancy only. In this regard, it should be noted that the Company currently retains an independent contractor which is paid an arm's-length fee to manage its rental properties. Second, at least 95% of the Company's gross income for each taxable year must be derived from income that qualifies under the 75% test (other than qualified temporary investment income), plus dividends, interest or gains from disposition of certain stock or securities. 50 54 Third, gross income from the sale or other disposition of (i) stock and securities held for less than one year, (ii) property in certain prohibited transactions, and (iii) real property held for less than four years must comprise less than 30% of the gross income for each taxable year of the Company. In order to qualify as a REIT, the Company must also satisfy certain ownership requirements with respect to its Common Stock. The Common Stock of the Company must be held by at least 100 Stockholders, and no more than 50% in value of the outstanding Common Stock may be owned, actually or constructively, by five or fewer individuals (including certain types of pension funds and other tax-exempt entities that are treated as individuals for this purpose, subject to a "look-through" exception described below) at any time during the last half of the Company's taxable year. In this regard, there are restrictions in the Company's Articles that would limit the ability of a Stockholder to transfer Common Stock if such transfer would cause or contribute to a violation of the stock ownership requirements. Finally, the Company must distribute to its Stockholders annually an amount (determined without regard to capital gains dividends) at least equal to (i) 95% of its REIT taxable income (computed without regard to capital gains and the dividends-received deduction), plus (ii) 95% of the after-tax income from any foreclosure property, and less (iii) certain noncash income. If the Company were to fail the 95% distribution requirement as a result of an IRS adjustment (to taxable income or to the dividend paid amount) to a particular taxable year, then, provided certain conditions are met, the Company generally would be entitled to cure the deficiency retroactively by paying deficiency dividends to its Stockholders. However, the Company would be liable for interest charges on such deficiency dividends. So long as the Company satisfies the above-described requirements and qualifies for taxation as a REIT, it generally will not be subject to federal income tax on that portion of its taxable income and capital gain that is currently distributed to its Stockholders. Any undistributed taxable income or capital gain, however, will be taxed to the Company at regular corporate rates. In addition, the Company may be subject to other special income and excise taxes (including the alternative minimum tax) in certain circumstances. Regardless of distributions to Stockholders: (i) if the Company fails either or both of the 75% or 95% income tests, but still maintains its qualification as a REIT, it will be subject to a 100% tax on the taxable income attributable to the greater of the amount by which it failed the 75% or the 95% income test, and (ii) the Company will be subject to a 100% tax on any net income from prohibited transactions. A "prohibited transaction" is the sale or other disposition of property, other than foreclosure property, held primarily for sale to customers in the ordinary course of business. Certain sales, which might otherwise be classified as "prohibited transactions", will not be subject to the 100% tax if the sales meet the "safe harbor" rules provided in the Code. A REIT is required to pay a 4% excise tax on the difference between the "required distribution" and the "distributed amount" for each calendar year. These terms are specifically defined in Code Section 4981. The excise tax rule is designed to encourage REITs to distribute income in the same calendar year that the income is accrued. If the Company fails to qualify as a REIT for any taxable year and certain relief provisions do not apply, the Company will be subject to federal income tax (including the alternative minimum tax) on all of its taxable income at regular corporate rates, and will not receive a deduction for dividends paid to its Stockholders. Additionally, any distributions to Stockholders will still be taxable to the Stockholders as ordinary income to the extent of current and accumulated earnings and profits (although such dividends will be eligible, subject to certain limitations, for the corporate dividends-received deduction as to a corporate Stockholder). Thus, the Company's income would be subject to "double taxation" -- at the corporate level and the stockholder level -- to the extent such income is distributed to Stockholders. Failure to qualify as a REIT could force the Company to reduce significantly its distributions and to incur substantial indebtedness or liquidate substantial investments in order to pay the resulting corporate taxes. In addition, the Company would not be eligible to elect REIT status for the four subsequent taxable years, unless its failure to qualify was due to reasonable cause and not willful neglect, and certain other requirements were satisfied. 51 55 As a foreign corporation doing business in Texas, the Company will be subject to the payment of Texas franchise taxes. The Texas franchise tax is measured by a corporation's earnings and capital base apportioned on the basis of business done in Texas versus business done everywhere. Thus, the relative percentage of the Company's business in Texas and the Company's capital base will affect the Texas franchise tax liability of the Company regardless of whether the Company has earnings. It is the opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P., based upon certain representations of the Company, that the Company is organized in conformity with the requirements for qualification as a REIT and that its proposed method of operations, as described in this Proxy Statement/Prospectus, will enable it to meet the requirements for taxation as a REIT. Counsel's opinion does not have binding effect on the IRS or the courts, and no assurance can be given that the Company would be characterized as a REIT if its status were challenged by the IRS. TAXATION OF THE STOCKHOLDERS OF A REIT Distributions made by the Company to its Stockholders out of its current or accumulated earnings and profits will generally be taxed to them as ordinary income. Distributions paid to Stockholders will constitute portfolio income for purposes of Code Section 469. A distribution by the Company of net capital gains will generally be taxed to the Stockholders as long-term capital gain to the extent properly designated by the Company as a capital gain dividend. Ordinary and capital gain dividends are not eligible for the dividends-received deduction that is generally allowed to corporate stockholders. Capital gain distributions to corporate stockholders are generally taxed in the same manner as ordinary income except that capital losses are deductible only to the extent of capital gains. However, corporate stockholders may be required to treat up to 20% of any such capital gain as ordinary income. For non-corporate stockholders, net capital gains are currently taxed at a maximum rate of 28%, while short-term capital gains and ordinary income are taxed at a maximum rate of 39.6%. However, because of certain limitations on itemized deductions and personal exemptions, the effective rate may be higher in certain circumstances. Except to a very limited extent, capital losses of non-corporate stockholders are deductible only to the extent of capital gains. Any loss recognized by a stockholder on a sale of shares of a REIT which were held for not more than six months and with respect to which a capital gain dividend was received will be treated as a long-term capital loss to the extent of the amount of distributions from the Company required to be treated by such stockholder as long-term capital gain. A distribution in excess of current or accumulated earnings and profits will constitute a nontaxable return of capital to the extent of the stockholder's basis in his share of a REIT, and is applied to reduce the stockholder's basis in such shares. To the extent that such distribution exceeds such basis, the excess will be treated as capital gain to those stockholders holding their shares as capital assets. The Company will notify each Stockholder as to the portions of each distribution which, in its judgment, constitute ordinary income, capital gain or return of capital. Should the Company incur ordinary or capital losses, Stockholders will not be entitled to deduct such losses on their own income tax returns. Under regulations to be promulgated by the Treasury Department, Stockholders may be required to report as tax preference items or adjustments, certain items and adjustments of the Company for purposes of determining the Stockholders' alternative minimum tax liability, if any. WITHHOLDING ON DIVIDENDS AND SALE PROCEEDS Dividends from the Company will ordinarily not be subject to withholding of federal income taxes. However, the Company will be required to withhold at a rate of 31% from distributions paid to those Stockholders who (i) fail to furnish their taxpayer identification number to the Company, (ii) have, according to the IRS, furnished an incorrect taxpayer identification number to the Company, (iii) have, according to the IRS, under-reported interest, dividend or patronage dividend income in the past, or (iv) have failed to satisfy the payee-certification requirements of Code Section 3406. Each Stockholder will be required to provide and certify his correct taxpayer identification number and to certify that he is an exempt recipient. In addition, 52 56 proceeds from the sale of Common Stock could be subject to backup withholding if the broker through whom the sale is made does not have certain certifications from the selling Stockholder. FOREIGN STOCKHOLDERS Whether gain from the sale of Common Stock of the Company by a nonresident alien individual or foreign corporation ("foreign persons") is subject to United States taxation will depend on, among other things, whether the Company is a "domestically controlled REIT." The Company will be a "domestically controlled REIT" if United States persons own 50% or more in value of the Common Stock of the Company at all times during a specified testing period. If the Company is a "domestically controlled REIT," gain from the sale of Common Stock by foreign persons generally will not be subject to United States income taxation. However, such gain will be subject to United States taxation if it is effectively connected with the foreign person's United States trade or business or, in the case of an individual foreign person, such person is present within the United States for more than 182 days in the taxable year in question, regardless of whether the Company is a "domestically controlled REIT." In addition, if the Company at any time ceases to be a "domestically controlled REIT," gain from the sale of Common Stock by a foreign person may be subject to United States taxation if the foreign person holds more than 5% of the Common Stock of the Company. Distributions of cash generated by the Company's operations that are paid to foreign persons generally will be subject to United States withholding tax at a rate of 30% or at a lower rate if a foreign person can claim the benefits of a tax treaty. Capital gain or other taxable distributions of cash to foreign persons generated by the Company's sale or exchange of "United States real property interests" generally will be subject to United States taxation at the rates applicable to U.S. persons, collected by means of a withholding tax at a rate of 34%. In addition, to the extent such dividends are attributable to the sale or exchange by the Company of "United States real property interests" they may be subject to a 30% branch profits tax (net of the amount of regular income tax) in the hands of any foreign corporate recipients. Such tax may be reduced or eliminated in the case of corporations which are residents of certain countries with which the United States has a tax treaty if certain statutory requirements are met. Stockholders may be able to obtain a partial refund of taxes withheld in respect of capital gains distributions by filing a nonresident U.S. tax return. Upon the death of a foreign individual Stockholder, the Stockholder's Common Stock will be treated as part of the Stockholder's U.S. estate for purposes of the U.S. estate tax, except as may be otherwise provided in an applicable estate tax treaty. The federal taxation of foreign persons is a highly complex matter that may be affected by many considerations. Foreign investors should consult their own tax advisors regarding the U.S. and foreign tax considerations of investing. TAX EXEMPT STOCKHOLDERS In general, a qualified plan, IRA or other tax-exempt entity which is a Stockholder of the Company is not subject to federal income tax on distributions from the Company because the IRS has ruled that amounts distributed as dividends by a qualified REIT do not constitute unrelated business taxable income ("UBTI") when received by a tax-exempt entity. Based on that ruling, indebtedness incurred by the Company in connection with the acquisition of an investment will not cause distributions of the Company paid to a tax-exempt Stockholder to be UBTI. Revenue rulings are interpretive in nature and subject to revocation or modification; however, based on this ruling, it would appear that distributions by the Company to tax-exempt entities would not constitute UBTI. Furthermore, provided that the tax-exempt Stockholder has not borrowed money to acquire Common Stock, the dividend income from the Company will not be UBTI to a tax-exempt Stockholder. Similarly, income from the sale of Common Stock should not constitute UBTI unless the Stockholder has borrowed to acquire his Common Stock or is a dealer in Common Stock. For taxable years beginning after December 31, 1993, however, qualified trusts that hold more than 10% (by value) of the shares of certain REITs may be required to treat a certain percentage of such a REIT's distributions as UBTI. This requirement will apply only if (i) the REIT would not qualify as such for federal income tax purposes but for the application of a "look-through" exception to the five or fewer requirement applicable to Common 53 57 Stock held by qualified trusts, and (ii) the REIT is "predominantly held" by qualified trusts. A REIT is predominantly held if either (i) a single qualified trust holds more than 25% by value of the REIT interests or (ii) one or more qualified trusts, each owning more than 10% by value of the REIT interests, hold in the aggregate more than 50% of the REIT interest. The percentage of any REIT dividend treated as UBTI is equal to the ratio of (a) the UBTI earned by the REIT (treating the REIT as if it were a qualified trust and therefore subject to tax on UBTI) to (b) the total gross income (less certain associated expenses) of the REIT. A de minimis exception applies where the ratio set forth in the preceding sentence is less than 5% for any year. For these purposes, a qualified trust is any trust described in Section 401(a) of the Code and exempt from tax under Section 501(a) of the Code. The provisions requiring qualified trusts to treat a portion of REIT distributions as UBTI will not apply if the REIT is able to satisfy the five or fewer requirement without relying upon the "look-through" exception. The restrictions on ownership of Common Stock in the Company's Articles will prevent application of the provisions treating a portion of REIT distributions as UBTI to tax-exempt entities purchasing Common Stock, absent a waiver of such restrictions by the Board of Directors of the Company. RECENT DEVELOPMENTS Effective February 7, 1994, the Board of Directors of the Company authorized, contingent upon approval of the Merger, the issuance of rights ("Rights") to each Stockholder following the Merger. As currently contemplated, each Stockholder will be entitled to receive one Right for each share of Common Stock owned on a record date to be determined by the Board of Directors. The Rights, if issued, will entitle the Stockholders to purchase shares of Common Stock at a price below the then-current market price, such price to be set by the Board of Directors at the time of issuance. Such Rights would be exercisable for a fixed period of time that has yet to be determined. Although the Board of Directors has authorized the issuance of the Rights, the Board of Directors may, in its sole discretion, determine not to issue the Rights based upon market and economic conditions or other factors. EXPERTS The balance sheets of the Trust as of December 31, 1992 and 1991 and the related statements of operations, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1992 included in this Proxy Statement/Prospectus have been audited by Kenneth Leventhal & Company, independent auditors, as stated in its report appearing herein, and having been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. The balance sheet of the Company at January 17, 1994, appearing in this Proxy Statement/Prospectus and Registration Statement, has been audited by Ernst & Young, independent auditors, as set forth in their report thereon appearing elsewhere herein and in the Registration Statement, and is included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. LEGAL MATTERS The legality of the shares of Common Stock to be issued in connection with the proposed Merger has been passed upon for the Company by Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P., Dallas, Texas. The statement in this Proxy Statement/Prospectus under the caption "FEDERAL INCOME TAX CONSIDERATIONS" and the other statements herein relating to the Company's qualification as a REIT, as well as the tax consequences of the Merger will be passed upon by Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P., Dallas, Texas. 54 58 STOCKHOLDER PROPOSALS A proper proposal submitted by a Stockholder for presentation at the Company's 1995 Annual Meeting and received at the Company's principal executive offices no later than November 15, 1994, will be included in the Company's proxy statement and form of proxy relating to the 1995 Annual Meeting. ADDITIONAL INFORMATION The Company has filed with the Commission a Registration Statement (of which this Proxy Statement/Prospectus is a part) on the Form S-4 under the Securities Act with respect to the securities offered hereby. This Proxy Statement/Prospectus does not contain all the information set forth in the Registration Statement, certain portions of which have been omitted as permitted by the rules and regulations of the Commission. Statements contained in this Proxy Statement/Prospectus as to the content of any contract or other document are not necessarily complete, and in each instance reference is made to copies of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference and the exhibits and schedules hereto. For further information regarding the Company and the Common Stock offered hereby, reference is hereby made to the Registration Statement and such exhibits and schedules which may be obtained from the SEC at its Public Reference Section, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Registration Statement, the exhibits and schedules forming a part thereof filed by the Company with the Commission can be inspected and copies can be obtained at the Commission at Room 1024 Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following regional offices of the Commission: 7 World Trade Center, New York, New York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60601. 55 59 GLOSSARY ACMs -- Asbestos-containing materials. ADA -- Title III of the Americans with Disabilities Act of 1990, as amended. Affiliate -- Any "subsidiary corporation" or "parent corporation" as such terms are defined in Sections 424(d) and 424(e) of the Code, respectively. Articles -- The Company's Articles of Incorporation as filed with the Maryland Secretary of State. Employment Agreement -- the Employment Agreement between the Company and either of Messrs. Wolcott, Warner or O'Brien. Code -- Internal Revenue Code of 1986, as amended. Commission -- Securities and Exchange Commission. Common Stock -- The Common Stock of the Company, $0.01 par value per share. Company -- American Industrial Properties REIT, Inc., a Maryland corporation. Effective Date -- The effective date of the Merger. Excess Shares -- Those shares of Common Stock of the Company in excess of 9.8% of the issued and outstanding Common Stock of the Company acquired by one person or persons acting as a group, which acquisition would give rise to certain redemption and other rights in favor of the Board of Directors of the Company. Exchange Act -- The Securities Exchange Act of 1934, as amended. Funds from Operations -- Net income (computed in accordance with generally accepted accounting principles), excluding financing costs and gains (or losses) from debt restructuring and sales of property, plus depreciation and amortization and other non-cash items. Indenture -- The Indenture dated as of November 15, 1985 relating to the issuance of the Notes. Interested Shareholder -- Any beneficial holder of 10% or more of the Trust's outstanding shares. IRS -- Internal Revenue Service. Merger -- The proposed merger of the Trust with and into the Company. Merger Agreement -- The Agreement and Plan of Merger between the Trust and the Company. MGCL -- The Maryland General Corporation Law, as amended. MLI Agreement -- The Note Purchase Agreement dated as of February 27, 1992, by and between the Trust and Manufacturers Life Insurance Company. Mortgage -- Each of the mortgages on the Properties securing payment of the Notes. NYSE -- The New York Stock Exchange. Notes -- Zero Coupon Notes of the Company due 1997 issued pursuant to an Indenture dated as of November 15, 1985, between the Trust and IBJ Schroder Bank & Trust Company, as Trustee. Omnibus Plan -- The Omnibus Common Stock Incentive Plan of the Company approved by the Board of Directors of the Company as of January 12, 1994 and by the sole Stockholder of the Company as of January 12, 1994. Options -- All incentive and non-incentive stock options granted pursuant to the Omnibus Plan. Ownership Limit -- The maximum percentage of the issued and outstanding capital stock of the Company that may be beneficially owned by any single Stockholder of the Company. 56 60 Preferred Stock -- The Preferred Stock of the Company, $0.01 par value per share. Profit Sharing Plan -- The Retirement and Profit Sharing Plan of the Company adopted by the Board of Directors of the Company on October 28, 1993. Properties -- Fourteen industrial properties and one enclosed specialty retail mall owned and operated by the Trust including Patapsco Center, Baltimore, Maryland; Beltline Center, Gateway 5 and 6, Northgate II and Northview Distribution Center, Dallas, Texas; Tamarac Square, Denver Colorado; Quadrant, Deerfield Beach, Florida; Plaza Southwest, Commerce Park, and Westchase Park, Houston, Texas; Huntington Drive Center, Los Angeles, California; Northwest Business Park, Milwaukee, Wisconsin; Burnsville and Cahill, Minneapolis, Minnesota; and Springbrook, Seattle, Washington. One of the Properties shall be referred to herein as a "Property." Proposal -- Proposals to be presented at the Special Meeting to approve and adopt the Merger Agreement. Record Date -- February 28, 1994, the date established by the Trust for determining Shareholders entitled to notice of and to vote at the Special Meeting. REIT -- A real estate investment trust as that term is defined in sections 856 through 860 of the Code. Restricted Shares -- Common Stock of the Company awarded pursuant to the Omnibus Plan. SARs -- Stock appreciation rights issued pursuant to the Omnibus Plan. Securities Act -- The Securities Act of 1933, as amended. Shareholders -- Persons holding Shares in the Trust. Shares -- Shares of beneficial interest in the Trust. Special Meeting -- A meeting of the Shareholders of the Trust which has been called to consider and to vote on the Proposal. Stockholders -- Persons holding shares of Common Stock of the Company. Trust -- American Industrial Properties REIT, a Texas real estate investment trust. UBTI -- Unrelated business taxable income. 57 61 AMERICAN INDUSTRIAL PROPERTIES REIT, INC. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
PAGE ----- FINANCIAL STATEMENTS OF AMERICAN INDUSTRIAL PROPERTIES REIT, INC.: Independent Auditors' Report......................................................... F-2 Balance Sheet as of January 17, 1994................................................. F-3 Notes to Balance Sheet............................................................... F-4 FINANCIAL STATEMENTS OF AMERICAN INDUSTRIAL PROPERTIES REIT (FORMERLY TRAMMELL CROW REAL ESTATE INVESTORS): Independent Auditors' Report........................................................... F-6 Financial Statements: Statements of Operations for the years ended December 31, 1993, 1992, and 1991....... F-7 Balance Sheets as of December 31, 1993 and 1992...................................... F-8 Statements of Changes in Shareholders' Equity for the years ended December 31, 1993, 1992, and 1991.......................................................................... F-9 Statements of Cash Flows for the years ended December 31, 1993, 1992, and 1991....... F-10 Notes to Financial Statements........................................................ F-11 Financial Statement Schedule: XI - Real Estate and Accumulated Depreciation........................................ F-19 Notes to Schedule XI................................................................. F-20
All other financial statements and schedules not listed have been omitted since the required information is either included in the Financial Statements and the Notes thereto as included herein or is not applicable or required. Because the entities to be merged are under common control, this transaction will be accounted for as a pooling of interests. PRO FORMA FINANCIAL STATEMENT PRESENTATIONS OF THE MERGED ENTITIES HAVE NOT BEEN INCLUDED AS THERE IS NOT EXPECTED TO BE ANY MATERIAL ADJUSTMENTS TO THE HISTORICAL OPERATIONS OF AMERICAN INDUSTRIAL PROPERTIES REIT AS A RESULT OF THE MERGER OTHER THAN THE INCURRENCE OF TEXAS FRANCHISE TAX LIABILITY IN AN IMMATERIAL AMOUNT WHICH IS EXPECTED TO BE OFFSET BY A DECREASE IN THE COST OF DIRECTOR AND OFFICER LIABILITY INSURANCE. F-1 62 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholder of American Industrial Properties REIT, Inc. We have audited the accompanying balance sheet of American Industrial Properties REIT, Inc. (a Maryland corporation and a wholly-owned subsidiary of American Industrial Properties REIT, a Texas real estate investment trust) (the "Company") as of January 17, 1994. This balance sheet is the responsibility of the Company's management. Our responsibility is to express an opinion on this balance sheet based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall balance sheet presentation. We believe that our audit of the balance sheet provides a reasonable basis for our opinion. In our opinion, the balance sheet referred to above presents fairly, in all material respects, the financial position of American Industrial Properties REIT, Inc. at January 17, 1994, in conformity with generally accepted accounting principles. ERNST & YOUNG Dallas, Texas March 1, 1994 F-2 63 AMERICAN INDUSTRIAL PROPERTIES REIT, INC. (A WHOLLY-OWNED SUBSIDIARY OF AMERICAN INDUSTRIAL PROPERTIES REIT) BALANCE SHEET JANUARY 17, 1994 ASSETS Cash................................................................................ $1,000 ------ ------ LIABILITIES AND STOCKHOLDER'S EQUITY Stockholder's Equity: Preferred stock, $.01 par value; 10,000,000 shares authorized; none outstanding... $ -- Common stock, $.01 par value; 50,000,000 shares authorized; 100 shares issued and outstanding................................................................ 1 Additional paid-in capital........................................................ 999 ------ $1,000 ------ ------
The accompanying notes are an integral part of this balance sheet. F-3 64 AMERICAN INDUSTRIAL PROPERTIES REIT, INC. (A WHOLLY-OWNED SUBSIDIARY OF AMERICAN INDUSTRIAL PROPERTIES REIT) NOTES TO BALANCE SHEET JANUARY 17, 1994 NOTE 1 ORGANIZATION American Industrial Properties REIT, Inc., a Maryland corporation (the "Company", a wholly-owned subsidiary of American Industrial Properties REIT, a Texas real estate investment trust, the "Trust") was incorporated on January 12, 1994. The Company has no operations to date, but has issued 100 shares of Common Stock to the Trust for consideration of $1,000. NOTE 2 FEDERAL INCOME TAXES The Company intends to qualify as a real estate investment trust under the Internal Revenue Code at the earliest possible date. As such, the Company will not be subject to federal income taxes on amounts distributed to stockholders provided that it distributes at least 95% of its real estate investment trust taxable income to its stockholders and meets certain other conditions. NOTE 3 PREFERRED STOCK No shares of preferred stock are outstanding. Preferred stock may be issued from time to time without stockholder approval with terms and conditions established by the Board of Directors of the Company. NOTE 4 PROPOSED MERGER The Trust has announced its intent to merge with the Company which will involve the exchange of shares of the Trust's Shares of Beneficial Interest for the Company's Common Stock, in an exchange ratio of one share of Common Stock for every five Shares of Beneficial Interest tendered. The proposed merger must be voted on by the Trust's shareholders and receive approval from the holders of at least 66 2/3% of the outstanding Shares of Beneficial Interest in order for the merger to be consummated. NOTE 5 EMPLOYEE BENEFIT PLANS Stock Option Plan Effective January 12, 1994, the Company adopted an Omnibus Common Stock Incentive Plan (the "Omnibus Plan"). A maximum of 185,000 shares of Common Stock of the Company have been reserved for issuance under the Omnibus Plan for the exercise of incentive and non-incentive stock options (collectively "Options"), stock appreciation rights ("SARs") and the award of shares of the Company's common stock subject to forfeiture, and limitations on transferability ("restricted stock"). Options granted under the Omnibus Plan are exercisable at the "fair market value" of the shares of Common Stock at the date of grant as established by the Board of Directors of the Company. Effective January 12, 1994, the Board has granted the officers of the Company options to purchase 136,000 shares of Common Stock at an exercise price equivalent to the "fair market value" of the Trust's Shares of Beneficial Interest at their close on the New York Stock Exchange on the date of grant multiplied by the exchange ratio for the shares of Common Stock in connection with the proposed merger. Each of these Options vests at 20% per year over five years and are exercisable for a period of ten years from the date of grant. Employment Agreements The Company has entered into separate employment agreements with the President and Chief Executive Officer, the Vice-President and Chief Operating Officer and the Vice-President and Chief Financial Officer effective as of January 12, 1994. In the event that any of these employees are terminated, voluntarily or F-4 65 involuntarily, as a result of a change in control of the Company, the employee will be entitled to receive severance compensation in an amount equal to three times the average total cash compensation, inclusive of base salary and cash bonuses, received by such employee during each of the preceding five calendar years. The employment agreements also provide for annual incentive bonuses calculated as a percentage of base salary for the year, based upon the achievement of certain objectives to be established annually by the Company's Compensation Committee. Retirement Plan The Company will assume the American Industrial Properties REIT Retirement and Profit Sharing Plan which qualifies under section 401(k) of the Internal Revenue Code. All initial employees of the Company will be eligible to participate. Eligible employees can make voluntary contributions to the Plan of up to 15% of their pay into the Plan, subject to other limitations, in which they are fully vested. The Company has the option to make annual voluntary contributions to the Plan which are allocated based on employees base compensation. F-5 66 INDEPENDENT AUDITORS' REPORT To the Trust Managers and Shareholders of American Industrial Properties REIT: We have audited the Financial Statements and the Financial Statement Schedule of American Industrial Properties REIT (formerly Trammell Crow Real Estate Investors) (the "Trust"), listed in the Index on page F-1 of this Proxy Statement/Prospectus. These financial statements and schedule are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and schedule are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and schedule. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement and schedule presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of American Industrial Properties REIT as of December 31, 1993 and 1992, and the results of its operations and its cash flows for the years ended December 31, 1993, 1992 and 1991 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the financial statements taken as a whole, presents fairly in all material respects, the information required to be set forth therein. KENNETH LEVENTHAL & COMPANY Dallas, Texas February 15, 1994 F-6 67 AMERICAN INDUSTRIAL PROPERTIES REIT STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31, -------------------------------- 1993 1992 1991 -------- -------- -------- REVENUES Rents..................................................... $ 7,811 $ 11,908 $ 12,995 Tenant Reimbursements..................................... 2,315 3,001 3,210 Interest Income........................................... 515 230 283 --------- --------- --------- 10,641 15,139 16,488 --------- --------- --------- REAL ESTATE EXPENSES Amortization of original issue discount on Zero Coupon Notes due 1997............................................... 1,391 3,356 8,456 Depreciation and amortization............................. 3,140 4,190 4,267 Interest on 8.8% Notes payable due 1997................... 3,981 4,024 -- Interest on mortgages payable............................. 683 1,370 1,528 Property Operating Expenses: Property taxes......................................... 1,408 2,139 2,140 Property management fees, including payments to affiliates of the Advisor of $598, and $686 in 1992 and 1991, respectively......................................... 422 621 686 Utilities.............................................. 458 549 489 Repairs and maintenance................................ 1,248 1,183 1,147 Other property operating expenses...................... 598 1,011 842 Administrative expenses: Fees paid to Advisor................................... 716 565 594 Trust administration and overhead...................... 1,717 756 754 Writedowns for impairments in value of real estate........ -- 14,094 9,371 --------- --------- --------- 15,762 33,858 30,274 --------- --------- --------- Loss from real estate operations.......................... (5,121) (18,719) (13,786) Gain (loss) on sales of real estate.................... (216) (784) 304 Extraordinary gain from partial repurchase of Zero Coupon Notes payable........................................ -- 1,910 4,320 Extraordinary loss on in-substance partial defeasance of Zero Coupon Notes payable......................... (2,530) -- -- --------- --------- --------- NET LOSS.................................................... $ (7,867) $ (17,593) $ (9,162) --------- --------- --------- --------- --------- --------- PER SHARE DATA Loss from real estate operations.......................... $ (0.57) $ (2.06) $ (1.52) Gain (loss) on sales of real estate....................... (0.02) (0.09) 0.03 Extraordinary gain from partial repurchase of Zero Coupon Notes payable.......................................... -- 0.21 0.48 Extraordinary loss on in-substance partial defeasance of Zero Coupon Notes payable.............................. (0.28) -- -- --------- --------- --------- Net Loss.................................................. $ (0.87) $ (1.94) $ (1.01) --------- --------- --------- Distributions Paid........................................ $ 0.16 $ 0.20 $ 0.42 --------- --------- --------- --------- --------- --------- Number of shares outstanding.............................. 9,075,400 9,075,400 9,075,400 --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of these financial statements. F-7 68 AMERICAN INDUSTRIAL PROPERTIES REIT BALANCE SHEETS (DOLLARS IN THOUSANDS) ASSETS
DECEMBER 31, --------------------- 1993 1992 -------- -------- Real Estate, at cost net of writedowns for impairments in value: Held for investment.................................................. $103,710 $ 88,530 Held for sale........................................................ -- 19,506 -------- -------- $103,710 108,036 Accumulated depreciation............................................. (19,315) (18,036) -------- -------- Net real estate........................................................ 84,395 90,000 -------- -------- Cash and Cash Equivalents: Unrestricted......................................................... 1,119 5,893 Restricted........................................................... -- 11,886 -------- -------- 1,119 17,779 -------- -------- Other assets, net...................................................... 2,783 2,667 -------- -------- $ 88,297 $110,446 -------- -------- -------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: 8.8% Notes payable due 1997.......................................... $ 45,239 $ 45,239 Zero Coupon Notes payable due 1997 ($19,491 and $20,011 due at maturity for 1993 and 1992, respectively), net of unamortized discount and in-substance partial defeasance in 1993........................... 4,682 11,267 Mortgage notes payable............................................... 7,157 12,072 Accrued interest on 8.8% Notes payable............................... 371 371 Accounts payable, accrued expenses and other liabilities............. 1,503 2,835 Tenant security deposits............................................. 494 491 -------- -------- Total Liabilities................................................. 59,446 72,275 -------- -------- Commitments and Contingencies Shareholders' Equity: Shares of Beneficial Interest; authorized 10,000,000 Shares; issued and outstanding 9,075,400 Shares.................................. 125,513 125,513 Accumulated distributions............................................ (57,729) (56,276) Accumulated loss from operations and extraordinary gains (losses).... (40,095) (32,444) Accumulated net gain on sales of real estate......................... 1,162 1,378 -------- -------- Total Shareholders' Equity........................................ 28,851 38,171 -------- -------- $ 88,297 $110,446 -------- -------- -------- --------
The accompanying notes are an integral part of these financial statements. F-8 69 AMERICAN INDUSTRIAL PROPERTIES REIT STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
ACCUMULATED SHARES OF BENEFICIAL LOSS FROM ACCUMULATED INTEREST OPERATIONS AND NET GAIN ON --------------------- ACCUMULATED EXTRAORDINARY SALES OF NUMBER AMOUNT DISTRIBUTIONS GAIN REAL ESTATE TOTAL --------- -------- ------------- -------------- ----------- -------- Balance at December 31, 1990........... 9,075,400 $125,513 $ (50,695) $ (6,169) $ 1,858 $ 70,507 Loss before gain on sales of real estate and extraordinary gain...... -- (13,786) -- (13,786) Gain on sales of real estate......... -- -- 304 304 Extraordinary gain on partial repurchases of Zero Coupon Notes... -- 4,320 -- 4,320 Distributions to Shareholders........ (3,766) -- -- (3,766) --------- -------- ------------- -------------- ----------- -------- Balance at December 31, 1991........... 9,075,400 125,513 (54,461) (15,635) 2,162 57,579 Loss before loss on sales of real estate and extraordinary gain...... -- (18,719) -- (18,719) Loss on sales of real estate......... -- -- (784) (784) Extraordinary gain on partial repurchases of Zero Coupon Notes... -- 1,910 -- 1,910 Distributions to Shareholders........ (1,815) -- -- (1,815) --------- -------- ------------- -------------- ----------- -------- Balance at December 31, 1992........... 9,075,400 125,513 (56,276) (32,444) 1,378 38,171 Loss before loss on sales of real estate............................. -- (5,121) -- (5,121) Loss on sales of real estate......... -- -- (216) (216) Extraordinary loss on partial defeasance of Zero Coupon Notes.... -- (2,530) -- (2,530) Distributions to Shareholders........ (1,453) -- -- (1,453) --------- -------- ------------- -------------- ----------- -------- Balance at December 31, 1993........... 9,075,400 $125,513 $ (57,729) $(40,095) $ 1,162 $ 28,851 --------- -------- ------------- -------------- ----------- -------- --------- -------- ------------- -------------- ----------- --------
The accompanying notes are an integral part of these financial statements. F-9 70 AMERICAN INDUSTRIAL PROPERTIES REIT STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31, -------------------------------------- 1993 1992 1991 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss............................................. $ (7,867) $(17,593) $ (9,162) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Amortization of original issue discount on Zero Coupon Notes due 1997........................... 1,391 3,356 8,456 Depreciation and amortization..................... 3,140 4,190 4,267 Writedowns for impairments in value of real estate.......................................... -- 14,094 9,371 Decrease (increase) in other assets............... (68) 435 (150) Increase (decrease) in accounts payable, accrued expenses and other liabilities and tenant security deposits............................... (784) 539 (403) Extraordinary gain from partial repurchase of Zero Coupon Notes payable............................ -- (1,910) (4,320) Extraordinary loss on in-substance partial defeasance of Zero Coupon Notes payable......... 2,530 -- -- Loss (gain) on sales of real estate............... 216 784 (304) -------- -------- -------- Net Cash Provided By (Used In) Operating Activities.... (1,442) 3,895 7,755 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Net proceeds from sales of real estate............... 6,758 34,125 304 Acquisition of Northview Distribution Center......... (3,289) -- -- Capitalized improvements and leasing commissions, including payments to affiliates of the Advisor of approximately $1,041 and $764 in 1992 and 1991, respectively...................................... (1,814) (3,995) (1,383) -------- -------- -------- Net Cash Provided By (Used In) Investing Activities.... 1,655 30,130 (1,079) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Partial repayment of 8.8% Note payable............... -- (7,995) -- Debt issuance costs.................................. -- (11) (5) Partial repurchase and retirement of Zero Coupon Notes............................................. (316) (8,745) (11,107) Short-term investment proceeds applied to in-substance partial defeasance of Zero Coupon Notes............................................. (10,189) -- -- Principal repayments on mortgage notes payable....... (4,915) (2,054) (160) Distributions to Shareholders........................ (1,453) (1,815) (3,766) -------- -------- -------- Net Cash Used In Financing Activities.................. (16,873) (20,620) (15,038) -------- -------- -------- Net Increase (Decrease) in Cash and Cash Equivalents... (16,660) 13,405 (8,362) Cash and Cash Equivalents at Beginning of Period....... 17,779 4,374 12,736 -------- -------- -------- Cash and Cash Equivalents at End of Period............. $ 1,119 $ 17,779 $ 4,374 -------- -------- -------- -------- -------- -------- Cash Paid for Interest................................. $ 4,664 $ 5,023 $ 1,528 -------- -------- -------- -------- -------- --------
The accompanying notes are an integral part of these financial statements. F-10 71 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO FINANCIAL STATEMENTS NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES: General American Industrial Properties REIT (formerly Trammell Crow Real Estate Investors) (the "Trust") is an equity real estate investment trust which, as of December 31, 1993, owned and operated 15 commercial real estate properties consisting of 14 industrial properties and one retail property. The Trust was formed September 26, 1985, by issuing 13,400 shares to Trammell Crow Company, Inc. for $201,000. On November 27, 1985, the Trust issued 9,062,000 Shares of Beneficial Interest (the "Shares") and commenced operations. On April 13, 1993, the Independent Trust Managers gave formal notice of the Trust's intent to terminate the Advisory Agreement with Trammell Crow Ventures, Ltd. (the "Advisor", see Note 2). The Trust converted to self-administration effective June 13, 1993 and began operating under the name American Industrial Properties REIT. Pursuant to the Trust's 1993 Annual Meeting of Shareholders, the Trust's Shareholders approved amendments to the Trust's Declaration of Trust and By-Laws which, amongst other things, officially changed the name of the Trust from Trammell Crow Real Estate Investors to American Industrial Properties REIT and removed the Trust's limited term restriction, converting the Trust from a finite life entity scheduled to liquidate in 1997, to a perpetual life entity. Real Estate and Writedowns For Impairments In Value of Real Estate. The Trust carries its real estate at historical cost net of depreciation and writedowns for impairments in value. Writedowns for permanent impairments in value are recorded when management determines the recorded value of real estate held for long-term investment will not be fully recovered over the holding period of the assets or to reduce the depreciated cost of real estate held for sale to the lower of cost or net realizable value. Real estate held for investment is reclassified to real estate held for sale when management determines that there is a reasonable probability that the asset will no longer be held for long-term investment and activities begin to offer the property for sale. During 1993, certain properties classified as being held for sale at December 31, 1992, were reclassified to held for investment, consistent with Management's intent to continue to hold the properties for investment rather than for sale. Property improvements are capitalized while maintenance and repairs are expensed as incurred. Depreciation of buildings and capital improvements is computed using the straight-line method over forty years. Depreciation of tenant improvements is computed using the straight-line method over ten years. Cash and Cash Equivalents and Restricted Cash. Cash equivalents include demand deposits and all highly liquid debt instruments purchased with an original maturity of three months or less. According to the terms of the Indenture (the "Indenture") securing the Trust's Zero Coupon Notes payable due 1997 (the "Zero Coupon Notes"), upon the sale or refinancing of any property prior to the defeasance commencement date (November 27, 1993), the Trust was required to deposit into a Property Acquisition Account such portion of the net proceeds received by the Trust that the Trust Managers deemed necessary or appropriate to protect the interests of the Holders of the Zero Coupon Notes (see Notes 5 and 6). Such deposits are shown as restricted cash on the accompanying balance sheet. After November 27, 1993, any proceeds held in the Property Acquisition Account must be placed in another restricted account and be used solely to defease the holders of the remaining Zero Coupon Notes. Subsequent to September 30, 1993, the funds held in the Property Acquisition Account were reinvested by the Trust into short-term commercial paper and Treasury Bills which are pledged as collateral to the Zero Coupon Noteholders. In December 1993, management announced its intent to use the remaining pledged short-term commercial paper F-11 72 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) and Treasury Bills upon their maturity in 1994 for the partial defeasance of the Zero Coupon Noteholders (see Note 6). Issuance Costs of Zero Coupon Notes Payable. The issuance costs of the outstanding Zero Coupon Notes are being amortized over 12 years (the life of the Zero Coupon Notes) and include the difference between the proceeds from the underwriters and the subsequent offering price to the public for the Zero Coupon Notes. Rents and Tenant Reimbursements. The Trust leases its retail and industrial properties to tenants under operating leases with expiration dates ranging from 1994 to 2005. Several tenants in the retail property are also required to pay as rent a percentage of their gross sales volume, to the extent such percentage exceeds their base rents. In addition to paying base and percentage rents, most tenants are required to reimburse the Trust for operating expenses in excess of a negotiated base. Contractual rent increases or delayed rent starts are recognized ratably over the lease term. Income Tax Matters. The Trust operates as a real estate investment trust ("REIT") for federal income tax purposes. Under the REIT provisions the Trust is required to distribute 95% of REIT taxable income and is allowed a deduction for dividends paid during the year. The Trust made distributions in 1993, 1992 and 1991, which were all years in which the Trust incurred a taxable loss. Accordingly, no provision for income taxes has been reflected in the financial statements. For the year ended December 31, 1993 the Trust has adopted Statement of Financial Accounting Standards ("FAS") No. 109, Accounting For Income Taxes. Since, as discussed above, no tax provision is necessary, the adoption of FAS No. 109 does not affect the Trust's results from operations or financial position in the current or prior years. The Trust has a net operating loss carryforward from 1993 and prior years of approximately $22,700,000. The losses may be carried forward for up to 15 years. The present losses will expire beginning in the year 2004. Management intends to operate the Trust in such a manner as to continue to qualify as a REIT and to continue to distribute cash flow in excess of taxable income. Therefore, no tax benefit related to the potential utilization of the net operating loss has been reflected in the financial statements. Earnings and profits, which will determine the taxability of dividends to shareholders, will differ from that reported for financial reporting purposes due primarily to differences in the basis of the assets and the estimated useful lives used to compute depreciation. Reclassification. The Trust has reclassified certain items in the accompanying financial statements in order to (i) present amounts paid directly to the Advisor separately from Trust administration and overhead costs and general and administrative costs related to property operations, (ii) separately present accrued interest on the 8.8% Notes payable, and (iii) reflect the portion of the principal paydown related to deferred interest on the 8.8% Notes payable as an interest payment rather than a principal reduction in the 1992 statement of cash flows. NOTE 2 -- TRANSACTIONS WITH PARTIES IN INTEREST: Parties in Interest. Trammell Crow Ventures, Ltd. acted as advisor (the "Advisor") to the Trust through June 13, 1993 (see Termination of Advisory Agreement below). Owners of the Advisor are associated with a group of entities F-12 73 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) engaged in various real estate businesses under the name "Trammell Crow Company" (collectively, the "TCC Entities"). Termination of Advisory Agreement. Effective June 13, 1993, the Trust terminated the Advisory Agreement with the Advisor. Pursuant to the terms of the Advisory Agreement, the Trust paid to the Advisor a one-time termination fee of $435,000 in the second quarter. No additional amounts are due the Advisor. Certain TCC Entities continue to manage twelve of the Trust's fifteen properties, however, these are no longer considered to be related party or party in interest relationships by the Trust. Advisory Fees. For its services under an advisory agreement, in 1992 and 1991, the Advisor received an annual advisory fee equal to .4375% of the sum of (1) the estimated value of the Trust's real estate investments, as reviewed by an independent appraiser, less the original mortgage balances upon acquisition, and (2) the proceeds from the sale of real estate pending reinvestment. Through December 31, 1992, the Advisor was also entitled to an incentive advisory fee in varying degrees if distributable cash exceeded $11,600,000. For the year commencing January 1, 1993, the Trust Managers established an advisory fee of $500,000 per year. As in previous years, the Advisor was also entitled to reimbursement for costs of providing legal, accounting and financial reporting services. Disposition Fees. The Trust paid the Advisor a real estate disposition fee equal to 2% of net cash proceeds realized by the Trust from the sale or disposition of any Trust real estate asset, after deduction for any real estate commission paid by the Trust. Disposition fees paid to the Advisor and charged against the gain or loss on sales of real estate were $144,500 in 1993, $711,000 in 1992, and $8,000 in 1991. Management Fees. Most of the Trust's real estate assets are managed by various TCC Entities (the "TCC Property Managers"). For their services, the TCC Property Managers receive base management fees of approximately 4% of gross income, as defined in the Property Management Agreements, from industrial properties and approximately 5% of gross income, as defined, from the retail property. The TCC Property Managers also receive leasing commissions based on prevailing market rates of 2% to 5% of future rentals to be collected from new tenants and 1% to 4.5% of future rentals from renewal tenants. Other Fees. The Advisor also received fees for services provided to the Trust that were not required pursuant to the terms of the Advisory Agreement. For its services rendered in connection with the acquisition and refinancing of the Zero Coupon Notes on February 27, 1992 (see Note 4), the Trust Managers approved and the Trust paid to the Advisor a fee equal to 1% of the amount paid for the Zero Coupon Notes. This amount, $532,340, was charged against the extraordinary gain from partial repurchase of the Zero Coupon Notes. NOTE 3 -- REAL ESTATE AND WRITEDOWNS FOR IMPAIRMENTS IN VALUE OF REAL ESTATE: At December 31, 1993, all of the Trust's properties were held for investment. The Trust has previously recorded writedowns for impairments of value related to real estate held for investment and held for sale of $14,094,000 and $9,371,000 in 1992 and 1991, respectively. These writedowns are a reduction of the recorded value of the related assets to estimated market value. The writedowns for impairments in value are based on F-13 74 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) estimates and, accordingly, actual losses upon a disposition of the property may vary from current estimates. Writedowns for permanent impairments of real estate held for investment are recorded as a direct reduction of the property's basis when management determines it is probable that the recorded value of the asset will not be fully recovered over the asset's remaining life. These writedowns are reviewed periodically and any additional writedown determined to be necessary is recorded in the period in which it becomes reasonably estimable. Writedowns for impairments of value of real estate held for sale are provided for estimated losses when the depreciated cost of the property exceeds the Trust's estimate of net realizable value. Numerous factors are considered when estimating net realizable value, including market evaluations, the cost of capital, operating cash flow from the property during the projected holding period, and expected capitalization rates applied to the estimated stabilized net operating income of the specific property. Among the various significant factors in determining writedowns for impairments is the ability of the Trust to hold the property until such time as the depreciated cost can be recovered. If other factors should cause a reclassification of the Trust's real estate held for investment to held for sale, significant adjustments to reduce the depreciated cost of real estate held for investment to estimated market value could be required. As of December 31, 1993, management estimates that the depreciated cost (net of writedowns for impairment, the "book value") exceeds the estimated market value for these assets by approximately $10,400,000. NOTE 4 --8.8% NOTES PAYABLE: To finance the February 27, 1992 repurchase of $106,322,000 principal amount at stated maturity ("Face Amount") of Zero Coupon Notes (see Note 5), the Trust issued $53,234,000 of unsecured notes payable due November 1997 (the "8.8% Notes Payable"). These notes bear interest at 8.8% per annum, payable semiannually commencing May 27, 1993. The terms of the 8.8% Notes Payable allow for prepayment, in full or in part, at any time prior to maturity without penalty. On December 31, 1992, the Trust used $11,648,000 of the net sales proceeds from the 1992 sales of real estate (see Note 8) to repay $11,553,000 principal amount of the 8.8% Notes Payable. This repayment included the $8,000,000 mandatory repayment which was due in November 1993, and $3,648,000 of accrued interest. NOTE 5 --ZERO COUPON NOTES PAYABLE: The balance of the Zero Coupon Notes payable due November 27, 1997 increases annually in an amount equal to the amortization of the original issue discount, which is computed at 12% compounding semiannually; the balance is reduced for any Zero Coupon Note repurchases. The Zero Coupon Notes are collateralized by first and second mortgages on the Trust's properties and a security interest in the Trust's partnership interest in one property as well as by certain short-term investments pledged to the Noteholders (see discussion below) as of December 31, 1993. The issuance costs of the outstanding Zero Coupon Notes are amortized over 12 years (the life of the Zero Coupon Notes). On March 18, 1991, in two separate transactions, the Trust repurchased an aggregate of $31,297,000 Face Amount of Zero Coupon Notes having an accreted value of $14,415,000 for an aggregate purchase price of $10,060,000. The Trust also acquired an option to repurchase an additional $21,371,000 Face Amount of Zero Coupon Notes at a discount rate of 17.75% compounded semiannually, exercisable in whole or in part prior to December 31, 1992. On May 30, 1991, the Trust repurchased $3,000,000 Face Amount of Zero Coupon Notes having an accreted value of $1,407,000 for an aggregate purchase price of $993,000, pursuant to the option. F-14 75 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The Trust recognized extraordinary gains in 1991 of $4,320,000 from the repurchases of Zero Coupon Notes, determined as follows ($ in thousands): Accreted balance of Zero Coupon Notes repurchased........................... $15,822 Cash paid to repurchase Zero Coupon Notes -- Restricted Proceeds From Previous Property Sales.......................... (7,863) Unrestricted Cash From Operations......................................... (3,190) Bond issuance costs, net of accumulated amortization........................ (395) Expenses related to repurchases............................................. (54) ------- Extraordinary gain from partial repurchase of Zero Coupon Notes............. $ 4,320 ------- -------
On February 27, 1992, the Trust repurchased an aggregate of $106,322,000 Face Amount of Zero Coupon Notes for a purchase price of $53,234,000. The accreted balance of the Zero Coupon Notes was approximately $54,401,000. The entire purchase price was financed by issuing new 8.8% Notes Payable (see Note 4) to the seller of the Zero Coupon Notes. Pursuant to the terms of the Indenture, approximately $21,629,000 Face Amount of these repurchased Zero Coupon Notes are also pledged to the Indenture trustee for the security of the remaining Noteholders. Additionally, in four other separate transactions during February and April 1992, the Trust used cash on hand to repurchase $697,000 Face Amount of Zero Coupon Notes having an accreted value of $356,000 for an aggregate purchase price of $237,000. On December 30, 1992, the Trust exercised its remaining option to repurchase an additional $18,371,000 Face Amount of Zero Coupon Notes ($10,341,000 accreted balance) for an aggregate purchase price of $7,968,000. Pursuant to the terms of the Indenture, these Zero Coupon Notes are also pledged to the Indenture trustee for the security of the remaining Noteholders. The Trust recognized extraordinary gains totalling $1,910,000 from the 1992 repurchases of the Zero Coupon Notes, determined as follows ($ in thousands): Accreted balance of Zero Coupon Notes repurchased.................. $ 65,103 Principal amount of 8.8% Notes Payable............................. (53,234) Cash paid to repurchase Zero Coupon Notes -- Restricted Proceeds From Previous Property Sales................. (7,968) Unrestricted Cash From Operations................................ (237) Bond issuance costs, net of amortization........................... (1,214) Expenses related to repurchases.................................... (540) -------- Extraordinary gain from partial repurchases of Zero Coupon Notes... $ 1,910 -------- --------
During 1993 the Trust repurchased approximately $520,000 face amount of Zero Coupon Notes for approximately their accreted amounts of $316,000. No gain or loss was recognized on the transaction. The By-laws of the Trust, the Indenture, and the Note Purchase Agreement related to the 8.8% Notes Payable contain various borrowing restrictions and operating performance covenants. As of December 31, 1993, the Trust is in compliance with all of these restrictions and covenants. NOTE 6 -- PARTIAL DEFEASANCE OF ZERO COUPON NOTES: Due to the restrictions contained in the Zero Coupon Indenture on the use of the approximately $10,189,000 in short-term investments pledged to the Zero Coupon Noteholders, the Trust has announced its intent to utilize these funds to partially defease the Zero Coupon Notes upon maturity of the short-term investments at the end of February, 1994. This has been recognized as an in-substance partial defeasance of the Zero Coupon Notes in the accompanying financial statements as of December 31, 1993, by offsetting the F-15 76 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) restricted cash balance to be used for the defeasance against the related Zero Coupon Notes and by recognizing a loss on the partial defeasance of $2,530,000. It is estimated that an additional $6,100,000 in cash will be required to defease the remaining recorded amount of Zero Coupon Notes as of December 31, 1993. Upon a full defeasance of the Zero Coupon Notes, the Trust will be released from most of the restrictive covenants of the Indenture, including the Zero Coupon Note mortgage liens encumbering substantially all of the Trust's assets. NOTE 7 -- MORTGAGES PAYABLE: Certain of the Trust's properties are subject to first mortgage notes bearing interest at annual rates of 8% to 11%, requiring monthly payments of principal and interest aggregating $67,000 in 1993, and coming due in various years through 2010. Principal payments due for the next five years are $124,000 in 1994, $137,000 in 1995, $1,351,000 in 1996, $166,000 in 1997 and $2,053,000 in 1998. Effective April 30, 1992, the Trust extended, for three years, the maturity date of the loan on one of its Minneapolis properties. In accordance with the applicable loan agreement, the Trust paid to the Lender $92,000 of deferred accrued interest at the date of the Note extension. The principal amount of this mortgage as of December 31, 1992 was $2,141,000. This Note may be extended, subject to certain conditions, by the Trust for one additional three year period. The payoff of this Note in the amount of $1,894,000 is included in the total principal payments due in 1998. In addition to being collateralized by a mortgage on the property, this Note is recourse to the Trust. NOTE 8 -- COMMITMENTS AND CONTINGENCIES: Environmental Matters. The Trust has been notified of the possible existence of underground contamination at Tamarac Square, the Trust's Denver retail property. The source of the possible contamination is apparently related to underground storage tanks located on an adjacent property. This adjacent property was placed on Colorado's list of leaking underground storage tanks. A second potential source of contamination is a nearby tract on which a service station was formerly operated. The owner of the adjacent property is currently conducting studies under the direction of the Colorado Department of Health in an attempt to define the contamination and institute an appropriate plan to address the situation. At this time, the Trust does not anticipate any exposure relative to this issue. The Trust has not been notified (except with respect to Tamarac Square), and is not otherwise aware of any material non-compliance, liability or claim relating to hazardous or toxic substances in connection with any of its properties. Litigation. The Trust is involved in a property lawsuit arising in the normal course of business. In management's opinion, the Trust maintains adequate insurance to cover any potential loss from this suit. NOTE 9 -- RETIREMENT AND PROFIT SHARING PLAN: During 1993, the Trust adopted a retirement and profit sharing plan which qualifies under section 401(k) of the Internal Revenue Code. All existing Trust employees at adoption and subsequent employees who have completed one year of service are eligible to participate in the plan. The Trust may make annual discretionary contributions to the plan. Plan contributions by the Trust in 1993 were $12,000. F-16 77 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE 10 -- RENTAL INCOME: Minimum future rentals on noncancellable leases at December 31, 1993 were as follows ($ in thousands):
YEAR ------- 1994............................................................... $ 7,658 1995............................................................... 6,188 1996............................................................... 4,547 1997............................................................... 3,488 1998............................................................... 2,155 Thereafter......................................................... 3,899 ------- $27,935 ------- -------
NOTE 11 -- GAIN (LOSS) ON SALES OF REAL ESTATE: In 1991, $355,000 of a $732,000 escrow established in connection with the sales of two of the Trust's California properties in 1990 was released to the Trust since a portion of the required leasing objectives were achieved. An additional $51,000 in selling expenses was recognized in 1991 associated with these 1990 sales. In the second quarter of 1992, the Trust sold one of the 13 buildings in the Woodland Industrial Park in Charlotte, North Carolina. In the fourth quarter of 1992, the Trust sold its Southland Industrial property located in Houston, Texas and the remaining 12 buildings in the Woodland Industrial Park. The net loss recognized in 1992 on these sales is summarized below ($ in thousands): 1992: Gross selling price....................................................... $ 35,823 Cost, net of accumulated depreciation and writedowns for impairments...... (35,328) Selling expenses.......................................................... (1,279) -------- Loss on sales of real estate.............................................. $ (784) -------- --------
The total net sales proceeds after repayment of the $1,800,000 first mortgage on the Southland property and the related transaction costs were approximately $32,000,000. Pursuant to the terms of the Indenture, these proceeds were deposited in the Trust's Property Acquisition Account. A portion of the proceeds were subsequently used to repurchase a portion of the Trust's Zero Coupon Notes through the exercise of the remaining repurchase option (see Note 5) and to repay a portion of the 8.8% Notes Payable (see Note 4). On January 8, 1993, the Trust sold the Royal Lane Business Park property (one of its real estate assets Held for Sale) located in Dallas, Texas. The net sales proceeds totalled approximately $1,800,000 after repayment of approximately $4,650,000 of first mortgages on the property and the related transaction costs. Pursuant to the Indenture, these net proceeds were deposited in the Trust's Property Acquisition Account. The estimated net loss on the sale of Royal Lane Business Park of $931,000 was reflected in the December 31, 1992 financial statements. NOTE 12 -- DISTRIBUTIONS: The Trust's distributions of $1,453,000 ($.16 per Share) in 1993 and $1,815,000 ($.20 per Share) in 1992 represented a return of capital to Shareholders, to the extent of the Shareholder's basis in the Shares. Of the Trust's total distributions of $3,766,000 ($.42 per Share) in 1991, $122,000 ($.02 per Share) represented taxable income to Shareholders and $3,644,000 ($.40 per Share) represented a return of capital to Shareholders, to the extent of a Shareholder's basis on the shares. F-17 78 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE 13 -- PER SHARE DATA: Net income per Share is based on 9,075,400 Shares outstanding during all years presented. NOTE 14 -- PROPERTY ACQUISITION: On December 10, 1993, the Trust purchased a 175,000 square foot multi-tenant industrial distribution property in Dallas, Texas for a purchase price and related expenses of $3,400,000 in cash (the "Northview Distribution Center"). The property is encumbered by a first mortgage lien for the benefit of the Zero Coupon Noteholders. NOTE 15 -- SUBSEQUENT EVENT: On January 12, 1994, the Trust incorporated American Industrial Properties REIT, Inc., a Maryland corporation as its wholly owned subsidiary through the purchase of 100 shares of stock for $1,000. The Trust intends to seek the approval of the requisite 66 2/3% of all Shareholders to merge the Trust into the Company through an exchange of the Trust's Shares of Beneficial Interest for the Common Stock of the company. The proposed merger is intended to enhance the Trust's ability to raise capital through the authorization of an increased number and class of equity shares, among other things. F-18 79 SCHEDULE XI AMERICAN INDUSTRIAL PROPERTIES REIT REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1993 ($ IN THOUSANDS)
GROSS AMOUNT CARRIED AT GROSS AMOUNT CARRIED DECEMBER AT ACQUISITION SUBSEQUENT RETIREMENTS 31, 1993 ---------------------- COSTS ---------------------- ------- ENCUM- BUILDINGS CAPITALIZED BUILDINGS WRITEDOWNS BRANCES AND ------------ AND DUE TO DESCRIPTION AT 12/31/93 LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS IMPAIRMENT LAND - -------------------------- ----------- ------- ------------ ------------ ------- ------------ ---------- ------- INDUSTRIAL PROPERTIES: TEXAS -- Commerce Park North....... $ 1,108 $ 4,431 $ 315 $ (2,014) $ 705 Westchase................. 697 2,787 214 (74) (1,158) 465 Plaza Southwest........... 1,312 5,248 433 (1) 1,312 Beltline Center........... 1,303 5,213 286 (3,516) 600 Gateway 5 & 6............. 935 3,741 478 (1,861) 563 Northgate II.............. 2,153 8,612 622 (4,122) 1,329 Royal Lane Park........... 2,122 8,489 318 (1,574) (6,613) (2,742) 0 Northview................. 658 2,631 658 CALIFORNIA -- Huntington Drive.......... 1,559 6,237 404 1,559 MARYLAND -- Patapsco I & II........... 1,429 1,147 4,588 285 1,147 MINNESOTA -- Cahill.................... 625 2,498 351 625 Burnsville................ 1,973 761 3,045 308 (17) (1,563) 431 WASHINGTON -- Springbrook............... 1,008 4,032 219 (436) 921 WISCONSIN -- Northwest................. 1,342 1,296 5,184 604 (131) 1,296 FLORIDA -- Quadrant.................. 1,200 1,137 4,549 107 (63) (2,337) 670 RETAIL PROPERTY: COLORADO -- Tamarac Square............ 1,213 6,799 27,194 3,875 6,799 Trust Home Office......... 14 0 ----------- ------- ------------ ------ ------- ------------ ---------- ------- 7,157 $24,620 $ 98,479 $8,833 $(1,591) $ (6,882) $(19,749) $19,080 ------- ------------ ------ ------- ------------ ---------- ------- ------- ------------ ------ ------- ------------ ---------- ------- ZERO COUPON NOTES......... 4,682 ----------- $ 11,839 ----------- -----------
GROSS AMOUNT CARRIED AT DECEMBER 31, 1993 BUILDING & CAPITAL TENANT -------------------- IMPROVEMENTS IMPROVEMENTS BUILDINGS LIFE ON WHICH LIFE ON WHICH AND ACCUMULATED DATE OF DATE DEPRECIATION IS DEPRECIATION IS DESCRIPTION IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED COMPUTED COMPUTED - -------------------------- ------------ -------- ----------- ------------ -------- ------------------ --------------- INDUSTRIAL PROPERTIES: TEXAS -- Commerce Park North....... $ 3,135 $ 3,840 $ 934 1984 1985 40 10 Westchase................. 2,001 2,466 595 1983 1985 40 10 Plaza Southwest........... 5,680 6,992 1,194 1970-74 1985 40 10 Beltline Center........... 2,686 3,286 1,080 1984 1985 40 10 Gateway 5 & 6............. 2,730 3,293 887 1984-85 1985 40 10 Northgate II.............. 5,936 7,265 1,898 1982-83 1985 40 10 Royal Lane Park........... 0 0 0 1980-81 1985 40 10 Northview................. 2,631 3,289 6 1980 1993 40 10 CALIFORNIA -- Huntington Drive.......... 6,641 8,200 1,346 1984-85 1985 40 10 MARYLAND -- Patapsco I & II........... 4,873 6,020 984 1980-84 1985 40 10 MINNESOTA -- Cahill.................... 2,849 3,474 612 1981 1986 40 10 Burnsville................ 2,103 2,534 717 1984 1986 40 10 WASHINGTON -- Springbrook............... 3,902 4,823 867 1984 1986 40 10 WISCONSIN -- Northwest................. 5,657 6,953 1,118 1983-86 1986 40 10 FLORIDA -- Quadrant.................. 2,723 3,393 835 1984-86 1986 40 10 RETAIL PROPERTY: COLORADO -- Tamarac Square............ 31,069 37,868 6,239 1976-79 1985 40 10 Trust Home Office......... 14 14 3 N/A 1993 N/A 10 ------------ -------- ----------- $ 84,630 $103,710 $19,315 ------------ -------- ----------- ------------ -------- ----------- ZERO COUPON NOTES.........
The accompanying notes are an integral part of this schedule. F-19 80 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO SCHEDULE XI DECEMBER 31, 1993 (1) ACQUISITIONS: All of the real estate on Schedule XI was acquired for cash, subject to certain encumbrances shown therein, from TCC Entities, except for the Northview property acquired in 1993. (2) RECONCILIATION OF REAL ESTATE: The following table reconciles the Trust's real estate for the years ended December 31, 1993 and 1992.
($ IN THOUSANDS) --------------------- 1993 1992 -------- -------- Balance at beginning of period......................................... $108,036 $159,841 Additions during period: Improvements......................................................... 887 3,945 Acquisition of Northview Distribution Center......................... 3,289 -- -------- -------- 112,212 163,786 Deductions during period: Cost of real estate sold............................................. 8,187 41,415 Writedowns for impairments in value.................................. -- 14,094 Other -- asset retirements........................................... 315 241 -------- -------- Balance at close of period............................................. $103,710 $108,036 -------- -------- -------- --------
(4) RECONCILIATION OF ACCUMULATED DEPRECIATION: The following table reconciles the accumulated depreciation for the years ended December 31, 1993 and 1992.
($ IN THOUSANDS) ------------------- 1993 1992 ------- ------- Balance at beginning of period........................................... $18,036 $20,804 Additions during period: Depreciation provision for period...................................... 2,830 3,721 ------- ------- 20,866 24,525 Deductions during period: Accumulated depreciation of real estate sold........................... 1,551 6,426 Other -- asset retirements............................................. -- 63 ------- ------- Balance at close of period............................................... $19,315 $18,036 ------- ------- ------- -------
(5) TAX BASIS: The cost basis of the Trust's real estate for tax purposes at December 31, 1993 is $128,585,000. The basis reported under generally accepted accounting principles has been reduced by the aggregate amounts collected under developers' leases, less management fees paid on such developers' leases, and by reductions for the impairments in value of real estate. F-20 81 AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER ("Merger Agreement") dated as of , 1994, is entered into by and between American Industrial Properties REIT, Inc., a Maryland corporation (the "Company") and American Industrial Properties REIT, a real estate investment trust formed under the Texas Real Estate Investment Trust Act (the "Trust"). RECITALS 1. The Company is a corporation duly organized on January 12, 1994, and existing under the laws of the State of Maryland. The principal office of the Company in Maryland is c/o The Corporation Trust Incorporated, 32 South Street, Baltimore, Baltimore City County, Maryland 21202. 2. The Trust is a real estate investment trust duly organized on September 26, 1985, and existing under the laws of the State of Texas. The predecessor of the Trust, Trammell Crow Real Estate Investors, was qualified to do business in Maryland on November 25, 1985. The principal office of the Trust in Maryland is c/o The Prentice-Hall Corporation, 11 East Chase Street, Baltimore, Maryland 21202-0000. The Trust owns property in Baltimore City County, Maryland. 3. On the date of this Merger Agreement, the Company has authority to issue 50,000,000 shares of Common Stock, $.01 par value per share, (the "Common Stock"), of which 100 shares are issued and outstanding and 10,000,000 of Preferred Stock, $.01 par value per share, none of which are issued or outstanding. The aggregate par value of all the shares of all classes is $600,000. 4. On the date of this Merger Agreement, the Trust has authority to issue 10,000,000 shares of beneficial interest, $.01 par value per share, (the "Shares"), with 9,475,400 Shares issued and outstanding. 5. The Board of Directors of the Company and the Trust Managers have determined that it is advisable and in the best interests of the stockholders and the shareholders, respectively, that the Trust merge with and into the Company upon the terms and subject to the conditions of this Merger Agreement for the purpose of effecting the incorporation of the Trust in the State of Maryland. 6. The Board of Directors of the Company and the Trust Managers have, by resolutions duly adopted, approved this Merger Agreement. The Trust, acting through the Trust Managers, has approved this Merger Agreement as the sole stockholder of the Company. The Trust Managers have directed that this Merger Agreement be submitted to a vote of its Shareholders, 66 2/3% of whom must approve this Merger Agreement for it to become effective. 7. The parties intend by this Merger Agreement to effect a "reorganization" under Section 368 of the Internal Revenue Code of 1986, as amended. AGREEMENT In consideration of the promises and agreements set forth herein, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Merger. The Trust shall be merged with and into the Company (the "Merger"), and the Company shall be the surviving corporation (hereinafter sometimes referred to as the "Surviving Corporation"). The name of the Surviving Corporation shall be American Industrial Properties REIT, Inc., which is the name currently set forth in the Charter of the Company. The Merger shall become effective upon the time and date of issuance of a Certificate of Merger by the Secretary of State of the State of Maryland and the filing of such other documents as may be required under applicable law (the "Effective Time"). A-1 82 2. Governing Documents. (a) The Charter of the Company, as it may be amended or restated, and as in effect immediately prior to the Effective Time, shall be the Charter of the Surviving Corporation without further change or amendment until thereafter amended in accordance with the provisions thereof and applicable law. (b) The Bylaws of the Company as in effect immediately prior to the Effective Time shall be the Bylaws of the Surviving Corporation without change or amendment until thereafter amended in accordance with the provisions thereof and applicable law. 3. Officers and Directors. The persons who are executive officers of the Company immediately prior to the Effective Time shall, after the Effective Time, be the executive officers of the Surviving Corporation, without change until their successors have been duly elected and qualified. The three directors named in the Company's Charter will serve as directors of the Surviving Corporation. The directors shall be classified into three classes in accordance with the Charter and Bylaws of the Surviving Corporation. 4. Succession. At the Effective Time, the separate corporate existence of the Trust shall cease, and the Surviving Corporation shall possess all the rights, privileges, powers and franchise of a public and private nature and be subject to all the restrictions, disabilities and duties of the Trust; and all rights, privileges, powers and franchises of the Trust, and all property, real, personal and mixed, and all debts due to the Trust on whatever account, as well as for Share subscriptions and all other things in action, shall be vested in the Surviving Corporation; and all property, rights, privileges, powers and franchises, and all and every other interest shall be thereafter the property of the Surviving Corporation as they were of the Trust, and the title to any real estate vested by deed or otherwise shall not revert or be in any way impaired by reason of the Merger; but all rights of creditors and all liens upon any property of the Trust shall be preserved unimpaired, and all debts, liabilities and duties of the Trust shall thenceforth attach to the Surviving Corporation and may be enforced against it to the same extent as if such debts, liabilities and duties had been incurred or contracted by it. The debts, liabilities and duties of the Trust assumed by the Company include, but are not limited to, the following: (i) the Indenture dated as of November 15, 1985, by and between the Trust and IBJ Schroder Bank & Trust Company (formerly known as J. Henry Schroder Bank & Trust Company); (ii) the Note Purchase Agreement dated February 27, 1992, by and between the Trust and Manufacturers Life Insurance Company; (iii) the Indemnity Agreement dated as of July 21, 1993, by and between the Trust and Charles W. Wolcott; (iv) the Indemnity Agreement dated as of July 21, 1993, by and between the Trust and Mark A. O'Brien; (v) the Indemnity Agreement dated as of July 21, 1993, by and between the Trust and David B. Warner; (vi) the Indemnity Agreement dated as of July 21, by and between the Trust and W.H. Bricker; and (vii) the Indemnity Agreement dated as of July 21, 1993, by and between the Trust and George P. Jenkins. All acts, plans, policies, agreements, arrangements, approvals and authorizations of the Trust, its Shareholders, Trust Managers and committees thereof, officers and agents which were valid and effective immediately prior to the Effective Time, shall be taken for all purposes as the acts, plans, policies, agreements, arrangements, approvals and authorizations of the Surviving Corporation and shall be as effective and binding thereon as the same were with respect to the Trust. The employees and agents of the Trust shall become the employees and agents of the Surviving Corporation and shall continue to be entitled to the same rights and benefits which they enjoyed as employees and agents of the Trust. 5. Further Assurances. From time to time, as and when required by the Surviving Corporation or by its successors and assigns, there shall be executed and delivered on behalf of the Trust such deeds, assignments and other instruments, and there shall be taken or caused to be taken by it all such further and other action, as shall be appropriate or necessary in order to vest, perfect or confirm, of record or otherwise, in the Surviving Corporation the title to and possession of all property, interests, assets, rights, privileges, immunities, powers, franchises and authority of the Trust and otherwise to carry out the purposes of this Merger Agreement, and the officers and directors of the Surviving Corporation are fully authorized in the name and on behalf of the Trust or otherwise, to take any and all such action and to execute and deliver any and all such deeds, assignments and other instruments. 6. Conversion of Shares. At the Effective Time, by virtue of the Merger and without any action on the part of the holder thereof: A-2 83 (a) Each five Shares outstanding immediately prior to the Effective Time shall be changed and converted into and shall be one fully paid and nonassessable share of Common Stock. (b) Persons that will hold a fractional share in the Company after the Merger must either (i) pay to the Company an amount equal to the fraction necessary to round upward to a whole share of Common Stock times the opening price of the Company's Common Stock on the first trading date after the consummation of the Merger (the "Opening Price") and the fractional share shall be rounded upward to the nearest whole share of Common Stock or (ii) permit the Company to repurchase the fractional share at a price equal to the fraction owned times the Opening Price. (c) The 100 shares of Common Stock issued and outstanding in the name of the Trust shall be cancelled and retired and resume the status of authorized and unissued shares of Common Stock. 7. Stock Certificates. At and after the Effective Time, all of the outstanding certificates which immediately prior to the Effective Time represented Shares shall be deemed for all purposes to evidence ownership of, and to represent shares of, Common Stock into which the Shares formerly represented by such certificates have been converted as herein provided. The registered owner on the books and records of the Trust or its transfer agent of any such outstanding stock certificate shall, until such certificate shall have been surrendered for transfer or otherwise accounted for to the Surviving Corporation or its transfer agent, have and be entitled to exercise any voting and other rights with respect to and to receive any dividends and other distributions upon the shares of Common Stock evidenced by such outstanding certificate as above provided. 8. 401(k) Plan. As of the Effective Time, the Surviving Corporation hereby assumes all obligations of the Trust under the Trust's Retirement and Profit Sharing Plan in effect as of the Effective Time. 9. Conditions. Consummation of the Merger and related transactions is subject to satisfaction of the following conditions prior to the Effective Time: (a) The Merger shall have been approved by the requisite number of holders of Trust Shares and the Company Stock and all necessary action shall have been taken to authorize the execution, delivery and performance of this Merger Agreement by the Trust and the Company. (b) All regulatory approvals necessary in connection with the consummation of the Merger and the transactions contemplated thereby shall have been obtained. (c) No suit, action, proceeding or other litigation shall have been commenced or threatened to be commenced which, in the opinion of the Trust or the Company would pose a material restriction on or impair consummation of the Merger, performance of this Merger Agreement or the conduct of the business of the Company after the Effective Time, or create a risk of subjecting the Trust or the Company, or their respective Shareholders, Stockholders, officers, or directors, to material damages, costs, liability or other relief in connection with the Merger or this Merger Agreement. (d) The shares of Common Stock to be issued or reserved for issuance shall, if required, have been approved for listing on the New York Stock Exchange or such other national securities exchange or national market system as the Board of Directors of the Company may designate, upon official notice of issuance by such exchange. 10. Governing Law. This Merger Agreement was negotiated in and is performable in the State of Texas and shall be governed by and construed in accordance with the laws of the State of Texas applicable to contracts entered into and to be performed within the State of Texas, except to the extent that the laws of the State of Maryland are mandatorily applicable to the Merger. 11. Amendment. Subject to applicable law and subject to the rights of the Shareholders further to approve any amendment which would have a material adverse effect on the Shareholders, this Merger Agreement may be amended, modified or supplemented by written agreement of the parties hereto at any time prior to the Effective Time with respect to any of the terms contained herein. A-3 84 12. Deferral or Abandonment. At any time prior to the Effective Time and in accordance with the provisions of Maryland and Texas law, this Merger Agreement may be terminated and the Merger may be abandoned or the time of consummation of the Merger may be deferred for a reasonable time by the Board of Directors of the Company or the Trust Managers or both, notwithstanding approval of this Merger Agreement by the Shareholders or the Stockholders of the Company, or both, if circumstances arise which, in the opinion of the Board of Directors of the Company or the Trust Managers, make the Merger inadvisable or such deferral of the time of consummation advisable. 13. Counterparts. This Merger Agreement may be executed in any number of counterparts each of which when taken alone shall constitute an original instrument and when taken together shall constitute but one and the same Agreement. 14. Assurances. The Trust and the Company agree to execute any and all documents, and to perform such other acts, which may be necessary or expedient to further the purposes of this Merger Agreement. IN WITNESS WHEREOF, the Trust and the Company have caused this Merger Agreement to be signed by their respective duly authorized officers and delivered this day of , 1994. AMERICAN INDUSTRIAL PROPERTIES REIT Charles W. Wolcott President and Chief Executive Officer AMERICAN INDUSTRIAL PROPERTIES REIT, INC. Charles W. Wolcott President and Chief Executive Officer A-4 85 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROXY STATEMENT/PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, THE SECURITIES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. ------------------------ TABLE OF CONTENTS
PAGE ---- Proxy Statement/Prospectus Summary............ 5 Risk Factors.................................. 12 The Proposal.................................. 17 The Special Meeting........................... 19 The Company................................... 20 The Properties................................ 24 Policies With Respect to Certain Activities... 28 Management's Discussion and Analysis of Financial Condition and Results of Operations.................................. 30 Security Ownership of Certain Beneficial Owners and Managers......................... 34 Management.................................... 35 Summary Comparison of Shares of Beneficial Interest and Common Stock................... 40 The Company's Securities...................... 42 Certain Statutory and Charter Provisions...... 46 Federal Income Tax Considerations............. 49 Recent Developments........................... 54 Experts....................................... 54 Legal Matters................................. 54 Stockholder Proposals......................... 55 Additional Information........................ 55 Glossary...................................... 56 Index to Financial Statements................. F-1 Agreement and Plan of Merger.................. A-1
------------------------ UNTIL , 1994 (25 DAYS AFTER THE DATE OF THIS PROXY STATEMENT/PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE SECURITIES OFFERED HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROXY STATEMENT/PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROXY STATEMENT/PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- AMERICAN INDUSTRIAL PROPERTIES REIT, INC. 1,915,080 SHARES OF COMMON STOCK ------------------------ PROXY STATEMENT/PROSPECTUS ------------------------ , 1994 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 86 PART II INFORMATION NOT REQUIRED IN PROXY STATEMENT/PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Articles of Incorporation (the "Articles") and Bylaws of the Company (the "Bylaws") provide certain limitations on the liability of the Company's directors and officers for monetary damages. The Articles and the Bylaws obligate the Company to indemnify its directors and officers, and permit the Company to indemnify its employees and other agents, against certain liabilities incurred in connection with their service in such capacities. These provisions could reduce the legal remedies available to the Company and the Stockholders against these individuals. The Articles require it to indemnify (a) any person or former director or officer who has been successful, on the merits or otherwise, in the defense of a proceeding to which he was made a party by reason of his service in that capacity, against reasonable expenses incurred by him in connection with the proceeding; and (b) any present or former director or officer against any claim or liability unless it is established that (i) his act or omission was committed in bad faith or was the result of active or deliberate dishonesty; (ii) he actually received an improper personal benefit in money, property or services; or (iii) in the case of a criminal proceeding, he had reasonable cause to believe that his act or omission was unlawful. In addition, the Articles require it to pay or reimburse, in advance of final disposition of a proceeding, reasonable expenses incurred by a director or officer made a party to a proceeding by reason of his service as a director or officer under procedures provided for under the Maryland General Corporation Law ("MGCL") and the Bylaws also (i) permit the Company to provide indemnification and advance expenses to a present or former director or officer who served a predecessor of the Company in such capacity, and to any employee or agent of the Company or a predecessor of the Company; (ii) provide that any indemnification or payment or reimbursement of the expenses permitted by the Bylaws shall be furnished in accordance with the procedures provided for indemnification and payment or reimbursement of expenses under Section 2-418 of the MGCL for directors of Maryland corporations; and (iii) permit the Company to provide such other and further indemnification or payment or reimbursement of expenses as may be permitted by Section 2-418 of the MGCL for directors of Maryland corporations. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits:
EXHIBIT NO. DESCRIPTION - ------------------- ------------------------------------------------------------------------ *3.1 -- Articles of Amendment and Restatement 3.2 -- Bylaws of the Company 4.1 -- Form of Certificate representing Common Stock of the Company 5.1 -- Opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. as to legality of the Common Stock 8.1 -- Opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. as to certain tax matters 10.1 -- Employment Agreement between the Company and Charles W. Wolcott 10.2 -- Employment Agreement between the Company and David B. Warner *10.3 -- Omnibus Stock Option Plan 10.4 -- Indenture dated as of November 15, 1985, between the Trust and IBJ Schroder Bank & Trust Company *10.5 -- 401(k) Retirement and Profit Sharing Plan 10.6 -- Note Purchase Agreement dated February 27, 1992, between the Trust and Manufacturers Life Insurance Company *10.7 -- Form of Indemnification Agreement between the Company and each of its executive officers and directors
II-1 87
EXHIBIT NO. DESCRIPTION - --------------------------------------------------------------------------------------------- *10.8 -- Agreement and Assignment of Partnership Interest, Amended and Restated Agreement and Certificate of Limited Partnership and Security Agreement for Patapsco Center -- Linthicum Heights, Maryland *10.9 -- Deed of Trust with Security Agreement and Assignment of Rents and Leases for Beltline Center -- Irving, Texas *10.10 -- Deed of Trust with Security Agreement and Assignment of Rents and Leases of Gateway 5 & 6 -- Irving, Texas *10.11 -- Deed of Trust with Security Agreement and Assignment of Rents and Leases for Northgate II -- Dallas, Texas *10.12 -- Deed of Trust with Security Agreement and Assignment of Rents and Leases for Northview Distribution Center -- Dallas, Texas *10.13 -- Deed of Trust with Security Agreement and Assignment of Rents and Leases for Tamarac Square Specialty Mall -- Denver, Colorado *10.14 -- Deed of Trust with Security Agreement and Assignment of Rents and Leases for Tamarac Square Convenience Center -- Denver, Colorado *10.15 -- Mortgage with Security Agreement and Assignment of Rents and Leases for Quadrant -- Deerfield Beach, Florida *10.16 -- Deed of Trust with Security Agreement and Assignment of Rents and Leases for Plaza Southwest -- Houston, Texas *10.17 -- Deed of Trust with Security Agreement and Assignment of Rents and Leases for Commerce Park North -- Houston, Texas *10.18 -- Deed of Trust with Security Agreement and Assignment of Rents and Leases for Westchase Park -- Houston, Texas *10.19 -- Deed of Trust with Security Agreement and Assignment of Rents and Leases for Huntington Drive Center -- Monrovia, California *10.20 -- Mortgage with Security Agreement and Assignment of Rents and Leases for Northwest Business Park -- Milwaukee, Wisconsin *10.21 -- Amended and Restated Mortgage with Security Agreement and Assignment of Rents and Leases for Cahill and Burnsville -- Edina, Minnesota and Burnsville, Minnesota *10.22 -- Deed of Trust with Security Agreement and Assignment of Rents and Leases for Springbrook -- Kent, Washington *10.23 -- Dividend Reinvestment Plan 23.1 -- Consent of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. (included in Exhibit 5.1) 23.2 -- Consent of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. (included in Exhibit 8.1) *23.3 -- Consent of Kenneth Leventhal & Company, independent accountants *23.4 -- Consent of Ernst & Young, independent accountants 24.1 -- Power of Attorney (included on the signature pages of the Registration Statement) *99.1 -- Form of Proxy Card *99.2 -- Notice of Special Meeting *99.3 -- Consent to Merger by Manufacturer's Life Insurance Company *99.4 -- Questions and Answers Relating to Merger
- --------------- * Filed herewith. (b) Financial Statement Schedules. Schedule XI -- Real Estate and Accumulated Depreciation (c) Reports, Opinions or Appraisals. None Required. II-2 88 ITEM 22. UNDERTAKINGS. (1) The undersigned registrant hereby undertakes: (a) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement; (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (b) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (2) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (3) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (4) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-3 89 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Dallas, State of Texas, on March 3, 1994. AMERICAN INDUSTRIAL PROPERTIES REIT, INC. /s/ CHARLES W. WOLCOTT Charles W. Wolcott, President and Chief Executive Officer, Director Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURES TITLE DATE - ----------------------------------------------- ------------------------------ -------------- /s/ CHARLES W. WOLCOTT President and Chief Executive March 3, 1994 Charles W. Wolcott Officer, Director (principal executive and financial officer) * /s/ W. H. BRICKER Director March 3, 1994 W. H. Bricker * /s/ RAYMOND A. HAY Director March 3, 1994 Raymond A. Hay *By: /s/ CHARLES W. WOLCOTT Charles W. Wolcott Attorney-in-Fact
II-4 90 INDEX TO EXHIBITS
EXHIBIT SEQUENTIAL NO. DESCRIPTION PAGE NUMBER - --------- ----------------------------------------------------------------------- ----------- *3.1 -- Articles of Amendment and Restatement 3.2 -- Bylaws of the Company 4.1 -- Form of Certificate representing Common Stock of the Company 5.1 -- Opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. as to legality of the Common Stock 8.1 -- Opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. as to certain tax matters 10.1 -- Employment Agreement between the Company and Charles W. Wolcott 10.2 -- Employment Agreement between the Company and David B. Warner *10.3 -- Omnibus Common Stock Incentive Plan 10.4 -- Indenture dated as of November 15, 1985, between the Trust and IBJ Schroder Bank & Trust Company *10.5 -- 401(k) Retirement and Profit Sharing Plan 10.6 -- Note Purchase Agreement dated February 27, 1992, between the Trust and Manufacturers Life Insurance Company *10.7 -- Form of Indemnification Agreement between the Company and each of its executive officers and directors *10.8 -- Agreement and Assignment of Partnership Interest, Amended and Restated Agreement and Certificate of Limited Partnership and Security Agreement for Patapsco Center -- Linthicum Heights, Maryland *10.9 -- Deed of Trust with Security Agreement and Assignment of Rents and Leases for Beltline Center -- Irving, Texas *10.10 -- Deed of Trust with Security Agreement and Assignment of Rents and Leases of Gateway 5 & 6 -- Irving, Texas *10.11 -- Deed of Trust with Security Agreement and Assignment of Rents and Leases for Northgate II -- Dallas, Texas *10.12 -- Deed of Trust with Security Agreement and Assignment of Rents and Leases for Northview Distribution Center -- Dallas, Texas *10.13 -- Deed of Trust with Security Agreement and Assignment of Rents and Leases for Tamarac Square Specialty Mall -- Denver, Colorado *10.14 -- Deed of Trust with Security Agreement and Assignment of Rents and Leases for Tamarac Square Convenience Center -- Denver, Colorado *10.15 -- Mortgage with Security Agreement and Assignment of Rents and Leases for Quadrant -- Deerfield Beach, Florida *10.16 -- Deed of Trust with Security Agreement and Assignment of Rents and Leases for Plaza Southwest -- Houston, Texas *10.17 -- Deed of Trust with Security Agreement and Assignment of Rents and Leases for Commerce Park North -- Houston, Texas *10.18 -- Deed of Trust with Security Agreement and Assignment of Rents and Leases for Westchase Park -- Houston, Texas *10.19 -- Deed of Trust with Security Agreement and Assignment of Rents and Leases for Huntington Drive Center -- Monrovia, California
91
EXHIBIT SEQUENTIAL NO. DESCRIPTION PAGE NUMBER - ----------------------------------------------------------------------------------------------- *10.20 -- Mortgage with Security Agreement and Assignment of Rents and Leases for Northwest Business Park -- Milwaukee, Wisconsin *10.21 -- Amended and Restated Mortgage with Security Agreement and Assignment of Rents and Leases for Cahill and Burnsville -- Edina, Minnesota and Burnsville, Minnesota *10.22 -- Deed of Trust with Security Agreement and Assignment of Rents and Leases for Springbrook -- Kent, Washington *10.23 -- Dividend Reinvestment Plan 23.1 -- Consent of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. (included in Exhibit 5.1) 23.2 -- Consent of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. (included in Exhibit 8.1) *23.3 -- Consent of Kenneth Leventhal & Company, independent accountants *23.4 -- Consent of Ernst & Young, independent accountants 24.1 -- Power of Attorney (included on the signature pages of the Registration Statement) *99.1 -- Form of Proxy Card *99.2 -- Notice of Special Meeting *99.3 -- Consent to Merger of Manufacturer's Life Insurance Company *99.4 -- Questions and Answers Relating to Merger
- --------------- * Filed herewith. EX-3.1 2 ARTICLES OF AMENDMENT AND RESTATEMENT 1 EXHIBIT 3.1 ARTICLES OF AMENDMENT AND RESTATEMENT OF AMERICAN INDUSTRIAL PROPERTIES REIT, INC. THIS IS TO CERTIFY THAT: FIRST: American Industrial Properties, Inc., with its principal office in the State of Maryland and its registered agent as set forth in Articles IV and V, respectively, of these Articles of Amendment and Restatement, desires to amend and restate its Articles of Incorporation and hereby certifies that the Articles of Incorporation of the Corporation, filed with the Department of Assessments and Taxation on January 12, 1994, are hereby amended and restated as set forth in these Articles of Amendment and Restatement. SECOND: The following provisions are all of the provisions of this Charter currently in effect as hereinafter amended. ARTICLE I INCORPORATION The undersigned, Audrey T. Andrews, whose office address is 2200 Ross Avenue, Suite 900, Dallas, Texas 75201, being at least eighteen (18) years of age, does hereby form a corporation (the "Corporation") under the general laws of the State of Maryland. ARTICLE II NAME The name of the Corporation is American Industrial Properties REIT, Inc. ARTICLE III PURPOSES 3.1 General Purpose. The purpose for which the Corporation is formed and the business or objects to be carried on and promoted by it, within the State of Maryland or elsewhere, is to engage in any lawful act or activity for which corporations may be formed under the Maryland General Corporation Law, as amended from time to time (the "MGCL"). 3.2 REIT Purpose. Without limiting the generality of the foregoing purpose, business and objects, at such time or times as the Board of Directors of the Corporation (the "Board of Directors") determines that it is in the interests of the Corporation and its stockholders that the Corporation engage in the business of, and conduct its business and affairs so as to qualify as, a real estate investment trust (as that phrase is defined in the Internal Revenue Code of 1986, as amended (the "Code")), the purpose of the Corporation shall include engaging in the business 2 of a real estate investment trust ("REIT"). This reference to such purpose shall not make unlawful or unauthorized any otherwise lawful act or activity that the Corporation may take that is inconsistent with such purpose. ARTICLE IV PRINCIPAL OFFICE ADDRESS The address of the principal office of the Corporation in the State of Maryland is c/o The Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland 21202. ARTICLE V RESIDENT AGENT The Resident Agent of the Corporation is The Corporation Trust Incorporated, whose address is 32 South Street, Baltimore, Maryland 21202. Said Resident Agent is a Maryland corporation. ARTICLE VI BOARD OF DIRECTORS 6.1 Number of Directors. The Corporation shall have a Board of Directors consisting of three (3) Directors, which number may be increased or decreased in accordance with the Bylaws of the Corporation, but shall not be less than the number required by Section 2-402 of the MGCL. The following individuals shall act as Directors until the first annual meeting of the stockholders of the Corporation or until their successors are duly elected and qualified: W. H. Bricker Raymond A. Hay Charles W. Wolcott 6.2 Classification of Directors. The Board of Directors of the Corporation shall be divided into three classes, each class to consist as nearly as possible of one-third of the Directors. The term of office of one class of Directors shall expire each year. The initial term of office of the first class shall expire at the 1995 annual meeting of stockholders. The initial term of office of the second class shall expire at the 1996 annual meeting of stockholders. The initial term of office of the third class shall expire at the 1997 annual meeting of stockholders. Commencing with the 1995 annual meeting of stockholders, the Directors of the class elected at each annual meeting of stockholders shall hold office for a term of three years. Vacancies occurring by resignation, enlargement of the Board of Directors or otherwise shall be filled as specified in the Bylaws of the Corporation. - 2 - 3 ARTICLE VII AUTHORIZED CAPITAL STOCK; RIGHTS AND PREFERENCES; ISSUANCE OF STOCK 7.1 Authorized Capital Stock. The total number of shares of stock which the Corporation has authority to issue (the "Stock") is sixty million (60,000,000) shares, consisting of (i) fifty million (50,000,000) shares of common stock, par value $.01 per share ("Common Stock") (or shares of one or more classes of "Excess Common Stock" as provided in Section 9.5); and (ii) ten million (10,000,000) shares of preferred stock, par value $.01 per share ("Preferred Stock") (or one or more classes of "Excess Preferred Stock" as provided in Section 9.5). Excess Common Stock and Excess Preferred Stock shall be collectively referred to herein as "Excess Stock." The aggregate par value of all the shares of all classes of stock is $600,000. 7.2 Common Stock. 7.2.1 Dividend Rights. The holders of shares of Common Stock shall be entitled to receive such dividends as may be declared by the Board of Directors out of funds legally available therefor. 7.2.2 Rights Upon Liquidation. Subject to the rights of the holders of any shares of any series of Preferred Stock, in the event of any voluntary or involuntary liquidation, dissolution or winding up of, or any distribution of the assets of, the Corporation, each holder of shares of Common Stock shall be entitled to receive, ratably with each other holder of shares of Common Stock or Excess Common Stock, that portion of the assets of the Corporation available for distribution to the holders of its Common Stock and Excess Common Stock as the number of shares of Common Stock held by such holder bears to the total number of shares of Common Stock and Excess Common Stock then outstanding. 7.2.3 Voting Rights. The holders of shares of Common Stock shall be entitled to vote on all matters submitted to the holders of Common Stock for a vote, at all meetings of stockholders, and each holder of shares of Common Stock shall be entitled to one vote for each share of Common Stock held by such stockholder. 7.3 Preferred Stock. The Board of Directors may issue the Preferred Stock in such one or more series consisting of such numbers of shares and having such preferences, conversion and other rights, voting powers, restrictions and limitations as to dividends, qualifications and terms and conditions of redemption of stock as the Board of Directors may from time to time determine when designating such series. 7.4 Classification of Stock. The Board of Directors may classify or reclassify any unissued shares of Stock from time to time by setting or changing the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms - 3 - 4 and conditions of redemption of those shares of Stock, including, but not limited to, the reclassification of unissued shares of Common Stock to shares of Preferred Stock or unissued shares of Preferred Stock to shares of Common Stock or the issuance of any rights plan or similar plan. 7.5 Issuance of Stock. The Board of Directors may authorize the issuance from time to time of shares of Stock of any class, whether now or hereafter authorized, or securities or rights convertible into shares of Stock, or share splits or share dividends for such consideration as the Board of Directors may deem advisable (or without consideration in the case of a share split or share dividend), and without any action by the stockholders, subject to such restrictions or limitations, if any, as may be set forth in the Bylaws of the Corporation. 7.6 Stock Legend. All certificates representing shares of Stock issued by the Corporation shall bear a legend referencing the restrictions on ownership and transfer set forth in this Charter. ARTICLE VIII LIMITATION ON PREEMPTIVE RIGHTS No stockholder shall have any preferential or preemptive right to acquire additional shares of Stock, except to the extent that, and on such terms as, the Board of Directors from time to time may determine in its sole discretion. ARTICLE IX LIMITATIONS ON TRANSFER AND OWNERSHIP 9.1 Limitations on Transfer. The shares of Stock (other than Excess Stock) shall be freely transferable by the record owner thereof, subject to the provisions of Section 9.2 hereof and provided that any purported acquisition or transfer of Stock that would result in (a) the Common Stock being owned directly or indirectly by fewer than 100 persons (determined without reference to the rules of attribution under Section 544 of the Code) or (b) the Corporation being "closely held" within the meaning of Section 856(h) of the Code shall be void ab initio. Subject to the provisions of Section 9.5 hereof, any purported transfer of Stock that, if effective, would result in a violation of Section 9.2 hereof (unless excepted from the application of such Section 9.2 pursuant to Section 9.6 hereof) shall be void ab initio as to the transfer of that number of shares of Stock that would otherwise be beneficially owned by a stockholder in violation of Section 9.2 hereof, the intended transferee of such shares shall acquire no rights therein and the transfer of such shares will not be reflected on the Corporation's stock record books. For purposes of this Article IX, a "transfer" of shares of Stock shall mean any sale, transfer, gift, hypothecation, pledge, assignment or other disposition, whether voluntary or involuntary, by operation of law or otherwise. 9.2 Limitations on Ownership. Commencing on the date of the exchange of shares of Common Stock pursuant to the Corporation's first effective registration statement on Form - 4 - 5 S-4 filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Effective Date"), or such earlier time as the Board of Directors may determine, except as provided by Section 9.6 hereof, no person shall at any time directly or indirectly acquire or hold beneficial ownership of shares of Stock with an aggregate value in excess of 9.8% of the aggregate value of all outstanding Stock (the "Ownership Limit"). For purposes of this Article IX, (a) the value of any share of Stock shall be reasonably determined in the manner established by the Board of Directors and (b) a person (which includes natural persons, corporations, trusts, partnerships and other entities) shall be deemed to be the beneficial owner of the Stock that such person (i) actually owns, (ii) constructively owns after applying the rules of Section 544 of the Code, as modified in the case of a REIT by Section 856(h) of the Code, and (iii) has the right to acquire upon exercise of outstanding rights, options and warrants, and upon conversion of any securities convertible into Stock, if any. 9.3 Stockholder Information. Each stockholder shall, upon demand of the Corporation, disclose to the Corporation in writing such information with respect to his or its direct and indirect beneficial ownership of the Stock as the Board of Directors in its discretion deems necessary or appropriate in order that the Corporation may fully comply with all provisions of the Code relating to REITs and all regulations, rulings and cases promulgated or decided thereunder (the "REIT Provisions") and to comply with the requirements of any taxing authority or governmental agency. All persons who have acquired or who hold, directly or indirectly, beneficial ownership of shares of Stock with an aggregate value in excess of 9.8% of the aggregate value of all outstanding Stock must disclose in writing such ownership information to the Corporation no later than January 31 of each year. 9.4 Transferee Information. No later than the 50th day prior to any transfer which, if effected, would result in the intended transferee owning shares in excess of the Ownership Limit, the intended transferee shall provide to the Board if Directors an affidavit setting forth the number of shares of Stock already beneficially owned by such intended transferee. In addition, whenever the Board of Directors deems it reasonably necessary to protect the tax status of the Corporation as a REIT under the REIT Provisions, the Board of Directors may require a statement or affidavit from each stockholder setting forth the number of shares of Stock beneficially owned by such stockholder. Subject to the terms of Section 9.10 hereof, if, in the opinion of the Board of Directors, any proposed transfer may jeopardize the qualification of the Corporation as a REIT, the Board of Directors shall have the right, but not the duty, to refuse to permit the transfer of such Stock to the proposed transferee. All contracts for the sale or other transfer of stock shall be subject to this Section 9.4. 9.5 Excess Stock. 9.5.1 Creation of Excess Stock. If, notwithstanding the other provisions contained in this Article IX, at any time after the Effective Date there is a purported transfer of Stock or a change in the capital structure of the Corporation (including any redemption of Excess Stock pursuant to subsection 9.5.7 hereof) such that any person would beneficially own Stock in excess of the Ownership Limit then, except as otherwise - 5 - 6 provided in Section 9.6 hereof, such shares of Stock in excess of the Ownership Limit (rounded up to the nearest whole share), shall be automatically deemed an equal number of shares of Excess Stock. 9.5.2 Ownership in Trust. Upon any purported transfer of Stock that results in Excess Stock pursuant to subsection 9.5.1 hereof, such Excess Stock shall be deemed to have been transferred to the Corporation, as trustee of a separate trust for the exclusive benefit of the person or persons to whom such Excess Stock can ultimately be transferred without violating the Ownership Limit. Shares of Excess Stock so held in trust shall be issued and outstanding Stock of the Corporation under the MGCL. The purported transferee of Excess Stock shall have no rights in such Excess Stock, except the right to designate a transferee of its interest in the trust created under this subsection 9.5.2 upon the terms specified in subsection 9.5.6 hereof. If any of the restrictions on transfer set forth in this Article IX are determined to be void, invalid or unenforceable by virtue of any legal decision, statute, rule or regulation, then the intended transferee of any Excess Stock may be deemed, at the option of the Corporation, to have acted as an agent on behalf of the Corporation in acquiring the Excess Stock and to hold the Excess Stock on behalf of the Corporation. 9.5.3 Dividend Rights. Excess Stock shall not be entitled to any dividends. Any dividend or distribution paid prior to the discovery by the Corporation that shares of Stock have been deemed Excess Stock shall be repaid to the Corporation upon demand, and any dividend or distribution declared but unpaid shall be rescinded as voidab initio with respect to such shares of Excess Stock. 9.5.4 Rights Upon Liquidation. In the event of any voluntary or involuntary liquidation, dissolution or winding up of, or any distribution of the assets of, the Corporation, each holder of shares of Excess Common Stock shall be entitled to receive, ratably with each other holder of shares of Common Stock or Excess Common Stock, that portion of the assets of the Corporation available for distribution to the holders of shares of Excess Common Stock as the number of shares of Excess Common Stock held by such holder bears to the total number of shares of Common Stock and Excess Common Stock then outstanding. In the event of any voluntary liquidation, dissolution or winding up of, or any distribution of the assets of, the Corporation, each holder of shares of Excess Preferred Stock shall be entitled to receive the pro rata share of the assets of the Corporation available for distribution to the holders of Preferred Stock of the series from which such Excess Stock was created. The Corporation, as the holder of all Excess Stock in one or more trusts, or, if the Corporation shall have been dissolved, any trustee appointed by the Corporation prior to its dissolution, shall distribute to each transferee of an interest in such a trust pursuant to subsection 9.5.6 hereof, when determined, any assets received in any liquidation, dissolution or winding up of, or any distribution of the assets of, the Corporation in respect of the Excess Stock held in such trust and represented by the trust interest transferred to such transferee. - 6 - 7 9.5.5 Voting Rights. No stockholder may vote any shares of Excess Stock. The shares of Excess Stock will not be considered for purposes of any stockholder vote or for purposes of determining a quorum for such a vote. 9.5.6 Restrictions on Transfer. Excess Stock shall not be transferable. The purported transferee of any shares of Stock that are deemed Excess Stock pursuant to subsection 9.5.1 hereof (the "Initial Transferee") may freely designate a transferee (the "Subsequent Transferee") of the interest in the trust that represents such shares of Excess Stock, if (a) the shares of Excess Stock held in the trust and represented by the trust interest to be transferred would not be Excess Stock in the hands of the Subsequent Transferee, and (b) the Initial Transferee does not receive a price for the trust interest in excess of (i) the price the Initial Transferee paid for the Stock in the purported transfer of Stock that resulted in the Excess Stock represented by the trust interest or (ii) if the Initial Transferee did not give value for such Stock (e.g., the shares were received through a gift, devise or other transaction), a price equal to the aggregate Market Price (as defined in subsection 9.5.7 hereof) for all shares of the Stock that were deemed Excess Stock on the date of the purported transfer that resulted in the Excess Stock. No interest in a trust may be transferred unless the Initial Transferee of such interest has given advance written notice to the Corporation of the designation of the Subsequent Transferee. Upon the transfer of an interest in a trust in compliance with this subsection 9.5.6, the corresponding shares of Excess Stock that are represented by the transferred interest in the trust shall be automatically deemed an equal number of shares of Stock of the same class and series from which the corresponding shares of Excess Stock were originally created, such shares of Stock shall be transferred of record to the Subsequent Transferee, and the interest in the trust representing such Excess Stock shall automatically terminate. 9.5.7 Corporation's Redemption Right. All shares of Excess Stock shall be deemed to have been offered by the Initial Transferee for sale to the Corporation, or its designee, at a price per share equal to the lesser of (a) the price per share of Stock in the transaction that created such Excess Stock (or, in the case of devise or gift, the Market Price per share of such Stock at the time of such devise or gift) or (b) the Market Price per share of Stock of the class of Stock for which such Excess Stock was created on the date the Corporation or its designee, accepts such offer. The Corporation shall have the right to accept such offer for a period ending on the earlier of (i) ninety (90) days after (a) the date of the purported transfer that resulted in such Excess Stock if the Initial Transferee notified the Corporation of such purported transfer within ten (10) days thereof or (b) the date on which the Board of Directors determines in good faith that the purported transfer resulting in Excess Stock occurred if the Corporation was not notified of the purported transfer by the Initial Transferee and (ii) the date on which the Initial Transferee gives notice of its intent to transfer its trust interest to a Subsequent Transferee. For purposes of this Article IX, "Market Price" means for any share of Stock, the average daily per share closing sales price of a share of such Stock if shares of such Stock are listed on a national securities exchange or quoted on the National Association of Securities Dealers Automated Quotation National Market System ("NASDAQ NMS"), and if such shares are not so listed or quoted, the Market Price - 7 - 8 shall be the mean between the average per share closing bid prices and the average per share closing asked prices, in each case during the 30 calendar day period ending on the business day prior to the redemption date, or if there have been no sales on a national securities exchange or on the NASDAQ NMS and no published bid and asked quotations with respect to shares of such Stock during such 30 calendar day period, the Market Price shall be the price determined by the Board of Directors in good faith. Payment of all of the amount determined as the redemption payment for Stock redeemed in accordance with this subsection 9.5.7 shall be made within 30 days of the date on which the Corporation shall have notified the Initial Transferee in writing of the Corporation's intent to exercise its redemption rights. No interest shall accrue on any redemption payment with respect to the period subsequent to the redemption date to the date of the redemption payment. Notwithstanding anything in this subsection 9.5.7 to the contrary, the Corporation's redemption rights with respect to any Excess Stock shall terminate upon any transfer of the trust interest relating thereto to a Subsequent Transferee. 9.6 Exceptions to Certain Ownership and Transfer Limitations. The Ownership Limit set forth in Section 9.2 hereof shall not apply to the following shares of Stock and such shares shall not be deemed to be Excess Stock at the times and subject to the terms and conditions set forth in this Section 9.6: 9.6.1 Exemption by Board of Directors. Subject to the provisions of Section 9.7 hereof, shares of Stock which the Board of Directors in its sole discretion may exempt from the Ownership Limit while owned by a person who has provided the Corporation with evidence and assurances acceptable to the Board of Directors that the qualification of the Corporation as a REIT would not be jeopardized thereby. 9.6.2 Stock Held by Underwriters. Subject to the provisions of Section 9.7 hereof, shares of Stock acquired and held by an underwriter in a public offering of Stock, or in any transaction involving the issuance of Stock by the Corporation in which the Board of Directors determines that the underwriter or other person or party initially acquiring such Stock will make a timely distribution of such Stock to or among other holders such that, at all times prior to and following such distribution, the Corporation will continue to be in compliance with the REIT Provisions. 9.6.3 Shares Issued to Texas REIT. Shares of Stock issued by the Corporation to American Industrial Properties REIT, a Texas real estate investment trust (the "Texas REIT"). 9.7 Authority to Revoke Exceptions to Limitations. The Board of Directors, in its sole discretion, may at any time revoke any exception pursuant to subsection 9.6.1 or 9.6.2 hereof in the case of any stockholder, and upon such revocation, the provisions of Sections 9.2 and 9.5 hereof shall immediately become applicable to such stockholder and all Stock of which such stockholder may be the beneficial owner. A decision to exempt or refuse to exempt from the Ownership Limit the ownership of certain designated shares of Stock, or to revoke an exemption previously granted, shall be made by the Board of Directors in its sole discretion, - 8 - 9 based on any reason whatsoever, including, but not limited to, the preservation of the Corporation's qualification as a REIT. 9.8 Severability. If any provision of this Article IX or any application of any such provision is determined to be invalid by any federal or state court having jurisdiction, the validity of the remaining provisions of this Article IX shall not be affected and other applications of such provision shall be affected only to the extent necessary to comply with the determination of such court. To the extent this Article IX may be inconsistent with any other provision of this Charter, this Article IX shall be controlling. 9.9 Authority of the Board of Directors. Subject to Section 9.10 hereof, nothing contained in this Article IX or in any other provisions of this Charter shall limit the authority of the Board of Directors to take such action as it deems necessary or advisable to protect the Corporation and the interests of the stockholders by preservation of the Corporation's qualification as a REIT under the REIT Provisions, provided that no such action may be taken to amend or delete Section 9.10 hereof. In applying the provisions of this Article IX, the Board of Directors may take into account the lack of certainty in the REIT Provisions relating to the ownership of stock that may prevent a corporation from qualifying as a REIT and may make interpretations concerning the Ownership Limit, Excess Stock, beneficial ownership and related matters as conservatively as the Board of Directors deems advisable to minimize or eliminate uncertainty as to the Corporation's continued qualification as a REIT. Notwithstanding any other provisions of this Charter, if the Board of Directors determines that it is no longer in the best interests of the Corporation and the stockholders to continue to have the Corporation qualify as a REIT, the Board of Directors may revoke or otherwise terminate the Corporation's REIT election pursuant to Section 856(g) of the Code. 9.10 New York Stock Exchange. Nothing in this Article IX shall preclude the settlement of any transaction entered into through the facilities of the New York Stock Exchange. ARTICLE X RIGHTS AND POWERS OF CORPORATION, BOARD OF DIRECTORS AND OFFICERS In carrying on its business, or for the purpose of attaining or furthering any of its objects, the Corporation shall have all of the rights, powers and privileges granted to a corporation by the laws of the State of Maryland, as well as the power to do any and all acts and things that a natural person or partnership could do as now or hereafter authorized by law, either alone or in partnership or conjunction with others. In furtherance and not in limitation of the powers conferred by statute, the powers of the Corporation and of the Directors and stockholders shall include the following: 10.1 Certain Contracts. Any Director or officer individually, or any firm of which any Director or officer may be a member, or any corporation or association of which any Director or officer may be a director or officer or in which any Director or officer may be interested as - 9 - 10 the holder of any amount of its capital stock or otherwise, may be a party to, or may be pecuniarily or otherwise interested in, any contract or transaction of the Corporation, and in the absence of fraud, no contract or other transaction shall be thereby affected or invalidated; provided, however, that (a) such fact shall have been disclosed or shall have been known to the Board of Directors or the committee thereof that authorized, approved or ratified such contract or transaction and such contract or transaction shall have been approved or satisfied by the affirmative vote of a majority of the disinterested Directors, or (b) such fact shall have been disclosed or shall have been known to the stockholders entitled to vote, and such contract or transaction shall have been authorized, approved or ratified by a majority of the votes cast by the stockholders entitled to vote, other than the votes of shares owned of record or beneficially by the interested Director or corporation, firm or other entity, or (c) the contract or transaction is fair and reasonable to the Corporation. Any Director of the Corporation who is also a director or officer of or interested in such other corporation or association, or who, or the firm of which he is a member, is so interested, may be counted in determining the existence of a quorum at any meeting of the Board of Directors which shall authorize any such contract or transaction, with like force and effect as if he were not such director or officer of such other corporation or association or were not so interested or were not a member of a firm so interested. 10.2 Charter Amendments. The Corporation reserves the right, from time to time, to make any amendment of this Charter, now or hereafter authorized by law, including any amendment which alters the contract rights, as expressly set forth in this Charter, of any outstanding Stock. 10.3 Powers of Board of Directors. Except as otherwise provided in this Charter or the Bylaws of the Corporation, as amended from time to time, the business of the Corporation shall be managed by its Board of Directors. The Board of Directors shall have and may exercise all the rights, powers and privileges of the Corporation except only for those that are by law, this Charter or the Bylaws of the Corporation, conferred upon or reserved to the stockholders. Additionally, the Board of Directors is hereby specifically authorized and empowered from time to time in its discretion: 10.3.1 Borrowing Money and Issuance of Indebtedness. To borrow and raise money, without limit and upon any terms for any corporate purposes; and, subject to applicable law, to authorize the creation, issuance, assumption, or guaranty of bonds, debentures, notes or other evidences of indebtedness for money so borrowed, to include therein such provisions as to redeemability, convertibility or otherwise, as the Board of Directors, in its sole discretion, determines, and to secure the payment of principal, interest or sinking fund in respect thereof by mortgage upon, or the pledge of, or the conveyance or assignment in trust of, all or any part of the properties, assets and goodwill of the Corporation then owned or thereafter acquired. 10.3.2 Bylaws. To make, alter, amend, change, add to or repeal the Bylaws of the Corporation in accordance with the terms of the Bylaws adopted by the Board of Directors pursuant to Section 2-109 of the MGCL. - 10 - 11 10.3.3 Dividends. To the extent permitted by law, to declare and pay dividends or other distributions to the stockholders from time to time out of the earnings, earned surplus, paid-in surplus or capital of the Corporation, notwithstanding that such declaration may result in the reduction of the capital of the Corporation. In connection with any dividends or other distributions upon the Stock, the Corporation need not reserve any amount from such dividend or other distributions to satisfy any preferential rights of any stockholder. 10.4 Stockholder Vote Required. Notwithstanding any provision of law requiring the authorizing of any action by a greater proportion than a majority of the total number of shares of all classes of capital stock or of the total number of shares of any class of capital stock, such action shall be valid and effective if authorized by the affirmative vote of the holders of a majority of the total number of shares of all classes of Stock outstanding and entitled to vote thereon, except as otherwise provided in this Charter. ARTICLE XI INDEMNIFICATION The Corporation shall indemnify (a) its Directors and officers, whether serving the Corporation or at its request any other entity, to the fullest extent required or permitted by the General Laws of the State of Maryland now or hereafter in force, including the advancement of expenses and to the fullest extent permitted by law and (b) other employees and agents to such extent as shall be authorized by the Board of Directors or the Corporation's Bylaws and be permitted by law. The foregoing rights of indemnification shall not be exclusive of any other rights to which those seeking indemnification may be entitled. The Board of Directors may take such action as is necessary to carry out these indemnification provisions and is expressly empowered to adopt, approve and amend from time to time such Bylaws, resolutions or contracts implementing such provisions or such further indemnification arrangements as may be permitted by law. No amendment of the charter of the Corporation or repeal of any of its provisions shall limit or eliminate the right to indemnification provided hereunder with respect to acts or omissions occurring prior to such amendment or repeal. ARTICLE XII LIMITATION OF LIABILITY To the fullest extent permitted by Maryland statutory or decisional law, as amended or interpreted, no Director or officer shall be personally liable to the Corporation or its stockholders for money damages. Neither the amendment or the repeal of this Article XII, nor the adoption of any other provision in this Charter inconsistent with this Article XII, shall eliminate or reduce the protection afforded by this Article XII to a Director or officer of the Corporation with respect to any matter which occurred, or any cause of action, suit or claim which but for this Article XII would have accrued or arisen, prior to such amendment, repeal or adoption. - 11 - 12 ARTICLE XIII SPECIAL VOTING REQUIREMENTS Pursuant to Section 3-603(e)(1)(iii) of the MGCL, the Corporation expressly elects not to be governed by the provisions of Section 3-602 of the MGCL with respect to any business combination (as defined in Section 3-601 of the MGCL) involving the Texas REIT, or any present or future affiliates or associates (as such terms are defined in Section 3-601 of the MGCL) of the Texas REIT. The provisions of Title 3, Subtitle 7 of the MGCL shall not apply to the voting rights of Stock presently or in the future owned or acquired by the Texas REIT or any present or future affiliates or associates (as such terms are defined in Section 3-601 of the MGCL) of the Texas REIT. ARTICLE XIV DURATION The duration of the Corporation shall be perpetual. ARTICLE XV INDEMNIFICATION OF INCORPORATOR The Corporation shall indemnify and hold the undersigned incorporator of the Corporation harmless from and against any and all loss, cost, damage, expense (including, without limitation, attorneys' fees and expenses) for liability caused by, resulting from or arising out of any action taken or authorized by the incorporator of the Corporation in respect of the incorporation and organization of the Corporation in what she deemed to be in or not opposed to the best interests of the Corporation. THIRD: The amendment to and restatement of the Charter of the Corporation as hereinabove set forth has been duly authorized and approved by a majority of the Board of Directors and approved by the sole stockholder of the Corporation as required by law. FOURTH: The number of directors of the Corporation is three, and the names of the directors currently in office are W.H. Bricker, Raymond A. Hay and Charles W. Wolcott. FIFTH: (a) The total number of shares of stock of all classes which the Corporation has authority to issue is set forth in Article VII of these Articles of Amendment and Restatement. - 12 - 13 (b) The total number of shares of stock of all classes of the Corporation and the number and par value of the shares of each class are not amended by the foregoing amendment and restatement of the Charter. (c) The preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption are not amended by the foregoing amendment and restatement of the Charter. - 13 - 14 IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment and Restatement to be signed in its name and on its behalf by its President and attested to by its Secretary on this 22nd day of February, 1994. AMERICAN INDUSTRIAL PROPERTIES REIT, INC. /s/ CHARLES W. WOLCOTT ________________________________________ Charles W. Wolcott President and Chief Executive Officer Attest: /s/ DAVID B. WARNER ______________________________________ David B. Warner, Secretary The undersigned President acknowledges the foregoing Articles of Amendment and Restatement to be the act of American Industrial Properties, Inc., and as to all matters or facts to be verified under oath, the undersigned acknowledges to the best of his knowledge, information and belief, these matters and facts, including those with respect to the authorization and approval of the Articles of Amendment and Restatement, are true in all material respects and that this statement is made under penalties of perjury. AMERICAN INDUSTRIAL PROPERTIES REIT, INC. /s/ CHARLES W. WOLCOTT ________________________________________ Charles W. Wolcott President and Chief Executive Officer 106678 - 14 - EX-10.3 3 OMNIBUS COMMON STOCK INCENTIVE PLAN 1 EXHIBIT 10.3 AMERICAN INDUSTRIAL PROPERTIES REIT, INC. OMNIBUS STOCK OPTION PLAN JANUARY 12, 1994 2 AMERICAN INDUSTRIAL PROPERTIES REIT, INC. OMNIBUS STOCK OPTION PLAN ARTICLE I DEFINITIONS 1.01 Affiliate means any "subsidiary corporation" or "parent corporation" as such terms are defined in Sections 424(d) and 424(e) of the Code, respectively. 1.02 Agreement means a written agreement (including any amendment or supplement thereto) between the Company and a Participant specifying the terms and conditions of an award of Restricted Stock or an Option or SAR granted to such Participant. 1.03 Code means the Internal Revenue Code of 1986, and any amendments thereto. 1.04 Committee means a committee of the Board of Directors appointed to administer the Plan. 1.05 Company means American Industrial Properties REIT, Inc., a Maryland corporation. 1.06 Corresponding SAR means an SAR that is granted in relation to a particular Option and that can be exercised only upon the surrender to the Company, unexercised, of that portion of the Option to which the SAR relates. 1.07 Date of Exercise means, (i) with respect to an Option, the date that the Option price is received by the Company and (ii) with respect to an SAR, the date that the notice of exercise is received by the Company. 1.08 Effective Date means January 12,1994. 1.09 Fair Market Value means, on any given date, the closing price of the Common Stock. If shares were not traded on such date, then the Fair Market Value is determined with reference to the next preceding day that shares of Common Stock were so traded. 1.10 Incentive Option means an option to purchase shares of Common Stock which qualifies under Section 422 of the Code. 1.11 Initial Value means with respect to an SAR, the Fair Market Value of one share of Common Stock on the date of grant, as set forth in the Agreement. 1.12 Option means an option that entitles the holder to purchase from the Company a stated number of shares of Common Stock at the price set forth in an Agreement, and includes both Incentive Option and non Incentive Options. 1.13 Participant means an employee of the Company or of an Affiliate, including an employee who is a member of the Board, who satisfies the requirements of Article IV and is selected by the Committee to receive a Restricted Stock award, an Option, an SAR, or a combination thereof. 1.14 Plan means the American Industrial Properties REIT, Inc. Omnibus Stock Option Plan. 1.15 Restricted Stock means shares of Common Stock awarded to a Participant under Article IX. Stock shall cease to be Restricted Stock when, in accordance with the terms of the 3 applicable Agreement, they become transferable and free of substantial risks of forfeiture. 1.16 SAR means a stock appreciation right that entitles the holder to receive, with respect to each share of Common Stock encompassed by the exercise of such SAR, the amount determined by the Committee and specified in an Agreement. In the absence of such a determination, the holder shall be entitled to receive, with respect to each share of Common Stock encompassed by the exercise of such SAR, the excess of the Fair Market Value on the Date of Exercise over the Initial Value. References to "SARs" include both Corresponding SARs and SARs granted independently of Options unless the context requires otherwise. 1.17 Stock means shares of Common Stock, $0.01 par value, of the Company. 3 4 ARTICLE II PURPOSE The Plan is intended to assist the Company in recruiting, retaining and rewarding employees with ability and initiative by enabling employees to participate in its future success and to associate their interests with those of the Company and its stockholders. The Plan is intended to permit the award of Restricted Stock, the grant of SARs, and the grant of both Incentive Options and non Incentive Options. No Option that is intended to be an Incentive Option shall be invalid for failure to qualify as an Incentive Option. The proceeds received by the Company from the sale of Stock pursuant to this Plan shall be used for general business purposes. ARTICLE III ADMINISTRATION Except as provided in this Article III, the Plan shall be administered by the Committee. The Committee shall have authority to award Restricted Stock and to grant Options and SARs upon such terms (not inconsistent with the provisions of this Plan) as the Committee may consider appropriate. Such terms may include conditions (in addition to those contained in this Plan) on the exercisability of all or any part of an Option or SAR or on the transferability or forfeitability of Restricted Stock. Notwithstanding any such conditions, the Committee may, in its discretion, accelerate the time at which any Option or SAR may be exercised or the time at which Restricted Stock may become transferable or nonforfeitable. In addition, the Committee shall have complete authority to interpret all provisions of this Plan; to prescribe the form of agreements; to adopt, amend, and rescind rules and regulations pertaining to the administration of the Plan; and to make all other determinations necessary or advisable for the administration of this Plan. The express grant in the Plan of any specific power to the Committee shall not be construed as limiting any power or authority of the Committee. Any decision made, or action taken, by the Committee or in connection with the administration of this Plan shall be final and conclusive. No member of the Committee shall be liable for any act done in good faith with respect to this Plan or any agreement, Option, SAR or Restricted Stock award. All expenses of administering this Plan shall be borne by the Company. The Committee, in its discretion, may delegate to one or more officers of the Company, all or part of the Committee's authority and duties with respect to participants who are not subject to the reporting and other provisions of Section 16 of the Securities Exchange Act of 1934, as in effect from time to time. In the event of such delegation, and as to the matters encompassed by the delegation, references in the Plan to the Committee shall be interpreted as reference to the Committee's delegate or delegates. The Committee may revoke or amend the terms of a delegation at any time but such action shall not invalidate any prior actions of the 4 5 Committee's delegate or delegates that were consistent with the terms of the Plan. ARTICLE IV ELIGIBILITY 4.01 GENERAL. Any employee of the Company or of any Affiliate (including any corporation that becomes an Affiliate after the adoption of this Plan) is eligible to participate in this Plan if the Committee, in its sole discretion, determines that such person has contributed or can be expected to contribute to the profits or growth of the Company or any Affiliate. Any such employee may be awarded shares of Restricted Stock or may be granted one or more Options, SARs, or Options and SARs. A director of the Company who is an employee of the Company or an Affiliate may be awarded shares of Restricted Stock and may be granted Options or SARs under this Plan. A member of the Committee may not participate in this Plan during the time that his participation would prevent the Committee from being "disinterested" for purposes of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, as in effect from time to time. 4.02 GRANTS. The Committee will designate individuals to whom Restricted Stock is to be awarded and to whom Options and SARs are to be granted and will specify the number of shares of Stock subject to each award or grant. An Option may be granted with or without a related SAR. An SAR may be granted with or without a related Option. All Restricted Stock awarded, and all Options and SARs granted, under this Plan shall be evidenced by agreements which shall be subject to applicable provisions of this Plan and to such other provisions as the Committee may adopt. No participant may be granted Incentive Options or related SARs (under all Incentive Option plans of the Company and its Affiliates) which are first exercisable in any calendar year for stock having an aggregate fair market value (determined as of the date an Incentive Option is granted) exceeding $100,000. The preceding annual limitations shall not apply with respect to Options that are not Incentive Options. ARTICLE V STOCK SUBJECT TO PLAN 5.01 SOURCES OF SHARES. Upon the award of Restricted Stock, the Company may issue authorized but unissued shares of Stock. Upon the exercise of any Option or SAR, the Company may deliver to the participant (or the participant's broker if the participant so directs), authorized but unissued shares of Stock. 5.02 MAXIMUM NUMBER OF SHARES. The maximum aggregate number of shares of Stock that may be issued pursuant to the exercise of Options and SARs and the award of Restricted Stock under this Plan is 182,000, subject to increases and adjustments as provided in this Article V and Article X. 5 6 5.03 REPLENISHMENT. The maximum number of shares of Stock authorized for issuance under this Plan under Section 5.02 shall be increased each year by 6% (the Replenishment Percentage) of the amount, if any, by which the total number of shares of Stock outstanding as of the last day of the Company's fiscal year exceeds the total number of shares of Stock outstanding as of the first day of such fiscal year. The issuance of Stock under this Plan and the application of Article X shall be disregarded for purposes of applying the preceding sentence. This Section 5.03 shall first apply with respect to the fiscal year of the Company beginning on January 1, 1995. 5.04 INCENTIVE STOCK OPTIONS. Section 5.02 to the contrary notwithstanding, the maximum aggregate number of shares of Stock that may be issued pursuant to the exercise of Options that are Incentive Options granted under this Plan is 182,000, subject to adjustment as provided in Article X. 5.05 FORFEITURES, ETC. If an Option or SAR is terminated, in whole or in part, for any reason other than its exercise, the number of shares of Stock allocated to the Option or SAR or portion thereof may be reallocated to other Options, SARs, and Restricted Stock awards to be granted under this Plan. Any Restricted Stock that is forfeited may be reallocated to other Options, SARs or Restricted Stock awards to be granted under this Plan. ARTICLE VI OPTION PRICE The exercise price of an Option shall be determined by the Committee on the date of grant; provided, however, that the price per share purchased on the exercise of any Option that is an Incentive Option shall not be less than the fair market value of the underlying Stock on the date the Option is granted. ARTICLE VII EXERCISE OF OPTIONS 7.01 MAXIMUM OPTION OR SAR PERIOD. The maximum period in which an Option or SAR may be exercised shall be determined by the Committee on the date of grant except that no Option that is an Incentive Option and any corresponding SAR that relates to such Option shall be exercisable after the expiration of 10 years from the date the Option or SAR was granted. The terms of any Option or SAR may provide that it is exercisable for a period less than such maximum period. 7.02 NONTRANSFERABILITY. Any Option or SAR granted under this Plan shall be nontransferable except by will or by laws of descent and distribution. In the event of any such transfer, the Option and any corresponding SAR that relates to such Option must be transferred to the same person or persons or entity or entities. During the lifetime of the Participant to whom the Option or SAR is granted, the Option or SAR may be exercised only by the 6 7 Participant. No right or interest of a Participant in any Option or SAR shall be liable for, or subject to, any lien, obligation, or liability of each Participant. 7.03 EMPLOYEE STATUS. For purposes of determining the applicability of Section 422 of the Code (relating to incentive stock options), or in the event that the terms of any Option or SAR provide that it may be exercised only during employment or within a specified period of time after termination of employment, the Committee may decide to what extent leaves of absences for governmental or military service, illness, temporary disability, or other reasons shall not be deemed interruptions of continuous employment. ARTICLE VIII METHOD OF EXERCISE 8.01 EXERCISE. An Option or SAR granted under this Plan shall be deemed to have been exercised on the date of exercise. Subject to the provisions of Articles VII and XI, an option or SAR may be exercised in whole at any time or in part from time to time at such times and in compliance with such requirements as the Committee shall determine; provided, however, that a corresponding SAR that is related to an Incentive Option may be exercised only to the extent that the related Option is exercisable and only when the Fair Market Value exceeds the option price of the related Option. An Option or SAR granted under this Plan may be exercised with respect to any number of whole shares less than the full number of whole shares for which the Option or SAR could be exercised. A partial exercise of an Option or SAR shall not affect the right to exercise the Option or SAR from time to time in accordance with this Plan and the applicable Agreement with respect to remaining shares subject to the Option or related to the SAR. The exercise of either an Option or Corresponding SAR shall result in the termination of the other to the extent of the number of shares with respect to which the Option or Corresponding SAR is exercised. 8.02 PAYMENT. Unless otherwise provided by the Agreement, payment of the Option price shall be made in cash or a cash equivalent acceptable to the Committee. If the Agreement provides, payment of all or part of the Option price may be made by surrendering Stock to the Company. If Stock is used to pay all or part of the Option price, the Stock surrendered must have Fair Market Value (determined as of the day preceding the Date of Exercise) that is not less than such price or part thereof. 8.03 INSTALLMENT PAYMENT. Section 8.02 to the contrary notwithstanding, the Agreement may provide that payment of all or part of the Option price may be made in installments. In that event, the Company shall lend the Participant an amount equal to not more than 90 percent (90%) of the purchase price of Stock acquired upon the exercise of the Option. The principal amount of the loan shall be repayable in not more than five annual installments, unless the amount of the loan exceeds the maximum loan value for the Stock purchased which value shall be established 7 8 from time to time by regulations of the Committee of Governors of the Federal Reserve System in which event the loan shall be repayable in equal quarterly installments over a period of time not to exceed five years. The Participant shall pay interest on the unpaid principal balance at the minimum rate necessary to avoid imputed interest or original interest discount under the Code. All shares of Stock acquired with cash borrowed from the Company shall be pledged to the Company as security for the repayment thereof. In the discretion of the Committee, Stock may be released from such pledge proportionately as payments of the note (together with interest) are made, provided that the release of such Stock complies with the then applicable regulations of the Federal Reserve System relating to securities credit transactions. While Stock is so pledged, and so long as there has been no default in the installment payments, such Stock shall remain registered in the name of the Participant, and he shall have the right to vote such Stock and to receive all dividends thereon. 8.04 DETERMINATION OF PAYMENT OF CASH AND/OR STOCK UPON EXERCISE OF SAR. At the Committee's discretion, the amount payable as a result of the exercise of an SAR may be settled in cash, Stock, or a combination of cash and Stock. A fractional share shall not be deliverable upon the exercise of an SAR but a cash payment will be made in lieu thereof. 8.05 STOCKHOLDER RIGHTS. No Participant shall have any rights as a stockholder with respect to Stock subject to his option or SAR until the Date of Exercise of such Option or SAR. ARTICLE IX RESTRICTED STOCK 9.01 AWARD. In accordance with the provisions of Article IV, the Committee will designate each individual to whom an award of Restricted Stock is to be made and will specify the number of shares of Stock covered by the award. 9.02 VESTING. The Committee, on the date of the award, may prescribe that a Participant's rights in the Restricted Stock shall be forfeitable or otherwise restricted for a period of time set forth in the Agreement. By way of example and not of limitation, the restrictions may postpone transferability of the shares or may provide that the shares will be forfeited if the Participant is no longer an employee or director of the Company and its Affiliates before the expiration of a stated term or if the Company, the Company and its Affiliates or the Participant fail to achieve stated objectives. 9.03 STOCKHOLDER RIGHTS. Prior to their forfeiture in accordance with the terms of the Agreement and while the Stock is Restricted Stock, a Participant will have all rights of a stockholder with respect to Restricted Stock, including the right to receive dividends and vote the Stock; provided, however, that (i) a 8 9 Participant may not sell, transfer, pledge, exchange, hypothecate, or otherwise dispose of Restricted Stock, (ii) the Company shall retain custody of the certificates evidencing Restricted Stock, and (iii) the Participant will deliver to the Company a stock power endorsed in blank, with respect to each award of Restricted Stock. The limitations set forth in the preceding sentence shall not apply after the Stock ceases to be Restricted Stock. ARTICLE X ADJUSTMENTS The maximum number of shares of Restricted Stock which may be awarded and as to which Options and SARs may be granted under this Plan and the Replenishment Percentage of Section 5.03 shall be proportionately adjusted, and the terms of outstanding Restricted Stock awards, Options, and SARs shall be adjusted, as the Committee shall determine to be equitably required in the event that (a) the Company (i) effects one or more share dividends, Stock split-ups, subdivisions or consolidations of Stock or (ii) engages in a transaction to which Section 424 of the Code applies or (b) there occurs any other event which, in the judgment of the Committee, necessitates such action. Any determination made under this Article X by the Committee shall be final and conclusive. The issuance by the Company of shares of any class, or securities convertible into shares of any class, for cash or property, or for labor or services, either upon direct sale or upon exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, outstanding awards of Restricted Stock, Options or SARs. The Committee may award Restricted Stock, may grant Options, and may grant SARs in substitution for Stock awards, Stock options, Stock appreciation rights, or similar awards held by an individual who becomes an employee of the Company or an Affiliate in connection with a transaction described in the first paragraph of this Article X. Notwithstanding any provision of the Plan (other than the limitation of Article V), the terms of such substituted Restricted Stock awards and Option or SAR grants shall be as the Committee, in its discretion, determines is appropriate. ARTICLE XI COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES No Option or SAR shall be exercisable, no Stock shall be issued, no certificates for Stock shall be delivered, and no payment shall be made under this Plan except in compliance with all applicable federal and state laws and regulations (including, without limitation, withholding tax requirements) and the rules of all domestic stock exchanges on which the Company's Stock may be listed. The Company shall have the right to rely on an opinion of its counsel as to such compliance. Any Stock certificate issued to evidence Stock for which Restricted Stock is awarded or for which 9 10 an Option or SAR is exercised may bear such legends and statements as the Committee may deem advisable to assure compliance with federal and state laws and regulations. No Option or SAR shall be exercisable, no Stock shall be issued, no certificate for Stock shall be delivered, and no payment shall be made under this Plan until the Company has obtained such consent or approval as the Committee may deem advisable from regulatory bodies having jurisdiction over such matters. ARTICLE XII GENERAL PROVISIONS 12.01 EFFECT ON EMPLOYMENT. Neither the adoption of this Plan, its operation, nor any documents describing or referring to this Plan (or any part thereof) shall confer upon any employee any right to continue in the employ of the Company or an Affiliate or in any way affect any right and power of the Company or an Affiliate to terminate the employment of any employee at any time with or without assigning a reason therefor. 12.02 UNFUNDED PLAN. The Plan, insofar as it provides for grants, shall be unfunded, and the Company shall not be required to segregate any assets that may at any time be represented by grants under this Plan. Any liability of the Company to any person with respect to any grant under this Plan shall be based solely upon any contractual obligations that may be created pursuant to this Plan. No such obligation of the Company shall be deemed to be secured by any pledge of, or other encumbrance on, any property of the Company. 12.03 RULES OF CONSTRUCTION. Headings are given to the articles and sections of this Plan solely as a convenience to facilitate reference. The reference to any statute, regulation, or other provision of law shall be construed to refer to any amendment to or successor of such provision of law. ARTICLE XIII AMENDMENT The Board of Directors may amend or terminate this Plan from time to time; provided, however, that no amendment may become effective until stockholder approval is obtained if (i) the amendment increases the aggregate number of shares of Stock that may be issued under the Plan, or (ii) the amendment changes the class of individuals eligible to become Participants. No amendment shall, without a Participant's consent, adversely affect any rights of such Participant under any outstanding Restricted Stock award or under any Option or SAR outstanding at the time such amendment is made. 10 11 ARTICLE XIV DURATION OF PLAN No Restricted Stock may be awarded and no Option or SAR may be granted under this Plan more than ten years after the date that the Plan is adopted by the Board of Directors. Restricted Stock awards and Options and SARs granted before that date shall remain valid in accordance with their terms. ARTICLE XV EFFECTIVE DATE OF PLAN Restricted Stock may be awarded and Options and SARs may be granted under this Plan upon its adoption by the Board of Directors, provided that no Restricted Stock award, Option or SAR will be effective unless the Plan is approved by the Company's sole stockholder existing on January 12, 1994. 11 EX-10.5 4 401(K) RETIREMENT & PROFIT SHARING PLAN 1 EXHIBIT 10.5 AMERICAN INDUSTRIAL PROPERTIES REIT EMPLOYEES RETIREMENT AND PROFIT SHARING PLAN 2 TABLE OF CONTENTS ARTICLE I DEFINITIONS ARTICLE II TOP HEAVY AND ADMINISTRATION 2.1 TOP HEAVY PLAN REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 2.2 DETERMINATION OF TOP HEAVY STATUS . . . . . . . . . . . . . . . . . . . . . . . . 17 2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER . . . . . . . . . . . . . . . . . . . 21 2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY . . . . . . . . . . . . . . . . . . . . . 22 2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES . . . . . . . . . . . . . . . . . . 22 2.6 POWERS AND DUTIES OF THE ADMINISTRATOR . . . . . . . . . . . . . . . . . . . . . 22 2.7 RECORDS AND REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 2.8 APPOINTMENT OF ADVISERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 2.9 INFORMATION FROM EMPLOYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 2.10 PAYMENT OF EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 2.11 MAJORITY ACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 2.12 CLAIMS PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 2.13 CLAIMS REVIEW PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE III ELIGIBILITY 3.1 CONDITIONS OF ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 3.2 APPLICATION FOR PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . . 26 3.3 EFFECTIVE DATE OF PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . 26 3.4 DETERMINATION OF ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 3.5 TERMINATION OF ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 3.6 OMISSION OF ELIGIBLE EMPLOYEE . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3 3.7 INCLUSION OF INELIGIBLE EMPLOYEE . . . . . . . . . . . . . . . . . . . . . . . . 27 3.8 ELECTION NOT TO PARTICIPATE . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 ARTICLE IV CONTRIBUTION AND ALLOCATION 4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION . . . . . . . . . . . . . . . . . 28 4.2 PARTICIPANT'S SALARY REDUCTION ELECTION . . . . . . . . . . . . . . . . . . . . . 28 4.3 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION . . . . . . . . . . . . . . . . . . . . 32 4.4 ALLOCATION OF CONTRIBUTION AND EARNINGS . . . . . . . . . . . . . . . . . . . . . 33 4.5 ACTUAL DEFERRAL PERCENTAGE TESTS . . . . . . . . . . . . . . . . . . . . . . . . . 37 4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS . . . . . . . . . . . . . . . . . . 39 4.7 MAXIMUM ANNUAL ADDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 4.8 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS . . . . . . . . . . . . . . . . . . . . 45 4.9 TRANSFERS FROM QUALIFIED PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . 46 4.10 DIRECTED INVESTMENT ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 ARTICLE V VALUATIONS 5.1 VALUATION OF THE TRUST FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 5.2 METHOD OF VALUATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 ARTICLE VI DETERMINATION AND DISTRIBUTION OF BENEFITS 6.1 DETERMINATION OF BENEFITS UPON RETIREMENT . . . . . . . . . . . . . . . . . . . . 49 6.2 DETERMINATION OF BENEFITS UPON DEATH . . . . . . . . . . . . . . . . . . . . . . . 50 6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY . . . . . . . . . . . . . . . . . 51 6.4 DETERMINATION OF BENEFITS UPON TERMINATION . . . . . . . . . . . . . . . . . . . . 51 6.5 DISTRIBUTION OF BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
4 6.6 DISTRIBUTION OF BENEFITS UPON DEATH . . . . . . . . . . . . . . . . . . . . . . . 55 6.7 TIME OF SEGREGATION OR DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . 56 6.8 DISTRIBUTION FOR MINOR BENEFICIARY . . . . . . . . . . . . . . . . . . . . . . . . 56 6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN . . . . . . . . . . . . . . . . . . 56 6.10 ADVANCE DISTRIBUTION FOR HARDSHIP . . . . . . . . . . . . . . . . . . . . . . . . 56 6.11 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION . . . . . . . . . . . . . . . . . 58 ARTICLE VII TRUSTEE 7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . 59 7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE . . . . . . . . . . . . . . . . . . . 59 7.3 OTHER POWERS OF THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 7.4 LOANS TO PARTICIPANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 7.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS . . . . . . . . . . . . . . . . . . . . 64 7.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES . . . . . . . . . . . . . . . . . . 64 7.7 ANNUAL REPORT OF THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 7.8 AUDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 7.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE . . . . . . . . . . . . . . . . . . 66 7.10 TRANSFER OF INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 7.11 DIRECT ROLLOVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 ARTICLE VIII AMENDMENT, TERMINATION AND MERGERS 8.1 AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 8.2 TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 8.3 MERGER OR CONSOLIDATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
5 ARTICLE IX MISCELLANEOUS 9.1 PARTICIPANT'S RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 9.2 ALIENATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 9.3 CONSTRUCTION OF PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 9.4 GENDER AND NUMBER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 9.5 LEGAL ACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 9.6 PROHIBITION AGAINST DIVERSION OF FUNDS . . . . . . . . . . . . . . . . . . . . . 71 9.7 BONDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 9.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE . . . . . . . . . . . . . . . . . . . 72 9.9 INSURER'S PROTECTIVE CLAUSE . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 9.10 RECEIPT AND RELEASE FOR PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . 73 9.11 ACTION BY THE EMPLOYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 9.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 9.13 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 9.14 APPROVAL BY INTERNAL REVENUE SERVICE . . . . . . . . . . . . . . . . . . . . . . . 74 9.15 UNIFORMITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
6 AMERICAN INDUSTRIAL PROPERTIES REIT EMPLOYEES RETIREMENT AND PROFIT SHARING PLAN THIS AGREEMENT, hereby made and entered into this __________ day of __________, 19____, by and between American Industrial Properties REIT (herein referred to as the "Employer") and Mark A. O'Brien, Vice President of Finance and Administration (herein referred to as the "Trustee"). W I T N E S S E T H: WHEREAS, the Employer desires to recognize the contribution made to its successful operation by its employees and to reward such contribution by means of a 401(k) Profit Sharing Plan for those employees who shall qualify as Participants hereunder; NOW, THEREFORE, effective January 1, 1993, (hereinafter called the "Effective Date"), the Employer hereby establishes a 401(k) Profit Sharing Plan and creates this trust (which plan and trust are hereinafter called the "Plan") for the exclusive benefit of the Participants and their Beneficiaries, and the Trustee hereby accepts the Plan on the following terms: ARTICLE I DEFINITIONS 1.1 "Act" means the Employee Retirement Income Security Act of 1974, as it may be amended from time to time. 1.2 "Administrator" means the person or entity designated by the Employer pursuant to Section 2.4 to administer the Plan on behalf of the Employer. 1.3 "Affiliated Employer" means any corporation which is a member of a controlled group of corporations (as defined in Code Section 414(b)) which includes the Employer; any trade or business (whether or not incorporated) which is under common control (as defined in Code Section 414(c)) with the Employer; any organization (whether or not incorporated) which is a member of an affiliated service group (as defined in Code Section 414(m)) which includes the Employer; and any other entity required to be aggregated with the Employer pursuant to Regulations under Code Section 414(o). 1.4 "Aggregate Account" means, with respect to each Participant, the value of all accounts maintained on behalf of a Participant, whether attributable to Employer or Employee contributions, subject to the provisions of Section 2.2. 1.5 "Anniversary Date" means December 31st. 1 7 1.6 "Beneficiary" means the person to whom the share of a deceased Participant's total account is payable, subject to the restrictions of Sections 6.2 and 6.6. 1.7 "Code" means the Internal Revenue Code of 1986, as amended or replaced from time to time. 1.8 "Compensation" with respect to any Participant means such Participant's wages, salaries, fees for professional services and other amounts received (without regard to whether or not an amount is paid in cash) for personal services actually rendered in the course of employment with the Employer maintaining the Plan to the extent that the amounts are includible in gross income (including, but not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, bonuses, fringe benefits, and reimbursements or other expense allowances under a nonaccountable plan (as described in Regulation 1.62-2(c)) for a Plan Year. Compensation shall exclude (a)(1) contributions made by the Employer to a plan of deferred compensation to the extent that, the contributions are not includible in the gross income of the Participant for the taxable year in which contributed, (2) Employer contributions made on behalf of an Employee to a simplified employee pension plan described in Code Section 408(k) to the extent such contributions are excludable from the Employee's gross income, (3) any distributions from a plan of deferred compensation; (b) amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by an Employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture; (c) amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and (d) other amounts which receive special tax benefits, or contributions made by the Employer (whether or not under a salary reduction agreement) towards the purchase of any annuity contract described in Code Section 403(b) (whether or not the contributions are actually excludable from the gross income of the Employee). For purposes of this Section, the determination of Compensation shall be made by: (a) including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 402(e)(3), 402(h), 403(b) or 457, and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. For a Participant's initial year of participation, Compensation shall be recognized for the entire Plan Year. 2 8 Compensation in excess of $200,000 shall be disregarded. Such amount shall be adjusted at the same time and in such manner as permitted under Code Section 415(d), except the dollar increase in effect on January 1 of any calendar year shall be effective for the Plan Year beginning with or within such calendar year and the first adjustment to the $200,000 limitation shall be effective on January 1, 1990. For any short Plan Year the Compensation limit shall be an amount equal to the Compensation limit for the calendar year in which the Plan Year begins multiplied by the ratio obtained by dividing the number of full months in the short Plan Year by twelve (12). In applying this limitation, the family group of a Highly Compensated Participant who is subject to the Family Member aggregation rules of Code Section 414(q)(6) because such Participant is either a "five percent owner" of the Employer or one of the ten (10) Highly Compensated Employees paid the greatest "415 Compensation" during the year, shall be treated as a single Participant, except that for this purpose Family Members shall include only the affected Participant's spouse and any lineal descendants who have not attained age nineteen (19) before the close of the year. If, as a result of the application of such rules the adjusted $200,000 limitation is exceeded, then the limitation shall be prorated among the affected Family Members in proportion to each such Family Member's Compensation prior to the application of this limitation, or the limitation shall be adjusted in accordance with any other method permitted by Regulation. If, as a result of such rules, the maximum "annual addition" limit of Section 4.7(a) would be exceeded for one or more of the affected Family Members, the prorated Compensation of all affected Family Members shall be adjusted to avoid or reduce any excess. The prorated Compensation of any affected Family Member whose allocation would exceed the limit shall be adjusted downward to the level needed to provide an allocation equal to such limit. The prorated Compensation of affected Family Members not affected by such limit shall then be adjusted upward on a pro rata basis not to exceed each such affected Family Member's Compensation as determined prior to application of the Family Member rule. The resulting allocation shall not exceed such individual's maximum "annual addition" limit. If, after these adjustments, an "excess amount" still results, such "excess amount" shall be disposed of in the manner described in Section 4.8(a) pro rata among all affected Family Members. 1.9 "Contract" or "Policy" means any life insurance policy, retirement income or annuity policy, or annuity contract (group or individual) issued pursuant to the terms of the Plan. 1.10 "Deferred Compensation" with respect to any Participant means the amount of the Participant's total Compensation which has been contributed to the Plan in accordance with the Participant's deferral election pursuant to Section 4.2 excluding 3 9 any such amounts distributed as excess "annual additions" pursuant to Section 4.8(a). 1.11 "Early Retirement Date". This Plan does not provide for a retirement date prior to Normal Retirement Date. 1.12 "Elective Contribution" means the Employer's contributions to the Plan of Deferred Compensation excluding any such amounts distributed as excess "annual additions" pursuant to Section 4.10(a). In addition, any Employer Qualified Non-Elective Contribution made pursuant to Section 4.1(b) and Section 4.6 shall be considered an Elective Contribution for purposes of the Plan. Any such contributions deemed to be Elective Contributions shall be subject to the requirements of Sections 4.2(b) and 4.2(c) and shall further be required to satisfy the discrimination requirements of Regulation 1.401(k)-1(b)(5), the provisions of which are specifically incorporated herein by reference. 1.13 "Eligible Employee" means any Employee. Employees who are Participants in any other qualified retirement plan maintained by the Employer shall not be eligible to participate in this Plan. Employees who are nonresident aliens (within the meaning of Code Section 7701(b)(1)(B)) and who receive no earned income (within the meaning of Code Section 911(d)(2)) from the Employer which constitutes income from sources within the United States (within the meaning of Code Section 861(a)(3)) shall not be eligible to participate in this Plan. Employees of Affiliated Employers shall not be eligible to participate in this Plan unless such Affiliated Employers have specifically adopted this Plan in writing. 1.14 "Employee" means any person who is employed by the Employer or Affiliated Employer, but excludes any person who is an independent contractor. Employee shall include Leased Employees within the meaning of Code Sections 414(n)(2) and 414(o)(2) unless such Leased Employees are covered by a plan described in Code Section 414(n)(5) and such Leased Employees do not constitute more than 20% of the recipient's non-highly compensated work force. 1.15 "Employer" means American Industrial Properties REIT and any successor which shall maintain this Plan; and any predecessor which has maintained this Plan. The Employer is a Texas Real Estate Investment Trust with principal offices in the State of Texas. 1.16 "Excess Contributions" means, with respect to a Plan Year, the excess of Elective Contributions made on behalf of Highly Compensated Participants for the Plan Year over the 4 10 maximum amount of such contributions permitted under Section 4.5(a). Excess Contributions shall be treated as an "annual addition" pursuant to Section 4.7(b). 1.17 "Excess Deferred Compensation" means, with respect to any taxable year of a Participant, the excess of the aggregate amount of such Participant's Deferred Compensation and the elective deferrals pursuant to Section 4.2(f) actually made on behalf of such Participant for such taxable year, over the dollar limitation provided for in Code Section 402(g), which is incorporated herein by reference. Excess Deferred Compensation shall be treated as an "annual addition" pursuant to Section 4.7(b) when contributed to the Plan unless distributed to the affected Participant not later than the first April 15th following the close of the Participant's taxable year. Additionally, for purposes of Sections 2.2 and 4.4(f), Excess Deferred Compensation shall continue to be treated as Employer contributions even if distributed pursuant to Section 4.2(f). However, Excess Deferred Compensation of Non-Highly Compensated Participants is not taken into account for purposes of Section 4.5(a) to the extent such Excess Deferred Compensation occurs pursuant to Section 4.2(d). 1.18 "Family Member" means, with respect to an affected Participant, such Participant's spouse, such Participant's lineal descendants and ascendants and their spouses, all as described in Code Section 414(q)(6)(B). 1.19 "Fiduciary" means any person who (a) exercises any discretionary authority or discretionary control respecting management of the Plan or exercises any authority or control respecting management or disposition of its assets, (b) renders investment advice for a fee or other compensation, direct or indirect, with respect to any monies or other property of the Plan or has any authority or responsibility to do so, or (c) has any discretionary authority or discretionary responsibility in the administration of the Plan, including, but not limited to, the Trustee, the Employer and its representative body, and the Administrator. 1.20 "Fiscal Year" means the Employer's accounting year of 12 months commencing on January 1st of each year and ending the following December 31st. 1.21 "Forfeiture." Under this Plan, Participant accounts are 100% Vested at all times. Any amounts that may otherwise be forfeited under the Plan pursuant to Section 3.7 or 6.9 shall be used to reduce the contribution of the Employer. 1.22 "Former Participant" means a person who has been a Participant, but who has ceased to be a Participant for any reason. 5 11 1.23 "415 Compensation" with respect to any Participant means such Participant's wages, salaries, fees for professional services and other amounts received (without regard to whether or not an amount is paid in cash) for personal services actually rendered in the course of employment with the Employer maintaining the Plan to the extent that the amounts are includible in gross income (including, but not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, bonuses, fringe benefits, and reimbursements or other expense allowances under a nonaccountable plan (as described in Regulation 1.62-2(c)) for a Plan Year. "415 Compensation" shall exclude (a)(1) contributions made by the Employer to a plan of deferred compensation to the extent that, the contributions are not includible in the gross income of the Participant for the taxable year in which contributed, (2) Employer contributions made on behalf of an Employee to a simplified employee pension plan described in Code Section 408(k) to the extent such contributions are excludable from the Employee's gross income, (3) any distributions from a plan of deferred compensation; (b) amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by an Employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture; (c) amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and (d) other amounts which receive special tax benefits, or contributions made by the Employer (whether or not under a salary reduction agreement) towards the purchase of any annuity contract described in Code Section 403(b) (whether or not the contributions are actually excludable from the gross income of the Employee). 1.24 "414(s) Compensation" with respect to any Participant means such Participant's "415 Compensation" paid during a Plan Year. The amount of "414(s) Compensation" with respect to any Participant shall include "414(s) Compensation" for the entire twelve (12) month period ending on the last day of such Plan Year. For purposes of this Section, the determination of "414(s) Compensation" shall be made by including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 402(e)(3), 402(h), 403(b) or 457, and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. "414(s) Compensation" in excess of $200,000 shall be disregarded. Such amount shall be adjusted at the same time and in such manner as permitted under Code Section 415(d), except that the dollar increase in effect on January 1 of any calendar year shall be effective for the Plan Year beginning with or 6 12 within such calendar year and the first adjustment to the $200,000 limitation shall be effective on January 1, 1990. For any short Plan Year the "414(s) Compensation" limit shall be an amount equal to the "414(s) Compensation" limit for the calendar year in which the Plan Year begins multiplied by the ratio obtained by dividing the number of full months in the short Plan Year by twelve (12). In applying this limitation, the family group of a Highly Compensated Participant who is subject to the Family Member aggregation rules of Code Section 414(q)(6) because such participant is either a "five percent owner" of the Employer or one of the ten (10) Highly Compensated Employees paid the greatest "415 Compensation" during the year, shall be treated as a single Participant, except that for this purpose Family Members shall include only the affected Participant's spouse and any lineal descendants who have not attained age nineteen (19) before the close of the year. 1.25 "Highly Compensated Employee" means an Employee described in Code Section 414(q) and the Regulations thereunder, and generally means an Employee who performed services for the Employer during the "determination year" and is in one or more of the following groups: (a) Employees who at any time during the "determination year" or "look-back year" were "five percent owners" as defined in Section 1.31(c). (b) Employees who received "415 Compensation" during the "look-back year" from the Employer in excess of $75,000. (c) Employees who received "415 Compensation" during the "look-back year" from the Employer in excess of $50,000 and were in the Top Paid Group of Employees for the Plan Year. (d) Employees who during the "look-back year" were officers of the Employer (as that term is defined within the meaning of the Regulations under Code Section 416) and received "415 Compensation" during the "look-back year" from the .Employer greater than 50 percent of the limit in effect under Code Section 415(b)(1)(A) for any such Plan Year. The number of officers shall be limited to the lesser of (i) 50 employees; or (ii) the greater of 3 employees or 10 percent of all employees. For the purpose of determining the number of officers, Employees described in Section 1.54(a), (b), (c) and (d) shall be excluded, but such Employees shall still be considered for the purpose of identifying the particular Employees who are officers. If the Employer does not have at least one officer whose annual "415 Compensation" is in excess of 50 percent of the Code Section 415(b)(1)(A) limit, then 7 13 the highest paid officer of the Employer will be treated as a Highly Compensated Employee. (e) Employees who are in the group consisting of the 100 Employees paid the greatest "415 Compensation" during the "determination year" and are also described in (b), (c) or (d) above when these paragraphs are modified to substitute "determination year" for "look-back year" The "determination year" shall be the Plan Year for which testing is being performed, and the "look-back year" shall be the immediately preceding twelve-month period. For purposes of this Section, the determination of "415 Compensation" shall be made by including amounts that would otherwise be excluded from a Participant's gross income by reason of the application of Code Sections 125, 402(e)(3), 402(h)(1)(B) and, in the case of Employer contributions made pursuant to a salary reduction agreement, by including amounts that would otherwise be excluded from a Participant's gross income by reason of the application of Code Section 403(b). Additionally, the dollar threshold amounts specified in (b) and (c) above shall be adjusted at such time and in such manner as is provided in Regulations. In the case of such an adjustment, the dollar limits which shall be applied are those for the calendar year in which the "determination year" or "look-back year" begins. In determining who is a Highly Compensated Employee, Employees who are non-resident aliens and who received no earned income (within the meaning of Code Section 911(d)(2)) from the Employer constituting United States source income within the meaning of Code Section 861(a)(3) shall not be treated as Employees. Additionally, all Affiliated Employers shall be taken into account as a single employer and Leased Employees within the meaning of Code Sections 414(n)(2) and 414(o)(2) shall be considered Employees unless such Leased Employees are covered by a plan described in Code Section 414(n)(5) and are not covered in any qualified plan maintained by the Employer. The exclusion of Leased Employees for this purpose shall be applied on a uniform and consistent basis for all of the Employer's retirement plans. Highly Compensated Former Employees shall be treated as Highly Compensated Employees without regard to whether they performed services during the "determination year" 1.26 "Highly Compensated Former Employee" means a former Employee who had a separation year prior to the "determination year" and was a Highly Compensated Employee in the year of separation from service or in any "determination year" after attaining age 55. Notwithstanding the foregoing, an Employee who separated from service prior to 1987 will be treated as a Highly Compensated Former Employee only if during the separation year (or year preceding the separation year) or any year after the Employee attains age 55 (or the last year ending before the 8 14 Employee's 55th birthday), the Employee either received "415 Compensation" in excess of $50,000 or was a "five percent owner". For purposes of this Section, "determination year" "415 Compensation" and "five percent owner" shall be determined in accordance with Section 1.25. Highly Compensated Former Employees shall be treated as Highly Compensated Employees. The method set forth in this Section for determining who is a "Highly Compensated Former Employee" shall be applied on a uniform and consistent basis for all purposes for which the Code Section 414(q) definition is applicable. 1.27 "Highly Compensated Participant" means any Highly Compensated Employee who is eligible to participate in the Plan. 1.28 "Hour of Service" means (1) each hour for which an Employee is directly or indirectly compensated or entitled to compensation by the Employer for the performance of duties during the applicable computation period; (2) each hour for which an Employee is directly or indirectly compensated or entitled to compensation by the Employer (irrespective of whether the employment relationship has terminated) for reasons other than performance of duties (such as vacation, holidays, sickness, jury duty, disability, lay-off, military duty or leave of absence) during the applicable computation period; (3) each hour for which back pay is awarded or agreed to by the Employer without regard to mitigation of damages. These hours will be credited to the Employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award, agreement or payment is made. The same Hours of Service shall not be credited both under (1) or (2), as the case may be, and under (3). Notwithstanding the above, (i) no more than 501 Hours of Service are required to be credited to an Employee on account of any single continuous period during which the Employee performs no duties (whether or not such period occurs in a single computation period); (ii) an hour for which an Employee is directly or indirectly paid, or entitled to payment, on account of a period during which no duties are performed is not required to be credited to the Employee if such payment is made or due under a plan maintained solely for the purpose of complying with applicable worker's compensation, or unemployment compensation or disability insurance laws; and (iii) Hours of Service are not required to be credited for a payment which solely reimburses an Employee for medical or medically related expenses incurred by the Employee. For purposes of this Section, a payment shall be deemed to be made by or due from the Employer regardless of whether such payment is made by or due from the Employer directly, or indirectly through, among others, a trust fund, or insurer, to which the Employer contributes or pays premiums and regardless of whether contributions made or due to the trust fund, insurer, or 9 15 other entity are for the benefit of particular Employees or are on behalf of a group of Employees in the aggregate. An Hour of Service must be counted for the purpose of determining a Year of Service, a year of participation for purposes of accrued benefits, a 1-Year Break in Service, and employment commencement date (or reemployment commencement date). in addition, Hours of Service will be credited for employment with other Affiliated Employers. The provisions of Department of Labor regulations 2530.200b-2(b) and (c) are incorporated herein by reference. 1.29 "Income" means the income or losses allocable to "excess amounts" which shall equal the sum of the allocable gain or loss for the "applicable computation period" and the allocable gain or loss for the period between the end of the "applicable computation period" and the date of distribution ("gap period"). The income allocable to "excess amounts" for the "applicable computation period" and the "gap period" is calculated separately and is determined by multiplying the income for the "applicable computation period" or the "gap period" by a fraction. The numerator of the fraction is the "excess amount" for the "applicable computation period". The denominator of the fraction is the total "account balance" attributable to "Employer contributions" as of the end of the "applicable computation period" or the "gap period", reduced by the gain allocable to such total amount for the "applicable computation period" or the "gap period" and increased by the loss allocable to such total amount for the "applicable computation period" or the "gap period" The provisions of this Section shall be applied: (a) For purposes of Section 4.2(f), by substituting: (1) "Excess Deferred Compensation" for "excess amounts"; (2) "taxable year of the participant" for "applicable computation period"; (3) "Deferred Compensation" for "Employer contributions"; and (4) "Participant's Elective Account" for "account balance". (b) For purposes of Section 4.6(a), by substituting: (1) "Excess Contributions" for "excess amounts"; (2) "Plan Year" for "applicable computation period"; 10 16 (3) "Elective Contributions" for "Employer contributions"; and (4) "Participant's Elective Account" for "account balance". In lieu of the "fractional method" described above, a "safe harbor method" may be used to calculate the allocable Income for the "gap period". Under the "safe harbor method", allocable Income for the "gap period" shall be deemed to equal ten percent (10%) of the Income allocable to "excess amounts" for the "applicable computation period" multiplied by the number of calendar months in the "gap period". For purposes of determining the number of calendar months in the "gap period", a distribution occurring on or before the fifteenth day of the month shall be treated as having been made on the last day of the preceding month and a distribution occurring after such fifteenth day shall be treated as having been made on the first day of the next subsequent month. Income allocable to any distribution of Excess Deferred Compensation on or before the last day of the taxable year of the Participant shall be calculated from the first day of the taxable year of the Participant to the date on which the distribution is made pursuant to either the "fractional method" or the "safe harbor method". Under such "safe harbor method", allocable Income for such period shall be deemed to equal ten percent (10%) of the income allocable to such Excess Deferred Compensation multiplied by the number of calendar months in such period. For purposes of determining the number of calendar months in such period, a distribution occurring on or before the fifteenth day of the month shall be treated as having been made on the last day of the preceding month and a distribution occurring after such fifteenth day shall be treated as having been made on the first day of the next subsequent month. 1.30 "Investment Manager" means an entity that (a) has the power to manage, acquire, or dispose of Plan assets and (b) acknowledges fiduciary responsibility to the Plan in writing. Such entity must be a person, firm, or corporation registered as an investment adviser under the Investment Advisers Act of 1940, a bank, or an insurance company. 1.31 "Key Employee" means an Employee as defined in Code Section 416(i) and the Regulations thereunder. Generally, any Employee or former Employee (as well as each of his Beneficiaries) is considered a Key Employee if he, at any time during the Plan Year that contains the "Determination Date" or any of the preceding four (4) Plan Years, has been included in one of the following categories: (a) an officer of the Employer (as that term is defined within the meaning of the Regulations under Code Section 416) having annual "415 Compensation" 11 17 greater than 50 percent of the amount in effect under Code Section 415(b)(1)(A) for any such Plan Year. (b) one of the ten employees having annual "415 Compensation" from the Employer for a Plan Year greater than the dollar limitation in effect under Code Section 415(c)(1)(A) for the calendar year in which such Plan Year ends and owning (or considered as owning within the meaning of Code Section 318) both more than one-half percent interest and the largest interests in the Employer. (c) a "five percent owner" of the Employer. "Five percent owner" means any person who owns (or is considered as owning within the meaning of Code Section 318) more than five percent (5%) of the outstanding stock of the Employer or stock possessing more than five percent (5%) of the total combined voting power of all stock of the Employer or, in the case of an unincorporated business, any person who owns more than five percent (5%) of the capital or profits interest in the Employer. In determining percentage ownership hereunder, employers that would otherwise be aggregated under Code Sections 414(b), (c), (m) and (o) shall be treated as separate employers. (d) a "one percent owner" of the Employer having an annual "415 Compensation" from the Employer of more than $150,000. "One percent owner" means any person who owns (or is considered as owning within the meaning of Code Section 318) more than one percent (1%) of the outstanding stock of the Employer or stock possessing more than one percent (1%) of the total combined voting power of all stock of the Employer or, in the case of an unincorporated business, any person who owns more than one percent (1%) of the capital or profits interest in the Employer. In determining percentage ownership hereunder, employers that would otherwise be aggregated under Code Sections 414(b), (c), (m) and (0) shall be treated as separate employers. However, in determining whether an individual has "415 Compensation" of more than $150,000, "415 Compensation" from each employer required to be aggregated under Code Sections 414(b), (c), (m) and (o) shall be taken into account. For purposes of this Section, the determination of "415 Compensation" shall be made by including amounts that would otherwise be excluded from a Participant's gross income by reason of the application of Code Sections 125, 402(e)(3), 402(h)(1)(B) and, in the case of Employer contributions made pursuant to a salary reduction agreement, by including amounts than would otherwise be excluded from a Participant's gross income by reason of the application of Code Section 403(b). 12 18 1.32 "Late Retirement Date" means the first day of the month coinciding with or next following a Participant's actual Retirement Date after having reached his Normal Retirement Date. 1.33 "Leased Employee" means any person (other than an Employee of the recipient) who pursuant to an agreement between the recipient and any other person ("leasing organization") has performed services for the recipient (or for the recipient and related persons determined in accordance with Code Section 414(n)(6)) on a substantially full time basis for a period of at least one year, and such services are of a type historically performed by employees in the business field of the recipient employer. Contributions or benefits provided a Leased Employee by the leasing organization which are attributable to services performed for the recipient employer shall be treated as provided by the recipient employer. A Leased Employee shall not be considered an Employee of the recipient: (a) if such employee is covered by a money purchase pension plan providing: (1) a non-integrated employer contribution rate of at least 10% of compensation, as defined in Code Section 415(c)(3), but including amounts contributed pursuant to a salary reduction agreement which are excludable from the employee's gross income under Code Sections 125, 402(e)(3), 402(h) or 403(b); (2) immediate participation; and (3) full and immediate vesting; and (b) if Leased Employees do not constitute more than 20% of the recipient's non-highly compensated work force. 1.34 "Non-Elective Contribution" means the Employer's contributions to the Plan excluding, however, contributions made pursuant to the Participant's deferral election provided for in Section 4.2 and any Qualified Non-Elective Contribution. 1.35 "Non-Highly Compensated Participant" means any Participant who is neither a Highly Compensated Employee nor a Family Member. 1.36 "Non-Key Employee" means any Employee or former Employee (and his Beneficiaries) who is not a Key Employee. 1.37 "Normal Retirement Age" means the Participant's 55th birthday. A Participant shall become fully Vested in his Participant's Account upon attaining his Normal Retirement Age. 13 19 1.38 "Normal Retirement Date" means the first day of the month coinciding with or next following the participant's Normal Retirement Age. 1.39 "1-Year Break in Service" means the applicable computation period during which an Employee has not completed more than 500 Hours of Service with the Employer. Further, solely for the purpose of determining whether a participant has incurred a 1-Year Break in Service, Hours of Service shall be recognized for "authorized leaves of absence" and "maternity and paternity leaves of absence." Years of Service and 1-Year Breaks in Service shall be measured on the same computation period. "Authorized leave of absence" means an unpaid, temporary cessation from active employment with the Employer pursuant to an established nondiscriminatory policy, whether occasioned by illness, military service, or any other reason. A "maternity or paternity leave of absence" means, for Plan Years beginning after December 31, 1984, an absence from work for any period by reason of the Employee's pregnancy, birth of the Employee's child, placement of a child with the Employee in connection with the adoption of such child, or any absence for the purpose of caring for such child for a period immediately following such birth or placement. For this purpose, Hours of Service shall be credited for the computation period in which the absence from work begins, only if credit therefore is necessary to prevent the Employee from incurring a 1-Year Break in Service, or, in any other case, in the immediately following computation period. The Hours of Service credited for a "maternity or paternity leave of absence" shall be those which would normally have been credited but for such absence, or, in any case in which the Administrator is unable to determine such hours normally credited, eight (8) Hours of Service per day. The total Hours of Service required to be credited for a "maternity or paternity leave of absence" shall not exceed 501. 1.40 "Participant" means any Eligible Employee who participates in the Plan as provided in Sections 3.2 and 3.3, and has not for any reason become ineligible to participate further in the Plan. 1.41 "Participant's Account" means the account established and maintained by the Administrator for each Participant with respect to his total interest in the Plan and Trust resulting from the Employer's Non-Elective Contributions. 1.42 "Participant's Combined Account" means the total aggregate amount of each Participant's Elective Account and Participant's Account. 1.43 "Participant's Elective Account" means the account established and maintained by the Administrator for each Participant with respect to his total interest in the Plan and 14 20 Trust resulting from the Employer's Elective Contributions. A separate accounting shall be maintained with respect to that portion of the Participant's Elective Account attributable to Elective Contributions pursuant to Section 4.2 and any Employer Qualified Non-Elective Contributions. 1.44 "Plan" means this instrument, including all amendments thereto. 1.45 "Plan Year" means the Plan's accounting year of twelve (12) months commencing on January 1st of each year and ending the following December 31st. 1.46 "Qualified Non-Elective Contribution" means the Employer's contributions to the Plan that are made pursuant to Section 4.1(b) and Section 4.6. Such contributions shall be considered an Elective Contribution for the purposes of the Plan and used to satisfy the "Actual Deferral Percentage" tests. 1.47 "Regulation" means the Income Tax Regulations as promulgated by the Secretary of the Treasury or his delegate, and as amended from time to time. 1.48 "Retired Participant" means a person who has been a Participant, but who has become entitled to retirement benefits under the Plan. 1.49 "Retirement Date" means the date as of which a Participant retires for reasons other than Total and Permanent Disability, whether such retirement occurs on a Participant's Normal Retirement Date or Late Retirement Date (see Section 6.1). 1.50 "Super Top Heavy Plan" means a plan described in Section 2.2(b). 1.51 "Terminated Participant" means a person who has been a Participant, but whose employment has been terminated other than by death, Total and Permanent Disability or retirement. 1.52 "Top Heavy Plan" means a plan described in Section 2.2(a) 1.53 "Top Heavy Plan Year" means a Plan Year during which the Plan is a Top Heavy Plan. 1.54 "Top Paid Group" means the top 20 percent of Employees who performed services for the Employer during the applicable year, ranked according to the amount of "415 Compensation" (determined for this purpose in accordance with Section 1.25) received from the Employer during such year. All Affiliated Employers shall be taken into account as a single employer, and Leased Employees within the meaning of Code Sections 414(n)(2) and 414(o)(2) shall be considered Employees unless such Leased Employees are covered by a plan described in Code Section 15 21 414(n)(5) and are not covered in any qualified plan maintained by the Employer. Employees who are non-resident aliens and who received no earned income (within the meaning of Code Section 911(d)(2)) from the Employer constituting United States source income within the meaning of Code Section 861(a)(3) shall not be treated as Employees. Additionally, for the purpose of determining the number of active Employees in any year, the following additional Employees shall also be excluded; however, such Employees shall still be considered for the purpose of identifying the particular Employees in the Top Paid Group: (a) Employees with less than six (6) months of service; (b) Employees who normally work less than 17 1/2 hours per week; (c) Employees who normally work less than six (6) months during a year; and (d) Employees who have not yet attained age 21. In addition, if 90 percent or more of the Employees of the Employer are covered under agreements the Secretary of Labor finds to be collective bargaining agreements between Employee representatives and the Employer, and the Plan covers only Employees who are not covered under such agreements, then Employees covered by such agreements shall be excluded from both the total number of active Employees as well as from the identification of particular Employees in the Top Paid Group. The foregoing exclusions set forth in this Section shall be applied on a uniform and consistent basis for all purposes for which the Code Section 414(q) definition is applicable. 1.55 "Total and Permanent Disability" means a physical or mental condition of a Participant resulting from bodily injury, disease, or mental disorder which renders him incapable of continuing his usual and customary employment with the Employer. The disability of a Participant shall be determined by a licensed physician chosen by the Administrator. The determination shall be applied uniformly to all Participants. 1.56 "Trustee" means the person or entity named as trustee herein or in any separate trust forming a part of this Plan, and any successors. 1.57 "Trust Fund" means the assets of the Plan and Trust as the same shall exist from time to time. 1.58 "Vested" means the nonforfeitable portion of any account maintained on behalf of a Participant. 16 22 1.59 "Year of Service" means the computation period of twelve (12) consecutive months, herein set forth, during which an Employee has at least 1000 Hours of Service. For purposes of eligibility for participation, the initial computation period shall begin with the date on which the Employee first performs an Hour of Service. The participation computation period beginning after a 1-Year Break in Service shall be measured from the date on which an Employee again performs an Hour of Service. The participation computation period shall shift to the Plan Year which includes the anniversary of the date on which the Employee first performed an Hour of Service. An Employee who is credited with the required Hours of Service in both the initial computation period (or the computation period beginning after a 1-Year Break in Service) and the Plan Year which includes the anniversary of the date on which the Employee first performed an Hour of Service, shall be credited with two (2) Years of Service for purposes of eligibility to participate. For all other purposes, the computation period shall be the Plan Year. Notwithstanding the foregoing, for any short Plan Year, the determination of whether an Employee has completed a Year of Service shall be made in accordance with Department of Labor regulation 2530.203-2(c). Years of Service with any Affiliated Employer shall be recognized. ARTICLE II TOP HEAVY AND ADMINISTRATION 2.1 TOP HEAVY PLAN REQUIREMENTS For any Top Heavy Plan Year, the Plan shall provide the special vesting requirements of Code Section 416(b) pursuant to Section 6.4 of the Plan and the special minimum allocation requirements of Code Section 416(c) pursuant to Section 4.4 of the Plan. 2.2 DETERMINATION OF TOP HEAVY STATUS (a) This Plan shall be a Top Heavy Plan for any Plan Year in which, as of the Determination Date, (1) the Present Value of Accrued Benefits of Key Employees and (2) the sum of the Aggregate Accounts of Key Employees under this Plan and all plans of an Aggregation Group, exceeds sixty percent (60%) of the Present Value of Accrued Benefits and the Aggregate Accounts of all Key and Non-Key Employees under this Plan and all plans of an Aggregation Group. 17 23 If any Participant is a Non-Key Employee for any Plan Year, but such Participant was a Key Employee for any prior Plan Year, such Participant's Present Value of Accrued Benefit and/or Aggregate Account balance shall not be taken into account for purposes of determining whether this Plan is a Top Heavy or Super Top Heavy Plan (or whether any Aggregation Group which includes this Plan is a Top Heavy Group). In addition, if a Participant or Former Participant has not performed any services for any Employer maintaining the Plan at any time during the five year period ending on the Determination Date, any accrued benefit for such Participant or Former Participant shall not be taken into account for the purposes of determining whether this Plan is a Top Heavy or Super Top Heavy Plan. (b) This Plan shall be a Super Top Heavy Plan for any Plan Year in which, as of the Determination Date, (1) the Present Value of Accrued Benefits of Key Employees and (2) the sum of the Aggregate Accounts of Key Employees under this Plan and all plans of an Aggregation Group, exceeds ninety percent (90%) of the Present Value of Accrued Benefits and the Aggregate Accounts of all Key and Non-Key Employees under this Plan and all plans of an Aggregation Group. (c) Aggregate Account: A Participant's Aggregate Account as of the Determination Date is the sum of: (1) his Participant's Combined Account balance as of the most recent valuation occurring within a twelve (12) month period ending on the Determination Date; (2) an adjustment for any contributions due as of the Determination Date. Such adjustment shall be the amount of any contributions actually made after the valuation date but due on or before the Determination Date, except for the first Plan Year when such adjustment shall also reflect the amount of any contributions made after the Determination Date that are allocated as of a date in that first Plan Year. (3) any Plan distributions made within the Plan Year that includes the Determination Date or within the four (4) preceding Plan Years. However, in the case of distributions made after the valuation date and prior to the Determination Date, such distributions are not included as distributions for top heavy purposes to the extent that such distributions are already included in the Participant's Aggregate Account balance as of the valuation date. Notwithstanding 18 24 anything herein to the contrary, all distributions, including distributions made prior to January 1, 1984, and distributions under a terminated plan which if it had not been terminated would have been required to be included in an Aggregation Group, will be counted. Further, distributions from the Plan (including the cash value of life insurance policies) of a Participant's account balance because of death shall be treated as a distribution for the purposes of this paragraph. (4) any Employee contributions, whether voluntary or mandatory. However, amounts attributable to tax deductible qualified voluntary employee contributions shall not be considered to be a part of the Participant's Aggregate Account balance. (5) with respect to unrelated rollovers and plan-to-plan transfers (ones which are both initiated by the Employee and made from a plan maintained by one employer to a plan maintained by another employer) if this Plan provides the rollovers or plan-to-plan transfers, it shall always consider such rollovers or plan-to-plan transfers as a distribution for the purposes of this Section. If this Plan is the plan accepting such rollovers or plan-to-plan transfers, it shall not consider such rollovers or plan-to-plan transfers as part of the Participant's Aggregate Account balance. (6) with respect to related rollovers and plan-to-plan transfers (ones either not initiated by the Employee or made to a plan maintained by the same employer), if this Plan provides the rollover or plan-to-plan transfer, it shall not be counted as a distribution for purposes of this Section. If this Plan is the plan accepting such rollover or plan-to-plan transfer, it shall consider such rollover or plan-to-plan transfer as part of the Participant's Aggregate Account balance, irrespective of the date on which such rollover or plan-to-plan transfer is accepted. (7) For the purposes of determining whether two employers are to be treated as the same employer in (5) and (6) above, all employers aggregated under Code Section 414(b), (c), (m) and (o) are treated as the same employer. 19 25 (d) "Aggregation Group" means either a Required Aggregation Group or a Permissive Aggregation Group as hereinafter determined. (1) Required Aggregation Group: In determining a Required Aggregation Group hereunder, each plan of the Employer in which a Key Employee is a participant in the Plan Year containing the Determination Date or any of the four preceding Plan Years, and each other plan of the Employer which enables any plan in which a Key Employee participates to meet the requirements of Code Sections 401(a)(4) or 410, will be required to be aggregated. Such group shall be known as a Required Aggregation Group. In the case of a Required Aggregation Group, each plan in the group will be considered a Top Heavy Plan if the Required Aggregation Group is a Top Heavy Group. No plan in the Required Aggregation Group will be considered a Top Heavy Plan if the Required Aggregation Group is not a Top Heavy Group. (2) Permissive Aggregation Group: The Employer may also include any other plan not required to be included in the Required Aggregation Group, provided the resulting group, taken as a whole, would continue to satisfy the provisions of Code Sections 401(a)(4) and 410. Such group shall be known as a Permissive Aggregation Group. In the case of a Permissive Aggregation Group, only a plan that is part of the Required Aggregation Group will be considered a Top Heavy Plan if the Permissive Aggregation Group is a Top Heavy Group. No plan in the Permissive Aggregation Group will be considered a Top Heavy Plan if the Permissive Aggregation Group is not a Top Heavy Group. (3) Only those plans of the Employer in which the Determination Dates fall within the same calendar year shall be aggregated in order to determine whether such plans are Top Heavy Plans. (4) An Aggregation Group shall include any terminated plan of the Employer if it was maintained within the last five (5) years ending on the Determination Date. (e) "Determination Date" means (a) the last day of the preceding Plan Year, or (b) in the case of the first Plan Year, the last day of such Plan Year. 20 26 (f) Present Value of Accrued Benefit: In the case of a defined benefit plan, the Present Value of Accrued Benefit for a Participant other than a Key Employee, shall be as determined using the single accrual method used for all plans of the Employer and Affiliated Employers, or if no such single method exists, using a method which results in benefits accruing not more rapidly than the slowest accrual rate permitted under Code Section 411(b)(1)(C). The determination of the Present Value of Accrued Benefit shall be determined as of the most recent valuation date that falls within or ends with the 12-month period ending on the Determination Date except as provided in Code Section 416 and the Regulations thereunder for the first and second plan years of a defined benefit plan. (g) "Top Heavy Group" means an Aggregation Group in which, as of the Determination Date, the sum of: (1) the Present Value of Accrued Benefits of Key Employees under all defined benefit plans included in the group, and (2) the Aggregate Accounts of Key Employees under all defined contribution plans included in the group, exceeds sixty percent (60%) of a similar sum determined for all Participants. 2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER (a) The Employer shall be empowered to appoint and remove the Trustee and the Administrator from time to time as it deems necessary for the proper administration of the Plan to assure that the Plan is being operated for the exclusive benefit of the Participants and their Beneficiaries in accordance with the terms of the Plan, the Code, and the Act. (b) The Employer shall establish a "funding policy and method" i.e., it shall determine whether the Plan has a short run need for liquidity (e.g., to pay benefits) or whether liquidity is a long run goal and investment growth (and stability of same) is a more current need, or shall appoint a qualified person to do so. The Employer or its delegate shall communicate such needs and goals to the Trustee, who shall coordinate such Plan needs with its investment policy. The communication of such a "funding policy and method" shall not, however, constitute a directive to the Trustee as to investment of the Trust Funds. Such "funding policy and method" shall be consistent with 21 27 the objectives of this Plan and with the requirements of Title I of the Act. (c) The Employer shall periodically review the performance of any Fiduciary or other person to whom duties have been delegated or allocated by it under the provisions of this Plan or pursuant to procedures established hereunder. This requirement may be satisfied by formal periodic review by the Employer or by a qualified person specifically designated by the Employer, through day-to-day conduct and evaluation, or through other appropriate ways. 2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY The Employer shall appoint one or more Administrators. Any person, including, but not limited to, the Employees of the Employer, shall be eligible to serve as an Administrator. Any person so appointed shall signify his acceptance by filing written acceptance with the Employer. An Administrator may resign by delivering his written resignation to the Employer or be removed by the Employer by delivery of written notice of removal, to take effect at a date specified therein, or upon delivery to the Administrator if no date is specified. The Employer, upon the resignation or removal of an Administrator, shall promptly designate in writing a successor to this position. If the Employer does not appoint an Administrator, the Employer will function as the Administrator. 2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES If more than one person is appointed as Administrator, the responsibilities of each Administrator may be specified by the Employer and accepted in writing by each Administrator. In the event that no such delegation is made by the Employer, the Administrators may allocate the responsibilities among themselves, in which event the Administrators shall notify the Employer and the Trustee in writing of such action and specify the responsibilities of each Administrator. The Trustee thereafter shall accept and rely upon any documents executed by the appropriate Administrator until such time as the Employer or the Administrators file with the Trustee a written revocation of such designation. 2.6 POWERS AND DUTIES OF THE ADMINISTRATOR The primary responsibility of the Administrator is to administer the Plan for the exclusive benefit of the Participants and their Beneficiaries, subject to the specific terms of the Plan. The Administrator shall administer the Plan in accordance with its terms and shall have the power and discretion to construe the terms of the Plan and to determine all questions arising in connection with the administration, interpretation, 22 28 and application of the Plan. Any such determination by the Administrator shall be conclusive and binding upon all persons. The Administrator may establish procedures, correct any defect, supply any information, or reconcile any inconsistency in such manner and to such extent as shall be deemed necessary or advisable to carry out the purpose of the Plan; provided, however, that any procedure, discretionary act, interpretation or construction shall be done in a nondiscriminatory manner based upon uniform principles consistently applied and shall be consistent with the intent that the Plan shall continue to be deemed a qualified plan under the terms of Code Section 401(a), and shall comply with the terms of the Act and all regulations issued pursuant thereto. The Administrator shall have all powers necessary or appropriate to accomplish his duties under this Plan. The Administrator shall be charged with the duties of the general administration of the Plan, including, but not limited to, the following: (a) the discretion to determine all questions relating to the eligibility of Employees to participate or remain a Participant hereunder and to receive benefits under the Plan; (b) to compute, certify, and direct the Trustee with respect to the amount and the kind of benefits to which any Participant shall be entitled hereunder; (c) to authorize and direct the Trustee with respect to all nondiscretionary or otherwise directed disbursements from the Trust; (d) to maintain all necessary records for the administration of the Plan; (e) to interpret the provisions of the Plan and to make and publish such rules for regulation of the Plan as are consistent with the terms hereof; (f) to determine the size and type of any Contract to be purchased from any insurer, and to designate the insurer from which such Contract shall be purchased; (g) to compute and certify to the Employer and to the Trustee from time to time the sums of money necessary or desirable to be contributed to the Plan; (h) to consult with the Employer and the Trustee regarding the short and long-term liquidity needs of the Plan in order that the Trustee can exercise any investment discretion in a manner designed to accomplish specific objectives; 23 29 (i) to prepare and implement a procedure to notify Eligible Employees that they may elect to have a portion of their Compensation deferred or paid to them in cash; (j) to assist any Participant regarding his rights, benefits, or elections available under the Plan. 2.7 RECORDS AND REPORTS The Administrator shall keep a record of all actions taken and shall keep all other books of account, records, and other data that may be necessary for proper administration of the Plan and shall be responsible for supplying all information and reports to the Internal Revenue Service, Department of Labor, Participants, Beneficiaries and others as required by law. 2.8 APPOINTMENT OF ADVISERS The Administrator, or the Trustee with the consent of the Administrator, may appoint counsel, specialists, advisers, and other persons as the Administrator or the Trustee deems necessary or desirable in connection with the administration of this Plan. 2.9 INFORMATION FROM EMPLOYER To enable the Administrator to perform his functions, the Employer shall supply full and timely information to the Administrator on all matters relating to the Compensation of all Participants, their Hours of Service, their Years of Service, their retirement, death, disability, or termination of employment, and such other pertinent facts as the Administrator may require; and the Administrator shall advise the Trustee of such of the foregoing facts as may be pertinent to the Trustee's duties under the Plan. The Administrator may rely upon such information as is supplied by the Employer and shall have no duty or responsibility to verify such information. 2.10 PAYMENT OF EXPENSES All expenses of administration may be paid out of the Trust Fund unless paid by the Employer. Such expenses shall include any expenses incident to the functioning of the Administrator, including, but not limited to, fees of accountants, counsel, and other specialists and their agents, and other costs of administering the Plan. Until paid, the expenses shall constitute a liability of the Trust Fund. However, the Employer may reimburse the Trust Fund for any administration expense incurred. 24 30 2.11 MAJORITY ACTIONS Except where there has been an allocation and delegation of administrative authority pursuant to Section 2.5, if there shall be more than one Administrator, they shall act by a majority of their number, but may authorize one or more of them sign all papers on their behalf. 2.12 CLAIMS PROCEDURE Claims for benefits under the Plan may be filed with the Administrator on forms supplied by the Employer. Written notice of the disposition of a claim shall be furnished to the claimant within 90 days after the application is filed. In the event the claim is denied, the reasons for the denial shall be specifically set forth in the notice in language calculated to be understood by the claimant, pertinent provisions of the Plan shall be cited, and, where appropriate, an explanation as to how the claimant can perfect the claim will be provided. In addition, the claimant shall be furnished with an explanation of the Plan's claims review procedure. 2.13 CLAIMS REVIEW PROCEDURE Any Employee, former Employee, or Beneficiary of either, who has been denied a benefit by a decision of the Administrator pursuant to Section 2.12 shall be entitled to request the Administrator to give further consideration to his claim by filing with the Administrator (on a form which may be obtained from the Administrator) a request for a hearing. Such request, together with a written statement of the reasons why the claimant believes his claim should be allowed, shall be filed with the Administrator no later than 60 days after receipt of the written notification provided for in Section 2.12. The Administrator shall then conduct a hearing within the next 60 days, at which the claimant may be represented by an attorney or any other representative of his choosing and at which the claimant shall have an opportunity to submit written and oral evidence and arguments in support of his claim. At the hearing (or prior thereto upon 5 business days written notice to the Administrator) the claimant or his representative shall have an opportunity to review all documents in the possession of the Administrator which are pertinent to the claim at issue and its disallowance. Either the claimant or the Administrator may cause a court reporter to attend the hearing and record the proceedings. In such event, a complete written transcript of the proceedings shall be furnished to both parties by the court reporter. The full expense of any such court reporter and such transcripts shall be borne by the party causing the court reporter to attend the hearing. A final decision as to the allowance of the claim shall be made by the Administrator within 60 days of receipt of the appeal (unless there has been an extension of 60 days due to special circumstances, provided the delay and the special circumstances occasioning it are 25 31 communicated to the claimant within the 60 day period). Such communication shall be written in a manner calculated to be understood by the claimant and shall include specific reasons for the decision and specific references to the pertinent Plan provisions on which the decision is based. ARTICLE III ELIGIBILITY 3.1 CONDITIONS OF ELIGIBILITY Any Eligible Employee who was employed on November 1, 1993 shall be eligible to participate and shall enter the Plan as of the first day of such Plan Year. Any other Eligible Employee who has completed one (1) Year of Service and has attained age 21 shall be eligible to participate hereunder as of the date he has satisfied such requirements. The Employer shall give each prospective Eligible Employee written notice of his eligibility to participate in the Plan prior to the close of the Plan Year in which he first becomes an Eligible Employee. 3.2 APPLICATION FOR PARTICIPATION In order to become a Participant hereunder, each Eligible Employee shall make application to the Employer for participation in the Plan and agree to the terms hereof. Upon the acceptance of any benefits under this Plan, such Employee shall automatically be deemed to have made application and shall be bound by the terms and conditions of the Plan and all amendments hereto. 3.3 EFFECTIVE DATE OF PARTICIPATION An Eligible Employee shall become a Participant effective as of the first day of the month coinciding with or next following the date on which such Employee met the eligibility requirements of Section 3.1, provided said Employee was still employed as of such date (or if not employed on such date, as of the date of rehire if a 1-Year Break in Service has not occurred). In the event an Employee who is not a member of an eligible class of Employees becomes a member of an eligible class, such Employee will participate immediately if such Employee has satisfied the minimum age and service requirements and would have otherwise previously become a Participant. 3.4 DETERMINATION OF ELIGIBILITY The Administrator shall determine the eligibility of each Employee for participation in the Plan based upon information furnished by the Employer. Such determination shall be conclusive and binding upon all persons, as long as the same 26 32 is made pursuant to the Plan and the Act. Such determination shall be subject to review per Section 2.13. 3.5 TERMINATION OF ELIGIBILITY (a) In the event a Participant shall go from a classification of an Eligible Employee to an ineligible Employee, such Former Participant shall continue to vest in his interest in the Plan for each Year of Service completed while a noneligible Employee, until such time as his Participant's Account shall be forfeited or distributed pursuant to the terms of the Plan. Additionally, his interest in the Plan shall continue to share in the earnings of the Trust Fund. (b) In the event a Participant is no longer a member of an eligible class of Employees and becomes ineligible to participate but has not incurred a 1-Year Break in Service, such Employee will participate immediately upon returning to an eligible class of Employees. If such Participant incurs a 1-Year Break in Service, eligibility will be determined under the break in service rules of the Plan. 3.6 OMISSION OF ELIGIBLE EMPLOYEE If, in any Plan Year, any Employee who should be included as a Participant in the Plan is erroneously omitted and discovery of such omission is not made until after a contribution by his Employer for the year has been made, the Employer shall make a subsequent contribution with respect to the omitted Employee in the amount which the said Employer would have contributed with respect to him had he not been omitted. Such contribution shall be made regardless of whether or not it is deductible in whole or in part in any taxable year under applicable provisions of the Code. 3.7 INCLUSION OF INELIGIBLE EMPLOYEE If, in any Plan Year, any person who should not have been included as a Participant in the Plan is erroneously included and discovery of such incorrect inclusion is not made until after a contribution for the year has been made, the Employer shall not be entitled to recover the contribution made with respect to the ineligible person regardless of whether or not a deduction is allowable with respect to such contribution. In such event, the amount contributed with respect to the ineligible person shall constitute a Forfeiture (except for Deferred Compensation which shall be distributed to the ineligible person) for the Plan Year in which the discovery is made. 27 33 3.8 ELECTION NOT TO PARTICIPATE An Employee may, subject to the approval of the Employer, elect voluntarily not to participate in the Plan. The election not to participate must be communicated to the Employer, in writing, at least thirty (30) days before the beginning of a Plan Year. ARTICLE IV CONTRIBUTION AND ALLOCATION 4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION For each Plan Year, the Employer shall contribute to the Plan: (a) The amount of the total salary reduction elections of all Participants made pursuant to Section 4.2(a), which amount shall be deemed an Employer's Elective Contribution. (b) On behalf of each Non-Highly Compensated Participant and Non-Key Employee who is eligible to share in the Qualified Non-Elective Contribution for the Plan Year, a discretionary Qualified Non-Elective Contribution equal to a percentage of each eligible individual's Compensation, the exact percentage to be determined each year by the Employer. The Employer's Qualified Non-Elective Contribution shall be deemed an Employer's Elective Contribution. (c) A discretionary amount, which amount shall be deemed an Employer's Non-Elective Contribution. (d) Notwithstanding the foregoing, however, the Employer's contributions for any Plan Year shall not exceed the maximum amount allowable as a deduction to the Employer under the provisions of Code Section 404. All contributions by the Employer shall be made in cash or in such property as is acceptable to the Trustee. (e) Except, however, to the extent necessary to provide the top heavy minimum allocations, the Employer shall make a contribution even if it exceeds the amount which is deductible under Code Section 404. 4.2 PARTICIPANT'S SALARY REDUCTION ELECTION (a) Each Participant may elect to defer his Compensation which would have been received in the Plan Year, but for the deferral election, by up to 15%. A deferral election (or modification of an earlier election) may not be made with respect to Compensation which is currently available on or before the date the 28 34 Participant executed such election or, if later, the latest of the date the Employer adopts this cash or deferred arrangement, or the date such arrangement first became effective. The amount by which Compensation is reduced shall be that Participant's Deferred Compensation and be treated as an Employer Elective Contribution and allocated to that Participant's Elective Account. (b) The balance in each Participant's Elective Account shall be fully Vested at all times and shall not be subject to Forfeiture for any reason. (c) Amounts held in the Participant's Elective Account may not be distributable earlier than: (1) a Participant's termination of employment, Total and Permanent Disability, or death; (2) a Participant's attainment of age 59 1/2; (3) the termination of the Plan without the establishment or existence of a "successor plan", as that term is described in Regulation 1.401(k)-1(d)(3); (4) the date of disposition by the Employer to an entity that is not an Affiliated Employer of substantially all of the assets (within the meaning of Code Section 409(d)(2)) used in a trade or business of such corporation if such corporation continues to maintain this Plan after the disposition with respect to a Participant who continues employment with the corporation acquiring such assets; (5) the date of disposition by the Employer or an Affiliated Employer who maintains the Plan of its interest in a subsidiary (within the meaning of Code Section 409(d)(3)) to an entity which is not an Affiliated Employer but only with respect to a Participant who continues employment with such subsidiary; or (6) the proven financial hardship of a Participant, subject to the limitations of Section 6.10. (d) For each Plan Year, a Participant's Deferred Compensation made under this Plan and all other plans, contracts or arrangements of the Employer maintaining this Plan shall not exceed, during any taxable year of the Participant, the limitation imposed by Code Section 29 35 402(g), as in effect at the beginning of such taxable year. If such dollar limitation is exceeded, a Participant will be deemed to have notified the Administrator of such excess amount which shall be distributed in a manner consistent with 4.2(f). The dollar limitation shall be adjusted annually pursuant to the method provided in Code Section 415(d) in accordance with Regulations. (e) In the event a Participant has received a hardship distribution from his Participant's Elective Account pursuant to Section 6.10 or pursuant to Regulation 1.401(k)-1(d)(2)(iv)(B) from any other plan maintained by the Employer, then such Participant shall not be permitted to elect to have Deferred Compensation contributed to the Plan on his behalf for a period of twelve (12) months following the receipt of the distribution. Furthermore, the dollar limitation under Code Section 402(g) shall be reduced, with respect to the Participant's taxable year following the taxable year in which the hardship distribution was made, by the amount of such Participant's Deferred Compensation, if any, pursuant to this Plan (and any other plan maintained by the Employer) for the taxable year of the hardship distribution. (f) If a Participant's Deferred Compensation under this Plan together with any elective deferrals (as defined in Regulation 1.402(g)-1(b)) under another qualified cash or deferred arrangement (as defined in Code Section 401(k)), a simplified employee pension (as defined in Code Section 408(k)), a salary reduction arrangement (within the meaning of Code Section 3121(a)(5)(D)), a deferred compensation plan under Code Section 457, or a trust described in Code Section 501(c)(18) cumulatively exceed the limitation imposed by Code Section 402(g) (as adjusted annually in accordance with the method provided in Code Section 415(d) pursuant to Regulations) for such Participant's taxable year, the Participant may, not later than March 1 following the close of the Participant's taxable year, notify the Administrator in writing of such excess and request that his Deferred Compensation under this Plan be reduced by an amount specified by the Participant. In such event, the Administrator may direct the Trustee to distribute such excess amount (and any Income allocable to such excess amount) to the Participant not later than the first April 15th following the close of the Participant's taxable year. Any distribution of less than the entire amount of Excess Deferred Compensation and Income shall be treated as a pro rata distribution of Excess Deferred Compensation and Income. The amount distributed shall not exceed the Participant's Deferred Compensation 30 36 under the Plan for the taxable year. Any distribution on or before the last day of the Participant's taxable year must satisfy each of the following conditions: (1) the distribution must be made after the date on which the Plan received the Excess Deferred Compensation; (2) the Participant shall designate the distribution as Excess Deferred Compensation; and (3) the Plan must designate the distribution as a distribution of Excess Deferred Compensation. (g) Notwithstanding Section 4.2(f) above, a Participant's Excess Deferred Compensation shall be reduced, but not below zero, by any distribution of Excess Contributions pursuant to Section 4.6(a) for the Plan Year beginning with or within the taxable year of the Participant. (h) At Normal Retirement Date, or such other date when the Participant shall be entitled to receive benefits, the fair market value of the Participant's Elective Account shall be used to provide additional benefits to the Participant or his Beneficiary. (i) All amounts allocated to a Participant's Elective Account may be treated as a Directed Investment Account pursuant to Section 4.10. (j) Employer Elective Contributions made pursuant to this Section may be segregated into a separate account for each Participant in a federally insured savings account, certificate of deposit in a bank or savings and loan association, money market certificate, or other short-term debt security acceptable to the Trustee until such time as the allocations pursuant to Section 4.4 have been made. (k) The Employer and the Administrator shall implement the salary reduction elections provided for herein in accordance with the following: (1) A Participant may commence making elective deferrals to the Plan only after first satisfying the eligibility and participation requirements specified in Article III. However, the Participant must make his initial salary deferral election within a reasonable time, not to exceed thirty (30) days, after entering the Plan pursuant to Section 3.3. If the Participant fails to make an initial salary deferral election within such time, then such Participant may 31 37 thereafter make an election in accordance with the rules governing modifications. The Participant shall make such an election by entering into a written salary reduction agreement with the Employer and filing such agreement with the Administrator. Such election shall initially be effective beginning with the pay period following the acceptance of the salary reduction agreement by the Administrator, shall not have retroactive effect and shall remain in force until revoked. (2) A Participant may modify a prior election at any time during the Plan Year and concurrently make a new election by filing a written notice with the Administrator within a reasonable time before the pay period for which such modification is to be effective. Any modification shall not have retroactive effect and shall remain in force until revoked. (3) A Participant may elect to prospectively revoke his salary reduction agreement in its entirety at any time during the Plan Year by providing the Administrator with thirty (30) days written notice of such revocation (or upon such shorter notice period as may be acceptable to the Administrator). Such revocation shall become effective as of the beginning of the first pay period coincident with or next following the expiration of the notice period. Furthermore, the termination of the Participant's employment, or the cessation of participation for any reason, shall be deemed to revoke any salary reduction agreement then in effect, effective immediately following the close of the pay period within which such termination or cessation occurs. 4.3 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION The Employer shall generally pay to the Trustee its contribution to the Plan for each Plan Year within the time prescribed by law, including extensions of time, for the filing of the Employer's federal income tax return for the Fiscal Year. However, Employer Elective Contributions accumulated through payroll deductions shall be paid to the Trustee as of the earliest date on which such contributions can reasonably be segregated from the Employer's general assets, but in any event within ninety (90) days from the date on which such amounts would otherwise have been payable to the Participant in cash. The provisions of Department of Labor regulations 2510.3-102 are incorporated herein by reference. Furthermore, any additional Employer contributions which are allocable to the Participant's 32 38 Elective Account for a Plan Year shall be paid to the Plan no later than the twelve-month period immediately following the close of such Plan Year. 4.4 ALLOCATION OF CONTRIBUTION AND EARNINGS (a) The Administrator shall establish and maintain an account in the name of each Participant to which the Administrator shall credit as of each Anniversary Date all amounts allocated to each such participant as set forth herein. (b) The Employer shall provide the Administrator with all information required by the Administrator to make a proper allocation of the Employer's contributions for each Plan Year. Within a reasonable period of time after the date of receipt by the Administrator of such information, the Administrator shall allocate such contribution as follows: (1) With respect to the Employer's Elective Contribution made pursuant to Section 4.1(a), to each Participant's Elective Account in an amount equal to each such Participant's Deferred Compensation for the year. (2) With respect to the Employer's Qualified Non-Elective Contribution made pursuant to Section 4.1(b), to each Participant's Elective Account in accordance with Section 4.1(b). Only Non-Highly Compensated Participants and Non-Key Employees who are actively employed on the last day of the Plan Year shall be eligible to share in the Qualified Non-Elective Contribution for the year. (3) With respect to the Employer's Non-Elective Contribution made pursuant to Section 4.1(c), to each Participant's Account in the same proportion that each such Participant's Compensation for the year bears to the total Compensation of all Participants for such year. Only Participants who are actively employed on the last day of the Plan Year shall be eligible to share in the discretionary contribution for the year. (c) For any Top Heavy Plan Year, Non-Key Employees not otherwise eligible to share in the allocation of contributions as provided above, shall receive the minimum allocation provided for in Section 4.4(f) if eligible pursuant to the provisions of Section 4.4(h). 33 39 (d) Participants who are not actively employed on the last day of the Plan Year due to Retirement (Normal or Late), Total and Permanent Disability or death shall share in the allocation of contributions for that Plan Year only if otherwise eligible in accordance with this Section. (e) As of each Anniversary Date or other valuation date, any earnings or losses (net appreciation or net depreciation) of the Trust Fund shall be allocated in the same proportion that each Participant's and Former Participant's weighted average (based on beginning year base) nonsegregated accounts bear to the total of all Participants' and Former Participants' weighted average (based on beginning year base) nonsegregated accounts as of such date. Participants' transfers from other qualified plans deposited in the general Trust Fund shall share in any earnings and losses (net appreciation or net depreciation) of the Trust Fund in the same manner provided above. Each segregated account maintained on behalf of a Participant shall be credited or charged with its separate earnings and losses. (f) Minimum Allocations Required for Top Heavy Plan Years: Notwithstanding the foregoing, for any Top Heavy Plan Year, the sum of the Employer's contributions allocated to the Participant's Combined Account of each Non-Key Employee shall be equal to at least three percent (3%) of such Non-Key Employee's "415 Compensation" (reduced by contributions and forfeitures, if any, allocated to each Non-Key Employee in any defined contribution plan included with this plan in a Required Aggregation Group). However, if (1) the sum of the Employer's contributions allocated to the Participant's Combined Account of each Key Employee for such Top Heavy Plan Year is less than three percent (3%) of each Key Employee's "415 Compensation" and (2) this Plan is not required to be included in an Aggregation Group to enable a defined benefit plan to meet the requirements of Code Section 401(a)(4) or 410, the sum of the Employer's contributions allocated to the Participant's Combined Account of each Non-Key Employee shall be equal to the largest percentage allocated to the Participant's Combined Account of any Key Employee. However, in determining whether a Non-Key Employee has received the required minimum allocation, such Non-Key Employee's Deferred Compensation shall not be taken into account. However, no such minimum allocation shall be required in this Plan for any Non-Key Employee who participates in another defined contribution plan 34 40 subject to Code Section 412 providing such benefits included with this Plan in a Required Aggregation Group. (g) For purposes of the minimum allocations set forth above, the percentage allocated to the Participant's Combined Account of any Key Employee shall be equal to the ratio of the sum of the Employer's contributions allocated on behalf of such Key Employee divided by the "415 Compensation" for such Key Employee. (h) For any Top Heavy Plan Year, the minimum allocations set forth above shall be allocated to the Participant's Combined Account of all Non-Key Employees who are Participants and who are employed by the Employer on the last day of the Plan Year, including Non-Key Employees who have (1) failed to complete a Year of Service; and (2) declined to make mandatory contributions (if required) or, in the case of a cash or deferred arrangement, elective contributions to the Plan. (i) For the purposes of this Section, "415 Compensation" shall be limited to $200,000. Such amount shall be adjusted at the same time and in the same manner as permitted under Code Section 415(d), except that the dollar increase in effect on January 1 of any calendar year shall be effective for the Plan Year beginning with or within such calendar year and the first adjustment to the $200,000 limitation shall be effective on January 1, 1990. For any short Plan Year the "415 Compensation" limit shall be an amount equal to the "415 Compensation" limit for the calendar year in which the Plan Year begins multiplied by the ratio obtained by dividing the number of full months in the short Plan Year by twelve (12). (j) Notwithstanding anything herein to the contrary, Participants who terminated employment for any reason during the Plan Year shall share in the salary reduction contributions made by the Employer for the year of termination without regard to the Hours of Service credited. (k) If a Former Participant is reemployed after five (5) consecutive 1-Year Breaks in Service, then separate accounts shall be maintained as follows: (1) one account for nonforfeitable benefits attributable to pre-break service; and (2) one account representing his status in the Plan attributable to post-break service. 35 41 (1) Notwithstanding anything to the contrary, if this is a Plan that would otherwise fail to meet the requirements of Code Sections 401(a)(26), 410(b)(1) or 410(b)(2)(A)(i) and the Regulations thereunder because Employer contributions would not be allocated to a sufficient number or percentage of Participants for a Plan Year, then the following rules shall apply: (1) The group of Participants eligible to share in the Employer's contribution for the Plan Year shall be expanded to include the minimum number of Participants who would not otherwise be eligible as are necessary to satisfy the applicable test specified above. The specific Participants who shall become eligible under the terms of this paragraph shall be those who are actively employed on the last day of the Plan Year and, when compared to similarly situated Participants, have completed the greatest number of Hours of Service in the Plan Year. (2) If after application of paragraph (1) above, the applicable test is still not satisfied, then the group of Participants eligible to share in the Employer's contribution for the Plan Year shall be further expanded to include the minimum number of Participants who are not actively employed on the last day of the Plan Year as are necessary to satisfy the applicable test. The specific Participants who shall become eligible to share shall be those Participants, when compared to similarly situated Participants, who have completed the greatest number of Hours of Service in the Plan Year before terminating employment. (3) Nothing in this Section shall permit the reduction of a Participant's accrued benefit. Therefore any amounts that have previously been allocated to Participants may not be reallocated to satisfy these requirements. In such event, the Employer shall make an additional contribution equal to the amount such affected Participants would have received had they been included in the allocations, even if it exceeds the amount which would be deductible under Code Section 404. Any adjustment to the allocations pursuant to this paragraph shall be considered a retroactive amendment adopted by the last day of the Plan Year. 36 42 4.5 ACTUAL DEFERRAL PERCENTAGE TESTS (a) Maximum Annual Allocation: For each Plan Year, the annual allocation derived from Employer Elective Contributions to a Participant's Elective Account shall satisfy one of the following tests: (1) The "Actual Deferral Percentage" for the Highly Compensated Participant group shall not be more than the "Actual Deferral Percentage" of the Non-Highly Compensated Participant group multiplied by 1.25, or (2) The excess of the "Actual Deferral Percentage" for the Highly Compensated Participant group over the "Actual Deferral Percentage" for the Non-Highly Compensated Participant group shall not be more than two percentage points. Additionally, the "Actual Deferral Percentage" for the Highly Compensated Participant group shall not exceed the "Actual Deferral Percentage" for the Non-Highly Compensated Participant group multiplied by 2. The provisions of Code Section 401(k)(3) and Regulation 1.401(k)-1(b) are incorporated herein by reference. However, in order to prevent the multiple use of the alternative method described in (2) above and in Code Section 401(m)(9)(A), any Highly Compensated Participant eligible to make elective deferrals pursuant to Section 4.2 and to make Employee contributions or to receive matching contributions under any other plan maintained by the Employer or an Affiliated Employer shall have his actual contribution ratio reduced pursuant to Regulation 1.401(m)-2, the provisions of which are incorporated herein by reference. (b) For the purposes of this Section "Actual Deferral Percentage" means, with respect to the Highly Compensated Participant group and Non-Highly Compensated Participant group for a Plan Year, the average of the ratios, calculated separately for each Participant in such group, of the amount of Employer Elective Contributions allocated to each Participant's Elective Account for such Plan Year, to such Participant's "414(s) Compensation" for such Plan Year. The actual deferral ratio for each Participant and the "Actual Deferral Percentage" for each group shall be calculated to the nearest one-hundredth of one percent. Employer Elective Contributions allocated to each Non-Highly Compensated Participant's Elective Account shall be reduced by Excess Deferred Compensation to the 37 43 extent such excess amounts are made under this Plan or any other plan maintained by the Employer. (c) For the purpose of determining the actual deferral ratio of a Highly Compensated Employee who is subject to the Family Member aggregation rules of Code Section 414(q)(6) because such Participant is either a "five percent owner" of the Employer or one of the ten (10) Highly Compensated Employees paid the greatest "415 Compensation" during the year, the following shall apply: (1) The combined actual deferral ratio for the family group (which shall be treated as one Highly Compensated Participant) shall be determined by aggregating Employer Elective Contributions and "414(s) Compensation" of all eligible Family Members (including Highly Compensated Participants). However, in applying the $200,000 limit to "414(s) Compensation", Family Members shall include only the affected Employee's spouse and any lineal descendants who have not attained age 19 before the close of the Plan Year. (2) The Employer Elective Contributions and "414(s) Compensation" of all Family Members shall be disregarded for purposes of determining the "Actual Deferral Percentage" of the Non-Highly Compensated Participant group except to the extent taken into account in paragraph (1) above. (3) If a Participant is required to be aggregated as a member of more than one family group in a plan, all Participants who are members of those family groups that include the Participant are aggregated as one family group in accordance with paragraphs (1) and (2) above. (d) For the purposes of Sections 4.5(a) and 4.6, a Highly Compensated Participant and a Non-Highly Compensated Participant shall include any Employee eligible to make a deferral election pursuant to Section 4.2, whether or not such deferral election was made or suspended pursuant to Section 4.2. (e) For the purposes of this Section and Code Sections 401(a)(4), 410(b) and 401(k), if two or more plans which include cash or deferred arrangements are considered one plan for the purposes of Code Section 401(a)(4) or 410(b) (other than Code Section 410(b)(2)(A)(ii)), the cash or deferred arrangements included in such plans shall be treated as one arrangement. In addition, two or more cash or deferred 38 44 arrangements may be considered as a single arrangement for purposes of determining whether or not such arrangements satisfy Code Sections 401(a)(4), 410(b) and 401(k). In such a case, the cash or deferred arrangements included in such plans and the plans including such arrangements shall be treated as one arrangement and as one plan for purposes of this Section and Code Sections 401(a)(4), 410(b) and 401(k). Plans may be aggregated under this paragraph (e) only if they have the same plan year. Notwithstanding the above, an employee stock ownership plan described in Code Section 4975(e)(7) or 409 may not be combined with this Plan for purposes of determining whether the employee stock ownership plan or this Plan satisfies this Section and Code Sections 401(a)(4), 410(b) and 401(k). (f) For the purposes of this Section, if a Highly Compensated Participant is a Participant under two or more cash or deferred arrangements (other than a cash or deferred arrangement which is part of an employee stock ownership plan as defined in Code Section 4975(e)(7) or 409) of the Employer or an Affiliated Employer, all such cash or deferred arrangements shall be treated as one cash or deferred arrangement for the purpose of determining the actual deferral ratio with respect to such Highly Compensated Participant. However, if the cash or deferred arrangements have different plan years, this paragraph shall be applied by treating all cash or deferred arrangements ending with or within the same calendar year as a single arrangement. 4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS In the event that the initial allocations of the Employer's Elective Contributions made pursuant to Section 4.4 do satisfy not one of the tests set forth in Section 4.5(a), the Administrator shall adjust Excess Contributions pursuant to the options set forth below: (a) On or before the fifteenth day of the third month following the end of each Plan Year, the Highly Compensated Participant having the highest actual deferral ratio shall have his portion of Excess Contributions distributed to him until one of the tests set forth in Section 4.5(a) is satisfied, or until his actual deferral ratio equals the actual deferral ratio of the Highly Compensated Participant having the second highest actual deferral ratio. This process shall continue until one of the tests set forth in Section 4.5(a) is satisfied. For each Highly Compensated Participant, the amount of Excess Contributions is 39 45 equal to the Elective Contributions on behalf of such Highly Compensated Participant (determined prior to the application of this paragraph) minus the amount determined by multiplying the Highly Compensated Participant's actual deferral ratio (determined after application of this paragraph) by his "414(s) Compensation". However, in determining the amount of Excess Contributions to be distributed with respect to an affected Highly Compensated Participant as determined herein, such amount shall be reduced by any Excess Deferred Compensation previously distributed to such affected Highly Compensated Participant for his taxable year ending with or within such Plan Year. (1) With respect to the distribution of Excess Contributions pursuant to (a) above, such distribution: (i) may be postponed but not later than the close of the Plan Year following the Plan Year to which they are allocable; (ii) shall be adjusted for Income; and (iii) shall be designated by the Employer as a distribution of Excess Contributions (and Income). (2) Any distribution of less than the entire amount of Excess Contributions shall be treated as a pro rata distribution of Excess Contributions and Income. (3) The determination and correction of Excess Contributions of a Highly Compensated Participant whose actual deferral ratio is determined under the family aggregation rules shall be accomplished by reducing the actual deferral ratio as required herein, and the Excess Contributions for the family unit shall then be allocated among the Family Members in proportion to the Elective Contributions of each Family Member that were combined to determine the group actual deferral ratio. (b) Within twelve (12) months after the end of the Plan Year, the Employer may make a special Qualified Non-Elective Contribution on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy one of the tests set forth in Section 4.5(a). Such contribution shall be allocated to the Participant's Elective Account of each Non-Highly Compensated Participant in the same proportion that each Non-Highly Compensated Participant's Compensation 40 46 for the year bears to the total Compensation of all Non-Highly Compensated Participants. (c) If during a Plan Year the projected aggregate amount of Elective Contributions to be allocated to all Highly Compensated Participants under this Plan would, by virtue of the tests set forth in Section 4.5(a), cause the Plan to fail such tests, then the Administrator may automatically reduce proportionately or in the order provided in Section 4.6(a) each affected Highly Compensated Participant's deferral election made pursuant to Section 4.2 by an amount necessary to satisfy one of the tests set forth in Section 4.5(a). 4.7 MAXIMUM ANNUAL ADDITIONS (a) Notwithstanding the foregoing, the maximum "annual additions" credited to a Participant's accounts for any "limitation year" shall equal the lesser of: (1) $30,000 (or, if greater, one-fourth of the dollar limitation in effect under Code Section 415(b)(1)(A)) or (2) twenty-five percent (25%) of the Participant's "415 Compensation" for such "limitation year". For any short "limitation year", the dollar limitation in (1) above shall be reduced by a fraction, the numerator of which is the number of full months in the short "limitation year" and the denominator of which is twelve (12). (b) For purposes of applying the limitations of Code Section 415, "annual additions" means the sum credited to a Participant's accounts for any "limitation year" of (1) Employer contributions, (2) Employee contributions, (3) forfeitures, (4) amounts allocated, after March 31, 1984, to an individual medical account, as defined in Code Section 415(l)(2) which is part of a pension or annuity plan maintained by the Employer and (5) amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after such date, which are attributable to post-retirement medical benefits allocated to the separate account of a key employee (as defined in Code Section 419A(d) (3)) under a welfare benefit plan (as defined in Code Section 419(e)) maintained by the Employer. Except, however, the "415 Compensation" percentage limitation referred to in paragraph (a)(2) above shall not apply to: (1) any contribution for medical benefits (within the meaning of Code Section 419A(f)(2)) after separation from service which is otherwise treated as an "annual addition", or (2) any amount otherwise treated as an "annual addition" under Code Section 415(l)(1). 41 47 (c) For purposes of applying the limitations of Code Section 415, the transfer of funds from one qualified plan to another is not an "annual addition". In addition, the following are not Employee contributions for the purposes of Section 4.7(b)(2): (1) rollover contributions (as defined in Code Sections 402(a)(5), 403(a)(4), 403(b)(8) and 408(d)(3)); (2) repayments of loans made to a participant from the Plan; (3) repayments of distributions received by an Employee pursuant to Code Section 411(a)(7)(B) (cash-outs); (4) repayments of distributions received by an Employee pursuant to Code Section 411(a)(3)(D) (mandatory contributions); and (5) Employee contributions to a simplified employee pension excludable from gross income under Code Section 408(k)(6). (d) For purposes of applying the limitations of Code Section 415, the "limitation year" shall be the Plan Year. (e) The dollar limitation under Code Section 415(b)(1)(A) stated in paragraph (a)(1) above shall be adjusted annually as provided in Code Section 415(d) pursuant to the Regulations. The adjusted limitation is effective as of January 1st of each calendar year and is applicable to "limitation years" ending with or within that calendar year. (f) For the purpose of this Section, all qualified defined benefit plans (whether terminated or not) ever maintained by the Employer shall be treated as one defined benefit plan, and all qualified defined contribution plans (whether terminated or not) ever maintained by the Employer shall be treated as one defined contribution plan. (g) For the purpose of this Section, if the Employer is a member of a controlled group of corporations, trades or businesses under common control (as defined by Code Section 1563(a) or Code Section 414(b) and (c) as modified by Code Section 415(h)), is a member of an affiliated service group (as defined by Code Section 414(m)), or is a member of a group of entities required to be aggregated pursuant to Regulations under Code Section 414(o), all Employees of such Employers shall be considered to be employed by a single Employer. (h) For the purpose of this Section, if this Plan is a Code Section 413(c) plan, all Employers of a Participant who maintain this Plan will be considered be a single Employer. 42 48 (i) (1) If a Participant participates in more than one defined contribution plan maintained by the Employer which have different Anniversary Dates, the maximum "annual additions" under this Plan shall equal the maximum "annual additions" for the "limitation year" minus any "annual additions" previously credited to such Participant's accounts during the "limitation year". (2) If a Participant participates in both a defined contribution plan subject to Code Section 412 and a defined contribution plan not subject to Code Section 412 maintained by the Employer which have the same Anniversary Date, "annual additions" will be credited to the Participant's accounts under the defined contribution plan subject to Code Section 412 prior to crediting "annual additions" to the participant's accounts under the defined contribution plan not subject to Code Section 412. (3) If a Participant participates in more than one defined contribution plan not subject to Code Section 412 maintained by the Employer which have the same Anniversary Date, the maximum "annual additions" under this Plan shall equal the product of (A) the maximum "annual additions" for the "limitation year" minus any "annual additions" previously credited under subparagraphs (1) or (2) above, multiplied by (B) a fraction (i) the numerator of which is the "annual additions" which would be credited to such Participant's accounts under this Plan without regard to the limitations of Code Section 415 and (ii) the denominator of which is such "annual additions" for all plans described in this subparagraph. (j) If an Employee is (or has been) a Participant in one or more defined benefit plans and one or more defined contribution plans maintained by the Employer, the sum of the defined benefit plan fraction and the defined contribution plan fraction for any "limitation year" may not exceed 1.0. (k) The defined benefit plan fraction for any "limitation year" is a fraction, the numerator of which is the sum of the Participant's projected annual benefits under all the defined benefit plans (whether or not terminated) maintained by the Employer, and the denominator of which is the lesser of 125 percent of the dollar limitation determined for the "limitation year" under Code Sections 415(b) and (d) or 140 percent 43 49 of the highest average compensation, including any adjustments under Code Section 415(b). Notwithstanding the above, if the Participant was a Participant as of the first day of the first "limitation year" beginning after December 31, 1986, in one or more defined benefit plans maintained by the Employer which were in existence on May 6, 1986, the denominator of this fraction will not be less than 125 percent of the sum of the annual benefits under such plans which the Participant had accrued as of the close of the last "limitation year" beginning before January 1, 1987, disregarding any changes in the terms and conditions of the plan after May 5, 1986. The preceding sentence applies only if the defined benefit plans individually and in the aggregate satisfied the requirements of Code Section 415 for all "limitation years" beginning before January 1, 1987. (1) The defined contribution plan fraction for any "limitation year" is a fraction, the numerator of which is the sum of the annual additions to the Participant's Account under all the defined contribution plans (whether or not terminated) maintained by the Employer for the current and all prior "limitation years" (including the annual additions attributable to the Participant's nondeductible Employee contributions to all defined benefit plans, whether or not terminated, maintained by the Employer, and the annual additions attributable to all welfare benefit funds, as defined in Code Section 419(e), and individual medical accounts, as defined in Code Section 415(l)(2), maintained by the Employer), and the denominator of which is the sum of the maximum aggregate amounts for the current and all prior "limitation years" of service with the Employer (regardless of whether a defined contribution plan was maintained by the Employer). The maximum aggregate amount in any "limitation year" is the lesser of 125 percent of the dollar limitation determined under Code Sections 415(b) and (d) in effect under Code Section 415(c)(1)(A) or 35 percent of the Participant's Compensation for such year. If the Employee was a Participant as of the end of the first day of the first "limitation year" beginning after December 31, 1986, in one or more defined contribution plans maintained by the Employer which were in existence on May 6, 1986, the numerator of this fraction will be adjusted if the sum of this fraction and the defined benefit fraction would otherwise exceed 1.0 under the terms of this Plan. Under the adjustment, an amount equal to the product of (1) the excess of the sum of the fractions over 1.0 44 50 times (2) the denominator of this fraction, will be permanently subtracted from the numerator of this fraction. The adjustment is calculated using the fractions as they would be computed as of the end of the last "limitation year" beginning before January 1, 1987, and disregarding any changes in the terms and conditions of the Plan made after May 5, 1986, but using the Code Section 415 limitation applicable to the first "limitation year" beginning on or after January 1, 1987. The annual addition for any "limitation year" beginning before January 1, 1987 shall not be recomputed to treat all Employee contributions as annual additions. (m) Notwithstanding the foregoing, for any "limitation year" in which the Plan is a Top Heavy Plan, 100 percent shall be substituted for 125 percent in Sections 4.7(k) and 4.7(l) unless the extra minimum allocation is being provided pursuant to Section 4.4. However, for any "limitation year" in which the Plan is a Super Top Heavy Plan, 100 percent shall be substituted for 125 percent in any event. (n) Notwithstanding anything contained in this Section to the contrary, the limitations, adjustments and other requirements prescribed in this Section shall at all times comply with the provisions of Code Section 415 and the Regulations thereunder, the terms of which are specifically incorporated herein by reference. 4.8 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS (a) If, as a result of a reasonable error in estimating a Participant's Compensation, a reasonable error in determining the amount of elective deferrals (within the meaning of Code Section 402(g)(3)) that may be made with respect to any Participant under the limits of Section 4.7 or other facts and circumstances to which Regulation 1.415-6(b)(6) shall be applicable, the "annual additions" under this Plan would cause the maximum "annual additions" to be exceeded for any participant, the Administrator shall (1) distribute any elective deferrals (within the meaning of Code Section 402(g)(3)) or return any voluntary Employee contributions credited for the "limitation year" to the extent that the return would reduce the "excess amount" in the Participant's accounts (2) hold any "excess amount" remaining after the return of any elective deferrals or voluntary Employee contributions in a "Section 415 suspense account" (3) use the "Section 415 suspense account" in the next "limitation year" (and succeeding "limitation years" if necessary) to reduce Employer contributions for that Participant if that Participant is covered by the Plan as of the end of the 45 51 "limitation year", or if the Participant is not so covered, allocate and reallocate the "Section 415 suspense account" in the next "limitation year" (and succeeding "limitation years" if necessary) to all Participants in the Plan before any Employer or Employee contributions which would constitute "annual additions" are made to the Plan for such "limitation year" (4) reduce Employer contributions to the Plan for such "limitation year" by the amount of the "Section 415 suspense account" allocated and reallocated during such "limitation year" (b) For purposes of this Article, "excess amount" for any Participant for a "limitation year" shall mean the excess, if any, of (1) the "annual additions" which would be credited to his account under the terms of the Plan without regard to the limitations of Code Section 415 over (2) the maximum "annual additions" determined pursuant to Section 4.7. (c) For purposes of this Section, "Section 415 suspense account" shall mean an unallocated account equal to the sum of "excess amounts" for all Participants in the Plan during the "limitation year". The "Section 415 suspense account" shall not share in any earnings or losses of the Trust Fund. 4.9 TRANSFERS FROM QUALIFIED PLANS (a) With the consent of the Administrator, amounts may be transferred from other qualified plans by Employees, provided that the trust from which such funds are transferred permits the transfer to be made and the transfer will not jeopardize the tax exempt status of the Plan or Trust or create adverse tax consequences for the Employer. The amounts transferred shall be set up in a separate account herein referred to as a "Participant's Rollover Account". Such account shall be fully Vested at all times and shall not be subject to Forfeiture for any reason. (b) Amounts in a Participant's Rollover Account shall be held by the Trustee pursuant to the provisions of this Plan and may not be withdrawn by, or distributed to the Participant, in whole or in part, except as provided in paragraphs (c) and (d) of this Section. (c) Except as permitted by Regulations (including Regulation 1.411(d)-4), amounts attributable to elective contributions (as defined in Regulation 1.401(k)-1(g)(3)), including amounts treated as elective contributions, which are transferred from another qualified plan in a plan-to-plan transfer shall 46 52 be subject to the distribution limitations provided for in Regulation 1.401(k)-1(d). (d) At Normal Retirement Date, or such other date when the Participant or his Beneficiary shall be entitled to receive benefits, the fair market value of the Participant's Rollover Account shall be used to provide additional benefits to the Participant or his Beneficiary. Any distributions of amounts held in a Participant's Rollover Account shall be made in a manner which is consistent with and satisfies the provisions of Section 6.5, including, but not limited to, all notice and consent requirements of Code Section 411(a)(11) and the Regulations thereunder. Furthermore, such amounts shall be considered as part of a Participant's benefit in determining whether an involuntary cash-out of benefits without Participant consent may be made. (e) The Administrator may direct that employee transfers made after a valuation date be segregated into a separate account for each participant in a federally insured savings account, certificate of deposit in a bank or savings and loan association, money market certificate, or other short term debt security acceptable to the Trustee until such time as the allocations pursuant to this Plan have been made, at which time they may remain segregated or be invested as part of the general Trust Fund, to be determined by the Administrator. (f) All amounts allocated to a Participant's Rollover Account may be treated as a Directed Investment Account pursuant to Section 4.10. (g) For purposes of this Section, the term "qualified plan" shall mean any tax qualified plan under Code Section 401(a). The term "amounts transferred from other qualified plans" shall mean: (i) amounts transferred to this Plan directly from another qualified plan; (ii) lump-sum distributions received by an Employee from another qualified plan which are eligible for tax free rollover to a qualified plan and which are transferred by the Employee to this Plan within sixty (60) days following his receipt thereof; (iii) amounts transferred to this Plan from a conduit individual retirement account provided that the conduit individual retirement account has no assets other than assets which (A) were previously distributed to the Employee by another qualified plan as a lump-sum distribution (B) were eligible for tax-free rollover to a qualified plan and (C) were deposited in such conduit individual retirement account within sixty (60) days of receipt thereof and other than earnings on said assets; 47 53 and (iv) amounts distributed to the Employee from a conduit individual retirement account meeting the requirements of clause (iii) above, and transferred by the Employee to this Plan within sixty (60) days of his receipt thereof from such conduit individual retirement account. (h) Prior to accepting any transfers to which this Section applies, the Administrator may require the Employee to establish that the amounts to be transferred to this Plan meet the requirements of this Section and may also require the Employee to provide an opinion of counsel satisfactory to the Employer that the amounts to be transferred meet the requirements of this Section. (i) This Plan shall not accept any direct or indirect transfers (as that term is defined and interpreted under Code Section 401(a)(11) and the Regulations thereunder) from a defined benefit plan, money purchase plan (including a target benefit plan), stock bonus or profit sharing plan which would otherwise have provided for a life annuity form of payment to the Participant. (j) Notwithstanding anything herein to the contrary, a transfer directly to this Plan from another qualified plan (or a transaction having the effect of such a transfer) shall only be permitted if it will not result in the elimination or reduction of any "Section 411(d)(6) protected benefit" as described in Section 8.1. 4.10 DIRECTED INVESTMENT ACCOUNT (a) The Administrator, in his sole discretion, may determine that all Participants be permitted to direct the Trustee as to the investment of all or a portion of the interest in any one or more of their individual account balances. If such authorization is given, Participants may, subject to a procedure established by the Administrator and applied in a uniform nondiscriminatory manner, direct the Trustee in writing to invest any portion of their account in specific assets, specific funds or other investments permitted under the Plan and the directed investment procedure. That portion of the account of any Participant so directing will thereupon be considered a Directed Investment Account, which shall not share in Trust Fund earnings. (b) A separate Directed Investment Account shall be established for each Participant who has directed an investment. Transfers between the Participant's regular 48 54 account and his Directed Investment Account shall be charged and credited as the case may be to each account. The Directed Investment Account shall not share in Trust Fund earnings, but it shall be charged or credited as appropriate with the net earnings, gains, losses and expenses as well as any appreciation or depreciation in market value during each Plan Year attributable to such account. ARTICLE V VALUATIONS 5.1 VALUATION OF THE TRUST FUND The Administrator shall direct the Trustee, as of each Anniversary Date, and at such other date or dates deemed necessary by the Administrator, herein called "valuation date", determine the net worth of the assets comprising the Trust Fund as it exists on the "valuation date." In determining such net worth, the Trustee shall value the assets comprising the Trust Fund at their fair market value as of the "valuation date" and shall deduct all expenses for which the Trustee has not yet obtained reimbursement from the Employer or the Trust Fund. 5.2 METHOD OF VALUATION In determining the fair market value of securities held in the Trust Fund which are listed on a registered stock exchange, the Administrator shall direct the Trustee to value the same at the prices they were last traded on such exchange preceding the close of business on the "valuation date". If such securities were not traded on the "valuation date", or if the exchange on which they are traded was not open for business on the "valuation date", then the securities shall be valued at the prices at which they were last traded prior to the "valuation date". Any unlisted security held in the Trust Fund shall be valued at its bid price next preceding the close of business on the "valuation date", which bid price shall be obtained from a registered broker or an investment banker. In determining the fair market value of assets other than securities for which trading or bid prices can be obtained, the Trustee may appraise such assets itself, or in its discretion, employ one or more appraisers for that purpose and rely on the values established by such appraiser or appraisers. ARTICLE VI DETERMINATION AND DISTRIBUTION OF BENEFITS 6.1 DETERMINATION OF BENEFITS UPON RETIREMENT Every Participant may terminate his employment with the Employer and retire for the purposes hereof on his Normal Retirement Date. However, a Participant may postpone the termination of his employment with the Employer to a later date, 49 55 in which event the participation of such Participant in the Plan, including the right to receive allocations pursuant to Section 4.4, shall continue until his Late Retirement Date. Upon a Participant's Retirement Date or attainment of his Normal Retirement Date without termination of employment with the Employer, or as soon thereafter as is practicable, the Trustee shall distribute all amounts credited to such Participant's Combined Account in accordance with Section 6.5. 6.2 DETERMINATION OF BENEFITS UPON DEATH (a) Upon the death of a participant before his Retirement Date or other termination of his employment, all amounts credited to such participant's Combined Account shall become fully Vested. The Administrator shall direct the Trustee, in accordance with the provisions of Sections 6.6 and 6.7, to distribute the value of the deceased Participant's accounts to the Participant's Beneficiary. (b) Upon the death of a Former Participant, the Administrator shall direct the Trustee, in accordance with the provisions of Sections 6.6 and 6.7, to distribute any remaining Vested amounts credited to the accounts of a deceased Former Participant to such Former Participant's Beneficiary. (c) Any security interest held by the Plan by reason of an outstanding loan to the Participant or Former Participant shall be taken into account in determining the amount of the death benefit. (d) The Administrator may require such proper proof of death and such evidence of the right of any person to receive payment of the value of the account of a deceased Participant or Former Participant as the Administrator may deem desirable- The Administrator's determination of death and of the right of any person to receive payment shall be conclusive. (e) The Beneficiary of the death benefit payable pursuant to this Section shall be the Participant's spouse. Except, however, the Participant may designate a Beneficiary other than his spouse if: (1) the spouse has waived the right to be the participant's Beneficiary, or (2) the Participant is legally separated or has been abandoned (within the meaning of local law) and the Participant has a court order to such effect (and there is no "qualified domestic relations order" as defined in Code Section 414(p) which provides otherwise), or 50 56 (3) the Participant has no spouse, or (4) the spouse cannot be located. In such event, the designation of a Beneficiary shall be made on a form satisfactory to the Administrator. A Participant may at any time revoke his designation of a Beneficiary or change his Beneficiary by filing written notice of such revocation or change with the Administrator. However, the Participant's spouse must again consent in writing to any change in Beneficiary unless the original consent acknowledged that the spouse had the right to limit consent only to a specific Beneficiary and that the spouse voluntarily elected to relinquish such right. In the event no valid designation of Beneficiary exists at the time of the Participant's death, the death benefit shall be payable to his estate. (f) Any consent by the Participant's spouse to waive any rights to the death benefit must be in writing, must acknowledge the effect of such waiver, and be witnessed by a Plan representative or a notary public. Further, the spouse's consent must be irrevocable and must acknowledge the specific nonspouse Beneficiary. 6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY In the event of a Participant's Total and Permanent Disability prior to his Retirement Date or other termination of his employment, all amounts credited to such Participant's Combined Account shall become fully Vested. In the event of a Participant's Total and Permanent Disability, the Trustee, in accordance with the provisions of Sections 6.5 and 6.7, shall distribute to such Participant all amounts credited to such Participant's Combined Account as though he had retired. 6.4 DETERMINATION OF BENEFITS UPON TERMINATION (a) On or before the Anniversary Date coinciding with or subsequent to the termination of a Participant's employment for any reason other than death, Total and Permanent Disability or retirement, the Administrator may direct the Trustee to segregate the amount of the Vested portion of such Terminated Participant's Combined Account and invest the aggregate amount thereof in a separate, federally insured savings account, certificate of deposit, common or collective trust fund of a bank or a deferred annuity. In the event the Vested portion of a Participant's Combined Account is not segregated, the amount shall remain in a separate account for the Terminated Participant and share in allocations pursuant to Section 4.4 until such 51 57 time as a distribution is made to the Terminated Participant. Distribution of the funds due to a Terminated Participant shall be made on the occurrence of an event which would result in the distribution had the Terminated Participant remained in the employ of the Employer (upon the Participant's death, Total and Permanent Disability or Normal Retirement). However, at the election of the Participant, the Administrator shall direct the Trustee to cause the entire Vested portion of the Terminated Participant's Combined Account to be payable to such Terminated Participant. Any distribution under this paragraph shall be made in a manner which is consistent with and satisfies the provisions of Section 6.5, including, but not limited to, all notice and consent requirements of Code Section 411(a)(11) and the Regulations thereunder. If the value of a Terminated Participant's Vested benefit derived from Employer and Employee contributions does not exceed $3,500 and has never exceeded $3,500 at the time of any prior distribution, the Administrator shall direct the Trustee to cause the entire Vested benefit to be paid to such participant in a single lump sum. (b) A Participant shall become fully Vested in his Participant's Account immediately upon entry into the Plan. (c) The computation of a Participant's nonforfeitable percentage of his interest in the Plan shall not be reduced as the result of any direct or indirect amendment to this Plan. For this purpose, the Plan shall be treated as having been amended if the Plan provides for an automatic change in vesting due to a change in top heavy status. In the event that the Plan is amended to change or modify any vesting schedule, a Participant with at least three (3) Years of Service as of the expiration date of the election period may elect to have his nonforfeitable percentage computed under the Plan without regard to such amendment. If a Participant fails to make such election, then such Participant shall be subject to the new vesting schedule. The Participant's election period shall commence on the adoption date of the amendment and shall end 60 days after the latest of: (1) the adoption date of the amendment, (2) the effective date of the amendment, or 52 58 (3) the date the Participant receives written notice of the amendment from the Employer or Administrator. (d)(1) If any Former Participant shall be reemployed by the Employer before a 1-Year Break in Service occurs, he shall continue to participate in the Plan in the same manner as if such termination had not occurred. (2) If a Former Participant completes one (1) Year of Service for eligibility purposes following his reemployment with the Employer, he shall participate in the Plan retroactively from his date of reemployment. (3) If a Former Participant completes a Year of Service (a 1-Year Break in Service previously occurred, but employment had not terminated), he shall participate in the Plan retroactively from the first day of the Plan Year during which he completes one (1) Year of Service. 6.5 DISTRIBUTION OF BENEFITS (a) The Administrator, pursuant to the election of the Participant, shall direct the Trustee to distribute to a Participant or his Beneficiary any amount to which he is entitled under the Plan in one lump-sum payment in cash. (b) Any distribution to a Participant who has a benefit which exceeds, or has ever exceeded, $3,500 at the time of any prior distribution shall require such Participant's consent if such distribution occurs prior to the later of his Normal Retirement Age or age 62. With regard to this required consent: (1) The Participant must be informed of his right to defer receipt of the distribution. If a Participant fails to consent, it shall be deemed an election to defer' the distribution of any benefit. However, any election to defer the receipt of benefits shall not apply with respect to distributions which are required under Section 6.5(c). (2) Notice of the rights specified under this paragraph shall be provided no less than 30 days and no more than 90 days before the first day on which all events have occurred which entitle the Participant to such benefit. 53 59 (3) Written consent of the Participant to the distribution must not be made before the Participant receives the notice and must not be made more than 90 days before the first day on which all events have occurred which entitle the Participant to such benefit. (4) No consent shall be valid if a significant detriment is imposed under the Plan on any Participant who does not consent to the distribution. (c) Notwithstanding any provision in the Plan to the contrary, the distribution of a Participant's benefits shall be made in accordance with the following requirements and shall otherwise comply with Code Section 401(a)(9) and the Regulations thereunder (including Regulation 1.401(a)(9)-2), the provisions of which are incorporated herein by reference: (1) A Participant's benefits shall be distributed to him not later than April 1st of the calendar year following the later of (i) the calendar year in which the Participant attains age 70 1/2 or (ii) the calendar year in which the Participant retires, provided, however, that this clause (ii) shall not apply in the case of a Participant who is a "five (5) percent owner" at any time during the five (5) Plan Year period ending in the calendar year in which he attains age 70 1/2 or, in the case of a Participant who becomes a "five (5) percent owner" during any subsequent Plan Year, clause (ii) shall no longer apply and the required beginning date shall be the April 1st of the calendar year following the calendar year in which such subsequent Plan Year ends. Notwithstanding the foregoing, clause (ii) above shall not apply to any Participant unless the Participant had attained age 70 1/2 before January 1, 1988 and was not a "five (5) percent owner" at any time during the Plan Year ending with or within the calendar year in which the Participant attained age 66 1/2 or any subsequent Plan Year. (2) Distributions to a participant and his Beneficiaries shall only be made in accordance with the incidental death benefit requirements of Code Section 401(a)(9)(G) and the Regulations thereunder. (d) All annuity Contracts under this Plan shall be non-transferable when distributed. Furthermore, the terms of any annuity Contract purchased and distributed 54 60 to a Participant or spouse shall comply with all of the requirements of the Plan. 6.6 DISTRIBUTION OF BENEFITS UPON DEATH (a) The death benefit payable pursuant to Section 6.2 shall be paid to the Participant's Beneficiary in one lump-sum payment in cash subject to the rules of Section 6.6(b). (b) Notwithstanding any provision in the Plan to the contrary, distributions upon the death of a Participant shall be made in accordance with the following requirements and shall otherwise comply with Code Section 401(a)(9) and the Regulations thereunder. If it is determined pursuant to Regulations that the distribution of a Participant's interest has begun and the Participant dies before his entire interest has been distributed to him, the remaining portion of such interest shall be distributed at least as rapidly as under the method of distribution selected pursuant to Section 6.5 as of his date of death. If a Participant dies before he has begun to receive any distributions of his interest under the Plan or before distributions are deemed to have begun pursuant to Regulations, then his death benefit shall be distributed to his Beneficiaries by December 31st of the calendar year in which the fifth anniversary of his date of death occurs. However, the 5-year distribution requirement of the preceding paragraph shall not apply to any portion of the deceased Participant's interest which is payable to or for the benefit of a designated Beneficiary. In such event, such portion may, at the election of the Participant (or the Participant's designated Beneficiary), be distributed over a period not extending beyond the life expectancy of such designated Beneficiary provided such distribution begins not later than December 31st of the calendar year immediately following the calendar year in which the Participant died. However, in the event the participant's spouse (determined as of the date of the Participant's death) is his Beneficiary, the requirement that distributions commence within one year of a Participant's death shall not apply. In lieu thereof, distributions must commence on or before the later of: (1) December 31st of the calendar year immediately following the calendar year in which the participant died; or (2) December 31st of the calendar year in which the Participant would have attained age 70 1/2. If the surviving spouse dies before distributions to such spouse begin, then the 5-year 55 61 distribution requirement of this Section shall apply as if the spouse was the Participant. 6.7 TIME OF SEGREGATION OR DISTRIBUTION Except as limited by Sections 6.5 and 6.6, whenever the Trustee is to make a distribution on or as of an Anniversary Date, the distribution may be made on such date or as soon thereafter as is practicable. However, unless a Former Participant elects in writing to defer the receipt of benefits (such election may not result in a death benefit that is more than incidental), the payment of benefits shall occur not later than the 60th day after the close of the Plan Year in which the latest of the following events occurs: (a) the date on which the participant attains the earlier of age 65 or the Normal Retirement Age specified herein; (b) the 10th anniversary of the year in which the Participant commenced participation in the Plan; or (c) the date the Participant terminates his service with the Employer. 6.8 DISTRIBUTION FOR MINOR BENEFICIARY In the event a distribution is to be made to a minor, then the Administrator may direct that such distribution be paid to the legal guardian, or if none, to a parent of such Beneficiary or a responsible adult with whom the Beneficiary maintains his residence, or to the custodian for such Beneficiary under the Uniform Gift to Minors Act or Gift to Minors Act, if such is permitted by the laws of the state in which said Beneficiary resides. Such a payment to the legal guardian, custodian or parent of a minor Beneficiary shall fully discharge the Trustee, Employer, and Plan from further liability on account thereof. 6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN In the event that all, or any portion, of the distribution payable to a Participant or his Beneficiary hereunder shall, at the later of the Participant's attainment of age 62 or his Normal Retirement Age, remain unpaid solely by reason of the inability of the Administrator, after sending a registered letter, return receipt requested, to the last known address, and after further diligent effort, to ascertain the whereabouts of such Participant or his Beneficiary, the amount so distributable shall be treated as a Forfeiture pursuant to the Plan. In the event a Participant or Beneficiary is located subsequent to his benefit being reallocated, such benefit shall be restored. 6.10 ADVANCE DISTRIBUTION FOR HARDSHIP (a) The Administrator, at the election of the Participant, shall direct the Trustee to distribute to any Participant in any one Plan Year up to the lesser 56 62 of 100% of his Participant's Elective Account and his Participant's Account valued as of the last Anniversary Date or other valuation date or the amount necessary to satisfy the immediate and heavy financial need of the Participant. Any distribution made pursuant to this Section shall be deemed to be made as of the first day of the Plan Year or, if later, the valuation date immediately preceding the date of distribution, and the Participant's Elective Account and his Participant's Account shall be reduced accordingly. Withdrawal under this Section shall be authorized only if the distribution is on account of: (1) Expenses for medical care described in Code Section 213(d) previously incurred by the Participant, his spouse, or any of his dependents (as defined in Code Section 152) or necessary for these persons to obtain medical care; (2) The costs directly related to the purchase of a principal residence for the Participant (excluding mortgage payments); (3) Payment of tuition and related educational fees for the next twelve (12) months of post-secondary education for the Participant, his spouse, children, or dependents; or (4) Payments necessary to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant's principal residence. (b) No distribution shall be made pursuant to this Section unless the Administrator, based upon the Participant's representation and such other facts as are known to the Administrator, determines that all of the following conditions are satisfied: (1) The distribution is not in excess of the amount of the immediate and heavy financial need of the Participant. The amount of the immediate and heavy financial need may include any amounts necessary to pay any federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution; (2) The Participant has obtained all distributions, other than hardship distributions, and all nontaxable (at the time of the loan) loans currently available under all plans maintained by the Employer; 57 63 (3) The Plan, and all other plans maintained by the Employer, provide that the Participant's elective deferrals and voluntary Employee contributions will be suspended for at least twelve (12) months after receipt of the hardship distribution or, the Participant, pursuant to a legally enforceable agreement, will suspend his elective deferrals and voluntary Employee contributions to the Plan and all other plans maintained by the Employer for at least twelve (12) months after receipt of the hardship distribution; and (4) The Plan, and all other plans maintained by the Employer, provide that the Participant may not make elective deferrals for the Participant's taxable year immediately following the taxable year of the hardship distribution in excess of the applicable limit under Code Section 402(g) for such next taxable year less the amount of such Participant's elective deferrals for the taxable year of the hardship distribution. (c) Notwithstanding the above, distributions from the Participant's Elective Account pursuant to this Section shall be limited solely to the participant's total Deferred Compensation as of the date of distribution, reduced by the amount of any previous distributions pursuant to this Section. (d) Any distribution made pursuant to this Section shall be made in a manner which is consistent with and satisfies the provisions of Section 6.5, including, but not limited to, all notice and consent requirements of Code Section 411(a)(11) and the Regulations thereunder. 6.11 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION All rights and benefits, including elections, provided to a participant in this Plan shall be subject to the rights afforded to any "alternate payee" under a "qualified domestic relations order." Furthermore, a distribution to an "alternate payee" shall be permitted if such distribution is authorized by a "qualified domestic relations order," even if the affected Participant has not separated from service and has not reached the "earliest retirement age" under the Plan. For the purposes of this Section, "alternate payee," "qualified domestic relations order" and "earliest retirement age" shall have the meaning set forth under Code Section 414(p). 58 64 ARTICLE VII TRUSTEE 7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE The Trustee shall have the following categories of responsibilities: (a) Consistent with the "funding policy and method" determined by the Employer, to invest, manage, and control the Plan assets subject, however, to the direction of an Investment Manager if the Trustee should appoint such manager as to all or a portion of the assets of the Plan; (b) At the direction of the Administrator, to pay benefits required under the Plan to be paid to Participants, or, in the event of their death, to their Beneficiaries; (c) To maintain records of receipts and disbursements and furnish to the Employer and/or Administrator for each Plan Year a written annual report per Section 7.7; and (d) If there shall be more than one Trustee, they shall act by a majority of their number, but may authorize one or more of them to sign papers on their behalf. 7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE (a) The Trustee shall invest and reinvest the Trust Fund to keep the Trust Fund invested without distinction between principal and income and in such securities or property, real or personal, wherever situated, as the Trustee shall deem advisable, including, but not limited to, stocks, common or preferred, bonds and other evidences of indebtedness or ownership, and real estate or any interest therein. The Trustee shall at all times in making investments of the Trust Fund consider, among other factors, the short and long-term financial needs of the Plan on the basis of information furnished by the Employer. In making such investments, the Trustee shall not be restricted to securities or other property of the character expressly authorized by the applicable law for trust investments; however, the Trustee shall give due regard to any limitations imposed by the Code or the Act so that at all times the Plan may qualify as a qualified Profit Sharing Plan and Trust. (b) The Trustee may employ a bank or trust company pursuant to the terms of its usual and 59 65 customary bank agency agreement, under which the duties of such bank or trust company shall be of a custodial, clerical and record-keeping nature. 7.3 OTHER POWERS OF THE TRUSTEE The Trustee, in addition to all powers and authorities under common law, statutory authority, including the Act, and other provisions of the Plan, shall have the following powers and authorities, to be exercised in the Trustee's sole discretion: (a) To purchase, or subscribe for, any securities or other property and to retain the same. In conjunction with the purchase of securities, margin accounts may be opened and maintained; (b) To sell, exchange, convey, transfer, grant options to purchase, or otherwise dispose of any securities or other property held by the Trustee, by private contract or at public auction. No person dealing with the Trustee shall be bound to see to the application of the purchase money or to inquire into the validity, expediency, or propriety of any such sale or other disposition, with or without advertisement; (c) To vote upon any stocks, bonds, or other securities; to give general or special proxies or powers of attorney with or without power of substitution; to exercise any conversion privileges, subscription rights or other options, and to make any payments incidental thereto; to oppose, or to consent to, or otherwise participate in, corporate reorganizations or other changes affecting corporate securities, and to delegate discretionary powers, and to pay any assessments or charges in connection therewith; and generally to exercise any of the powers of an owner with respect to stocks, bonds, securities, or other property; (d) To cause any securities or other property to be registered in the Trustee's own name or in the name of one or more of the Trustee's nominees, and to hold any investments in bearer form, but the books and records of the Trustee shall at all times show that all such investments are part of the Trust Fund; (e) To borrow or raise money for the purposes of the Plan in such amount, and upon such terms and conditions, as the Trustee shall deem advisable; and for any sum so borrowed, to issue a promissory note as Trustee, and to secure the repayment thereof by pledging all, or any part, of the Trust Fund; and no person lending money to the Trustee shall be bound to see to the application of the money lent or to inquire 60 66 into the validity, expediency, or propriety of any borrowing; (f) To keep such portion of the Trust Fund in cash or cash balances as the Trustee may, from time to time, deem to be in the best interests of the Plan, without liability for interest thereon; (g) To accept and retain for such time as the Trustee may deem advisable any securities or other property received or acquired as Trustee hereunder, whether or not such securities or other property would normally be purchased as investments hereunder; (h) To make, execute, acknowledge, and deliver any and all documents of transfer and conveyance and any and all other instruments that may be necessary or appropriate to carry out the powers herein granted; (i) To settle, compromise, or submit to arbitration any claims, debts, or damages due or owing to or from the Plan, to commence or defend suits or legal or administrative proceedings, and to represent the Plan in all suits and legal and administrative proceedings; (j) To employ suitable agents and counsel and to pay their reasonable expenses and compensation, and such agent or counsel may or may not be agent or counsel for the Employer; (k) To apply for and procure from responsible insurance companies, to be selected by the Administrator, as an investment of the Trust Fund such annuity, or other Contracts (on the life of any Participant) as the Administrator shall deem proper; to exercise, at any time or from time to time, whatever rights and privileges may be granted under such annuity, or other Contracts; to collect, receive, and settle for the proceeds of all such annuity or other Contracts as and when entitled to do so under the provisions thereof; (l) To invest funds of the Trust in time deposits or savings accounts bearing a reasonable rate of interest in the Trustee's bank; (m) To invest in Treasury Bills and other forms of United States government obligations; (n) To invest in shares of investment companies registered under the Investment Company Act of 1940; 61 67 (o) To sell, purchase and acquire put or call options if the options are traded on and purchased through a national securities exchange registered under the Securities Exchange Act of 1934, as amended, or, if the options are not traded on a national securities exchange, are guaranteed by a member firm of the New York Stock Exchange; (p) To deposit monies in federally insured savings accounts or certificates of deposit in banks or savings and loan associations; (q) To pool all or any of the Trust Fund, from time to time, with assets belonging to any other qualified employee pension benefit trust created by the Employer or an affiliated company of the Employer, and to commingle such assets and make joint or common investments and carry joint accounts on behalf of this Plan and such other trust or trusts, allocating undivided shares or interests in such investments or accounts or any pooled assets of the two or more trusts in accordance with their respective interests; (r) To do all such acts and exercise all such rights and privileges, although not specifically mentioned herein, as the Trustee may deem necessary to carry out the purposes of the Plan. (s) Directed Investment Account. The powers granted to the Trustee shall be exercised in the sole fiduciary discretion of the Trustee. However, if Participants are so empowered by the Administrator, each Participant may direct the Trustee to separate and keep separate all or a portion of his account; and further each Participant is authorized and empowered, in his sole and absolute discretion, to give directions to the Trustee pursuant to the procedure established by the Administrator and in such form as the Trustee may require concerning the investment of the Participant's Directed Investment Account. The Trustee shall comply as promptly as practicable with directions given by the Participant hereunder. The. Trustee may refuse to comply with any direction from the Participant in the event the Trustee, in its sole and absolute discretion, deems such directions improper by virtue of applicable law. The Trustee shall not be responsible or liable for any loss or expense which may result from the Trustee's refusal or failure to comply with any directions from the Participant. Any costs and expenses related to compliance with the Participant's directions shall be borne by the Participant's Directed Investment Account. 62 68 7.4 LOANS TO PARTICIPANTS (a) The Trustee may, in the Trustee's discretion, make loans to Participants and Beneficiaries under the following circumstances: (1) loans shall be made available to all participants and Beneficiaries on a reasonably equivalent basis; (2) loans shall not be made available to Highly Compensated Employees in an amount greater than the amount made available to other Participants and Beneficiaries; (3) loans shall bear a reasonable rate of interest; (4) loans shall be adequately secured; and (5) shall provide for repayment over a reasonable period of time. (b) Loans made pursuant to this Section (when added to the outstanding balance of all other loans made by the Plan to the Participant) shall be limited to the lesser of: (1) $50,000 reduced by the excess (if any) of the highest outstanding balance of loans from the Plan to the Participant during the one year period ending on the day before the date on which such loan is made, over the outstanding balance of loans from the Plan to the Participant on the date on which such loan was made, or (2) one-half (1/2) of the present value of the non-forfeitable accrued benefit of the Participant under the Plan. (c) Loans shall provide for level amortization with payments to be made not less frequently than quarterly over a period not to exceed five (5) years. However, loans used to acquire any dwelling unit which, within a reasonable time, is to be used (determined at the time the loan is made) as a principal residence of the Participant shall provide for periodic repayment over a reasonable period of time that may exceed five (5) years. (d) Any loans granted or renewed shall be made pursuant to a Participant loan program. Such loan program shall be established in writing and must include, but need not be limited to, the following: (1) the identity of the person or positions authorized to administer the participant loan program; (2) a procedure for applying for loans; 63 69 (3) the basis on which loans will be approved or denied; (4) limitations, if any, on the types and amounts of loans offered; (5) the procedure under the program for determining a reasonable rate of interest; (6) the types of collateral which may secure a Participant loan; and (7) the events constituting default and the steps that will be taken to preserve Plan assets. Such Participant loan program shall be contained in a separate written document which, when properly executed, is hereby incorporated by reference and made a part of the Plan. Furthermore, such Participant loan program may be modified or amended in writing from time to time without the necessity of amending this Section. 7.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS At the direction of the Administrator, the Trustee shall, from time to time, in accordance with the terms of the Plan, make payments out of the Trust Fund. The Trustee shall not be responsible in any way for the application of such payments. 7.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES The Trustee shall be paid such reasonable compensation as shall from time to time be agreed upon in writing by the Employer and the Trustee. An individual serving as Trustee who already receives full-time pay from the Employer shall not receive compensation from the Plan. In addition, the Trustee shall be reimbursed for any reasonable expenses, including reasonable counsel fees incurred by it as Trustee. Such compensation and expenses shall be paid from the Trust Fund unless paid or advanced by the Employer. All taxes of any kind and all kinds whatsoever that may be levied or assessed under existing or future laws upon, or in respect of, the Trust Fund or the income thereof, shall be paid from the Trust Fund. 7.7 ANNUAL REPORT OF THE TRUSTEE Within a reasonable period of time after the later of the Anniversary Date or receipt of the Employer's contribution for each Plan Year, the Trustee shall furnish to the Employer and Administrator a written statement of account with respect to the Plan Year for which such contribution was made setting forth: (a) the net income, or loss, of the Trust Fund; 64 70 (b) the gains, or losses, realized by the Trust Fund upon sales or other disposition of the assets; (c) the increase, or decrease, in the value of the Trust Fund; (d) all payments and distributions made from the Trust Fund; and (e) such further information as the Trustee and/or Administrator deems appropriate. The Employer, forthwith upon its receipt of each such statement of account, shall acknowledge receipt thereof in writing and advise the Trustee and/or Administrator of its approval or disapproval thereof. Failure by the Employer to disapprove any such statement of account within thirty (30) days after its receipt thereof shall be deemed an approval thereof. The approval by the Employer of any statement of account shall be binding as to all matters embraced therein as between the Employer and the Trustee to the same extent as if the account of the Trustee had been settled by judgment or decree in an action for a judicial settlement of its account in a court of competent jurisdiction in which the Trustee, the Employer and all persons having or claiming an interest in the Plan were parties; provided, however, that nothing herein contained shall deprive the Trustee of its right to have its accounts judicially settled if the Trustee so desires. 7.8 AUDIT (a) If an audit of the Plan's records shall be required by the Act and the regulations thereunder for any Plan Year, the Administrator shall direct the Trustee to engage on behalf of all Participants an independent qualified public accountant for that purpose. Such accountant shall, after an audit of the books and records of the Plan in accordance with generally accepted auditing standards, within a reasonable period after the close of the Plan Year, furnish to the Administrator and the Trustee a report of his audit setting forth his opinion as to whether any statements, schedules or lists that are required by Act Section 103 or the Secretary of Labor to be filed with the Plan's annual report, are presented fairly in conformity with generally accepted accounting principles applied consistently. All auditing and accounting fees shall be an expense of and may, at the election of the Administrator, be paid from the Trust Fund. (b) If some or all of the information necessary to enable the Administrator to comply with Act Section 65 71 103 is maintained by a bank, insurance company, or similar institution, regulated and supervised and subject to periodic examination by a state or federal agency, it shall transmit and certify the accuracy of that information to the Administrator as provided in Act Section 103(b) within one hundred twenty (120) days after the end of the Plan Year or by such other date as may be prescribed under regulations of the Secretary of Labor. 7.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE (a) The Trustee may resign at any time by delivering to the Employer, at least thirty (30) days before its effective date, a written notice of his resignation. (b) The Employer may remove the Trustee by mailing by registered or certified mail, addressed to such Trustee at his last known address, at least thirty (30) days before its effective date, a written notice of his removal. (c) Upon the death, resignation, incapacity, or removal of any Trustee, a successor may be appointed by the Employer; and such successor, upon accepting such appointment in writing and delivering same to the Employer, shall, without further act, become vested with all the estate, rights, powers, discretions, and duties of his predecessor with like respect as if he were originally named as a Trustee herein. Until such a successor is appointed, the remaining Trustee or Trustees shall have full authority to act under the terms of the Plan. (d) The Employer may designate one or more successors prior to the death, resignation, incapacity, or removal of a Trustee. In the event a successor is so designated by the Employer and accepts such designation, the successor shall, without further act, become vested with all the estate, rights, powers, discretions, and duties of' his predecessor with the like effect as if he were originally named as Trustee herein immediately upon the death, resignation, incapacity, or removal of his predecessor. (e) Whenever any Trustee hereunder ceases to serve as such, he shall furnish to the Employer and Administrator a written statement of account with respect to the portion of the Plan Year during which he served as Trustee. This statement shall be either (i) included as part of the annual statement of account for the Plan Year required under Section 7.7 or (ii) set forth in a special statement. Any such special 66 72 statement of account should be rendered to the Employer no later than the due date of the annual statement of account for the Plan Year. The procedures set forth in Section 7.7 for the approval by the Employer Of annual statements of account shall apply to any special statement of account rendered hereunder and approval by the Employer of any such special statement in the manner provided in Section 7.7 shall have the same effect upon the statement as the Employer's approval of an annual statement of account. No successor to the Trustee shall have any duty or responsibility to investigate the acts or transactions of any predecessor who has rendered all statements of account required by Section 7.7 and this subparagraph. 7.10 TRANSFER OF INTEREST Notwithstanding any other provision contained in this Plan, the Trustee at the direction of the Administrator shall transfer the Vested interest, if any, of such participant in his account to another trust forming part of a pension, profit sharing or stock bonus plan maintained by such participant's new employer and represented by said employer in writing as meeting the requirements of Code Section 401(a), provided that the trust which such transfers are made permits the transfer to be made. 7.11 DIRECT ROLLOVER (a) This Section applies to distributions made on or after January 1, 1993. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this Section, a distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover. (1) An eligible rollover distribution is any distribution of all or any portion of the balance the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under section 401(a)(9) of the Code; and the portion of any distribution that is not includible in gross income (determined without regard to the 67 73 exclusion for net unrealized appreciation with respect to employer securities). (2) An eligible retirement plan is an individual retirement account described in section 408(a) of the Code, an individual retirement annuity described in section 408(b) of the Code, an annuity plan described in section 403(a) of the Code, or a qualified trust described in section 401(a) of the Code, that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. (3) A distributee includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in section 414(p) of the Code, are distributees with regard to the interest of the spouse or former spouse. (4) A direct rollover is a payment by the Plan to the eligible retirement plan specified by the distributee. ARTICLE VIII AMENDMENT, TERMINATION AND MERGERS 8.1 AMENDMENT (a) The Employer shall have the right at any time to amend the Plan, subject to the limitations of this Section. However, any amendment which affects the rights, duties or responsibilities of the Trustee and Administrator may only be made with the Trustee's and Administrator's written consent. Any such amendment shall become effective as provided therein upon its execution. The Trustee shall not be required to execute any such amendment unless the Trust provisions contained herein are a part of the Plan and the amendment affects the duties of the Trustee hereunder. (b) No amendment to the Plan shall be effective if it authorizes or permits any part of the Trust Fund (other than such part as is required to pay taxes and administration expenses) to be used for or diverted to any purpose other than for the exclusive benefit of the Participants or their Beneficiaries or estates; or causes any reduction in the amount credited to the account of any Participant; or causes or permits any 68 74 portion of the Trust Fund to revert to or become property of the Employer. (c) Except as permitted by Regulations, no Plan amendment or transaction having the effect of a Plan amendment (such as a merger, plan transfer or similar transaction) shall be effective to the extent it eliminates or reduces any "Section 411(d)(6) protected benefit" or adds or modifies conditions relating to "Section 411(d)(6) protected benefits" the result of which is a further restriction on such benefit unless such protected benefits are preserved with respect to benefits accrued as of the later of the adoption date or effective date of the amendment. "Section 411(d)(6) protected benefits" are benefits described in Code Section 411(d)(6)(A), early retirement benefits and retirement-type subsidies, and optional forms of benefit. 8.2 TERMINATION (a) The Employer shall have the right at any time to terminate the Plan by delivering to the Trustee and Administrator written notice of such termination. Upon any full or partial termination, all amounts credited to the affected Participants' Combined Accounts shall become 100% Vested as provided in Section 6.4 and shall not thereafter be subject to forfeiture, and all unallocated amounts shall be allocated to the accounts of all Participants in accordance with the provisions hereof. (b) Upon the full termination of the Plan, the Employer shall direct the distribution of the assets of the Trust Fund to Participants in a manner which is consistent with and satisfies the provisions of Section 6.5. Distributions to a Participant shall be made in cash or through the purchase of irrevocable nontransferable deferred commitments from an insurer. Except as permitted by Regulations, the termination of the Plan shall not result in the reduction of "Section 411(d)(6) protected benefits" in accordance with Section 8.1(c). 8.3 MERGER OR CONSOLIDATION This Plan and Trust may be merged or consolidated with, or its assets and/or liabilities may be transferred to any other plan and trust only if the benefits which would be received by a Participant of this Plan, in the event of a termination of the plan immediately after such transfer, merger or consolidation, are at least equal to the benefits the Participant would have received if the Plan had terminated immediately before the transfer, merger or consolidation, and such transfer, merger or 69 75 consolidation does not otherwise result in the elimination or reduction of any "Section 411(d)(6) protected benefits" in accordance with Section 8.1(c). ARTICLE IX MISCELLANEOUS 9.1 PARTICIPANT'S RIGHTS This Plan shall not be deemed to constitute a contract between the Employer and any Participant or to be a consideration or an inducement for the employment of any participant or Employee. Nothing contained in this Plan shall be deemed to give any Participant or Employee the right to be retained in the service of the Employer or to interfere with the right of the Employer to discharge any Participant or Employee at any time regardless of the effect which such discharge shall have upon him as a Participant of this Plan. 9.2 ALIENATION (a) Subject to the exceptions provided below, no benefit which shall be payable out of the Trust Fund to any person (including a Participant or his Beneficiary) shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the same shall be void; and no such benefit shall in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements, or torts of any such person, nor shall it be subject to attachment or legal process for or against such person, and the same shall not be recognized by the Trustee, except to such extent as may be required by law. (b) This provision shall not apply to the extent a Participant or Beneficiary is indebted to the Plan, as a result of a loan from the Plan. At the time a distribution is to be made to or for a Participant's or Beneficiary's benefit, such proportion of the amount distributed as shall equal such loan indebtedness shall be paid by the Trustee to the Trustee or the Administrator, at the direction of the Administrator, to apply against or discharge such loan indebtedness. Prior to making a payment, however, the Participant or Beneficiary must be given written notice by the Administrator that such loan indebtedness is to be so paid in whole or part from his Participant's Combined Account. If the Participant or Beneficiary does not agree that the loan indebtedness is a valid claim against his Vested Participant's Combined Account, he shall be entitled to a review of the validity of the 70 76 claim in accordance with procedures provided in Sections 2.12 and 2.13. (c) This provision shall not apply to a "qualified domestic relations order" defined in Code Section 414(p), and those other domestic relations orders permitted to be so treated by the Administrator under the provisions of the Retirement Equity Act of 1984. The Administrator shall establish a written procedure to determine the qualified status of domestic relations orders and to administer distributions under such qualified orders. Further, to the extent provided under a "qualified domestic relations order" a former spouse of a Participant shall be treated as the spouse or surviving spouse for all purposes under the Plan. 9.3 CONSTRUCTION OF PLAN This Plan and Trust shall be construed and enforced according to the Act and the laws of the State of Texas, other than its laws respecting choice of law, to the extent not preempted by the Act. 9.4 GENDER AND NUMBER Wherever any words are used herein in the masculine, feminine or neuter gender, they shall be construed as though they were also used in another gender in all cases where they would so apply, and whenever any words are used herein in the singular or plural form, they shall be construed as though they were also used in the other form in all cases where they would so apply. 9.5 LEGAL ACTION In the event any claim, suit, or proceeding is brought regarding the Trust and/or Plan established hereunder to which the Trustee or the Administrator may be a party, and such claim, suit, or proceeding is resolved in favor of the Trustee or Administrator, they shall be entitled to be reimbursed from the Trust Fund for any and all costs, attorney's fees, and other expenses pertaining thereto incurred by them for which they shall have become liable. 9.6 PROHIBITION AGAINST DIVERSION OF FUNDS (a) Except as provided below and otherwise specifically permitted by law, it shall be impossible by operation of the Plan or of the Trust, by termination of either, by power of revocation or amendment, by the happening of any contingency, by collateral arrangement or by any other means, for any part of the corpus or income of any trust fund maintained pursuant to the Plan or any funds contributed thereto to be used for, or diverted to, 71 77 purposes other than the exclusive benefit of participants, Retired Participants, or their Beneficiaries. (b) In the event the Employer shall make an excessive contribution under a mistake of fact pursuant to Act Section 403(c)(2)(A), the Employer may demand repayment of such excessive contribution at any time within one (1) year following the time of payment and the Trustees shall return such amount to the Employer within the one (1) year period. Earnings of the Plan attributable to the excess contributions may not be returned to the Employer but any losses attributable thereto must reduce the amount so returned. 9.7 BONDING Every Fiduciary, except a bank or an insurance company, unless exempted by the Act and regulations thereunder, shall be bonded in an amount not less than 10% of the amount of the funds such Fiduciary handles; provided, however, that the minimum bond shall be $1,000 and the maximum bond, $500,000. The amount of funds handled shall be determined at the beginning of each Plan Year by the amount of funds handled by such person, group, or class to be covered and their predecessors, if any, during the preceding Plan Year, or if there is no preceding Plan Year, then by the amount of the funds to be handled during the then current year. The bond shall provide protection to the Plan against any loss by reason of acts of fraud or dishonesty by the Fiduciary alone or in connivance with others. The surety shall be a corporate surety company (as such term is used in Act Section 412(a)(2)), and the bond shall be in a form approved by the Secretary of Labor. Notwithstanding anything in the Plan to the contrary, the cost of such bonds shall be an expense of and may, at the election of the Administrator, be paid from the Trust Fund or by the Employer. 9.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE Neither the Employer nor the Trustee, nor their successors, shall be responsible for the validity of any Contract issued hereunder or for the failure-on the part of the insurer to make payments provided by any such Contract, or for the action of any person which may delay payment or render a Contract null and void or unenforceable in whole or in part. 9.9 INSURER' S PROTECTIVE CLAUSE Any insurer who shall issue Contracts hereunder shall not have any responsibility for the validity of this Plan or for the tax or legal aspects of this Plan. The insurer shall be protected and held harmless in acting in accordance with any written direction of the Trustee, and shall have no duty to see to the application of any funds paid to the Trustee, nor be 72 78 required to question any actions directed by the Trustee. Regardless of any provision of this Plan, the insurer shall not be required to take or permit any action or allow any benefit or privilege contrary to the terms of any Contract which it issues hereunder, or the rules of the insurer. 9.10 RECEIPT AND RELEASE FOR PAYMENTS Any payment to any Participant, his legal representative, Beneficiary, or to any guardian or committee appointed for such Participant or Beneficiary in accordance with the provisions of the Plan, shall, to the extent thereof, be in full satisfaction of all claims hereunder against the Trustee and the Employer, either of whom may require such Participant, legal representative, Beneficiary, guardian or committee, as a condition precedent to such payment, to execute a receipt and release thereof in such form as shall be determined by the Trustee or Employer. 9.11 ACTION BY THE EMPLOYER Whenever the Employer under the terms of the Plan is permitted or required to do or perform any act or matter or thing, it shall be done and performed by a person duly authorized by its legally constituted authority. 9.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY The "named Fiduciaries" of this Plan are (1) the Employer, (2) the Administrator and (3) the Trustee. The named Fiduciaries shall have only those specific powers, duties, responsibilities, and obligations as are specifically given them under the Plan. In general, the Employer shall have the sole responsibility for making the contributions provided for under Section 4.1; and shall have the sole authority to appoint and remove the Trustee and the Administrator; to formulate the Plan's "funding policy and method"; and to amend or terminate, in whole or in part, the Plan. The Administrator shall have the sole responsibility for the administration of the Plan, which responsibility is specifically described in the Plan. The Trustee shall have the sole responsibility of management of the assets held under the Trust, except those assets, the management of which has been assigned to an Investment Manager, who shall be solely responsible for the management of the assets assigned to it, all as specifically provided in the Plan. Each named Fiduciary warrants that any directions given, information furnished, or action taken by it shall be in accordance with the provisions of the Plan, authorizing or providing for such direction, information or action. Furthermore, each named Fiduciary may rely upon any such direction, information or action of another named Fiduciary as being proper under the Plan, and is not required under the Plan to inquire into the propriety of any such direction, information or action. It is intended under the Plan that each named Fiduciary shall be responsible for the 73 79 proper exercise of its own powers, duties, responsibilities and obligations under the Plan. No named Fiduciary shall guarantee the Trust Fund in any manner against investment loss or depreciation in asset value. Any person or group may serve in more than one Fiduciary capacity. In the furtherance of their responsibilities hereunder, the "named Fiduciaries" shall be empowered to interpret the Plan and Trust and to resolve ambiguities, inconsistencies and omissions, which findings shall be binding, final and conclusive. 9.13 HEADINGS The headings and subheadings of this Plan have been inserted for convenience of reference and are to be ignored in any construction of the provisions hereof. 9.14 APPROVAL BY INTERNAL REVENUE SERVICE (a) Notwithstanding anything herein to the contrary, contributions to this Plan are conditioned upon the initial qualification of the Plan under Code Section 401. If the Plan receives an adverse determination with respect to its initial qualification, then the Plan may return such contributions to the Employer within one year after such determination, provided the application for the determination is made by the time prescribed by law for filing the Employer's return for the taxable year in which the Plan was adopted, or such later date as the Secretary of the Treasury may prescribe. (b) Notwithstanding any provisions to the contrary, except Sections 3.6, 3.7, and 4.1(e), any contribution by the Employer to the Trust Fund is conditioned upon the deductibility of the contribution by the Employer under the Code and, to the extent any such deduction is disallowed, the Employer may, within one (1) year following the disallowance of the deduction, demand repayment of such disallowed contribution and the Trustee shall return such contribution within one (1) year following the disallowance. Earnings of the Plan attributable to the excess contribution may not be returned to the Employer, but any losses attributable thereto must reduce the amount so returned. 9.15 UNIFORMITY All provisions of this Plan shall be interpreted and applied in a uniform, nondiscriminatory manner. In the event of any conflict between the terms of this Plan and any Contract purchased hereunder, the Plan provisions shall control. 74 80 IN WITNESS WHEREOF, this Plan has been executed the day and year first above written. American Industrial Properties REIT By -------------------------------- EMPLOYER ---------------------------------- TRUSTEE 75 EX-10.7 5 FORM OF INDEMNIFICATION AGREEMENT 1 EXHIBIT 10.7 INDEMNIFICATION AGREEMENT This INDEMNIFICATION AGREEMENT (this "Agreement") is made and entered into as of the 12th day of January, 1994, by and between American Industrial Properties REIT, Inc., a Maryland corporation (the "Company"), and ____________________ (the "Indemnitee"). RECITALS WHEREAS, it is essential to the Company to retain and attract as directors and officers the most capable persons available; WHEREAS, the Indemnitee is a director and/or officer of the Company; WHEREAS, both the Company and the Indemnitee recognize the increased risk of litigation and other claims being asserted against directors and officers of companies in today's environment; WHEREAS, the Company's Articles of Incorporation (the "Charter") provide that the Company will indemnify its directors and officers to the full extent permitted by law and will advance expenses in connection therewith, and the Indemnitee's willingness to serve as a director and/or officer of the Company is based in part on the Indemnitee's reliance on such provisions; and WHEREAS, the Maryland General Corporation Law (the "Maryland Statute") expressly recognizes that the indemnification provisions of the Maryland Statute are not exclusive of any other rights to which a person seeking indemnification may be entitled under the Charter or Bylaws of the Company, a resolution of stockholders or directors, an agreement or otherwise, and this Agreement is being entered into pursuant to and in furtherance of the Charter and Bylaws, as permitted by the Maryland Statute and as authorized by the Charter and the Board of Directors of the Company (the "Board"); and WHEREAS, in recognition of the Indemnitee's need for substantial protection against personal liability in order to enhance the Indemnitee's continued service to the Company in an effective manner, and the Indemnitee's reliance on the aforesaid provisions of the Charter, and in part to provide the Indemnitee with specific contractual assurance that the protection promised by such provisions will be available to the Indemnitee (regardless of, among other things, any amendment to or revocation of such provisions or any change in the composition of the Board or any acquisition or business combination transaction relating to the Company), the Company wishes to provide in this Agreement for the indemnification of and the advancement of expenses to the Indemnitee as set forth in this Agreement and, to the extent insurance is maintained, for the continued coverage of the Indemnitee under the Company's directors' and officers' liability insurance policies. NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and 2 sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Indemnification. (a) In accordance with the provisions of subsection (b) of this Section 1, the Company shall hold harmless and indemnify the Indemnitee against any and all expenses, liabilities and losses (including, without limitation, investigation expenses and expert witnesses' and attorneys' fees and expenses, judgments, penalties, fines, ERISA excise taxes and amounts paid or to be paid in settlement) actually incurred by the Indemnitee (net of any related insurance proceeds or other amounts received by the Indemnitee or paid by or on behalf of the Company on the Indemnitee's behalf), in connection with any action, suit, arbitration or proceeding (or any inquiry or investigation, whether brought by or in the right of the Company or otherwise, that the Indemnitee in good faith believes might lead to the institution of any such action, suit, arbitration or proceeding), whether civil, criminal, administrative or investigative, or any appeal therefrom, in which the Indemnitee is a party, is threatened to be made a party, is a witness or is participating (a "Proceeding") based upon, arising from, relating to or by reason of the fact that Indemnitee is, was, shall be or shall have been a director and/or officer of the Company or is or was serving, shall serve, or shall have served at the request of the Company as a director, officer, partner, trustee, employee or agent ("Affiliate Indemnitee") of another foreign or domestic corporation or non-profit corporation, cooperative, partnership, joint venture, trust or other incorporated or unincorporated enterprise. (b) In providing the foregoing indemnification, the Company shall, with respect to a Proceeding, hold harmless and indemnify the Indemnitee to the fullest extent required by the Maryland Statute and to the fullest extent permitted by the Express Permitted Indemnification Provisions (as hereinafter defined) of the Maryland Statute. For purposes of this Agreement, the Express Permitted Indemnification Provisions of the Maryland Statute shall mean indemnification as permitted by Section 2-418 of the Maryland Statute or by any amendment thereof or other statutory provisions expressly permitting such indemnification which is adopted after the date hereof (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than said law required or permitted the Company to provide prior to such amendment). (c) Without limiting the generality of the foregoing, the Indemnitee shall be entitled to the rights of indemnification provided in this Section 1 for any expenses actually incurred in any Proceeding initiated by or in the right of the Company unless the Indemnitee shall have been adjudged to be liable to the Company. (d) If the Indemnitee is entitled under this Agreement to indemnification by the Company for some or a portion of the Indemnified Amounts (as hereinafter defined but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify the Indemnitee for the portion thereof to which Indemnitee is entitled. 2 3 2. Other Indemnification Arrangements. The Maryland Statute, the Charter and the Bylaws of the Company permit the Company to purchase and maintain insurance or furnish similar protection or make other arrangements, including, without limitation, providing a trust fund, letter of credit or surety bond (collectively, the "Indemnity Arrangements") on behalf of the Indemnitee against any liability asserted against him or incurred by or on behalf of him in such capacity as a director or officer of the Company or as an Affiliate Indemnitee, or arising out of his status as such, whether or not the Company would have the power to indemnify him against such liability under the provisions of this Agreement or under the Maryland Statute, as it may then be in effect. The purchase, establishment and maintenance of any such Indemnification Arrangement shall not in any way limit or affect the rights and obligations of the Company or of the Indemnitee under this Agreement except as expressly provided herein, and the execution and delivery of this Agreement by the Company and the Indemnitee shall not in any way limit or affect the rights and obligations of the Company or the other party or parties thereto under any such Indemnification Agreement. All amounts payable by the Company pursuant to this Section 2 and Section 1 hereof are herein referred to as "Indemnified Amounts." 3. Advance Payment of Indemnified Amounts. (a) The Indemnitee hereby is granted the right to receive in advance of a final, nonappealable judgment or other final adjudication of a Proceeding (a "Final Determination") the amount of any and all expenses, including, without limitation, investigation expenses, expert witness' and attorneys' fees and other expenses expended or incurred by the Indemnitee in connection with any Proceeding or otherwise expended or incurred by the Indemnitee (such amounts so expended or incurred being referred to as "Advanced Amounts"). (b) In making any written request for the Advanced Amounts, the Indemnitee shall submit to the Company a schedule setting forth in reasonable detail the dollar amount expended or incurred and expected to be expended. Each such listing shall be supported by the bill, agreement or other documentation relating thereto, each of which shall be appended to the schedule as an exhibit. In addition, before the Indemnitee may receive Advanced Amounts from the Company, the Indemnitee shall provide to the Company (i) a written affirmation of the Indemnitee's good faith belief that the applicable standard of conduct required for indemnification by the Company has been satisfied by the Indemnitee, and (ii) a written undertaking by or on behalf of the Indemnitee to repay the Advanced Amount if it shall ultimately be determined that the Indemnitee has not satisfied any applicable standard of conduct. The written undertaking required from the Indemnitee shall be an unlimited general obligation of the Indemnitee but need not be secured. The Company shall pay to the Indemnitee all Advanced Amounts within ten (10) business days after receipt by the Company of all information and documentation required to be provided by the Indemnitee pursuant to this subsection (b). 4. Procedure for Payment of Indemnified Amounts. (a) To obtain indemnification under this Agreement, the Indemnitee shall submit to the Company a written request for payment of the appropriate Indemnified Amounts, including 3 4 with such request such documentation and information as is reasonably available to the Indemnitee and reasonably necessary to determine whether and to what extent the Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board in writing that the Indemnitee has requested indemnification. (b) The Company shall pay the Indemnitee the appropriate Indemnified Amounts unless it is established that the Indemnitee has not met any applicable standard of conduct of the Express Permitted Indemnification Provisions. For purposes of determining whether the Indemnitee is entitled to Indemnified Amounts, in order to deny indemnification to the Indemnitee the Company has the burden of proof in establishing that the Indemnitee did not meet the applicable standard of conduct. In this regard, a termination of any Proceeding by judgment, order or settlement does not create a presumption that the Indemnitee did not meet the requisite standard of conduct; provided, however, that the termination of any criminal proceeding by conviction, or a pleading of nolo contendere or its equivalent, or an entry of an order of probation prior to judgment, creates a rebuttable presumption that the Indemnitee did not meet the applicable standard of conduct. (c) Any determination that the Indemnitee has not met the applicable standard of conduct required to qualify for indemnification shall be made (i) either by the Board by a majority vote of a quorum consisting of directors who were not parties of such action, suit or proceeding or (ii) by independent legal counsel (who may be the outside counsel regularly employed by the Company), provided that the manner in which (and, if applicable, the counsel by which ) the right to indemnification is to be determined shall be approved in advance in writing by both the highest ranking executive officer of the Company who is not party to such action (sometimes hereinafter referred to as "Senior Officer") and by the Indemnitee. In the event that such parties are unable to agree on the manner in which any such determination is to be made, such determination shall be made by independent legal counsel retained by the Company especially for such purpose, provided that such counsel be approved in advance in writing by both the said Senior Officer and Indemnitee and provided further, that such counsel shall not be outside counsel regularly employed by the Company. The fees and expenses of counsel in connection with making said determination contemplated hereunder shall be paid by the Company, and if requested by such counsel, the Company shall give such counsel an appropriate written agreement with respect to the payment of their fees and expenses and such other matters as may be reasonably requested by counsel. (d) The Company will use its best efforts to conclude as soon as practicable any required determination pursuant to subsection (c) above and promptly will advise the Indemnitee in writing with respect to any determination that the Indemnitee is or is not entitled to indemnification, including a description of any reason or basis for which indemnification has been denied. Payment of any applicable Indemnified Amounts will be made to the Indemnitee within ten (10) days after any determination of the Indemnitee's entitlement to indemnification. 4 5 (e) Notwithstanding the foregoing, the Indemnitee may, at any time after sixty (60) days after a claim for Indemnified Amounts has been filed with the Company (or upon receipt of written notice that a claim for Indemnified Amounts has been rejected, if earlier) and before three (3) years after a claim for Indemnified Amounts has been filed, petition a court of competent jurisdiction to determine whether the Indemnitee is entitled to indemnification under the provisions of this Agreement, and such court shall thereupon have the exclusive authority to make such determination unless and until such court dismisses or otherwise terminates such action without having made such determination. The court shall, as petitioned, make an independent determination of whether the Indemnitee is entitled to indemnification as provided under this Agreement, irrespective of any prior determination made by the Board or independent counsel. If the court shall determine that the Indemnitee is entitled to indemnification as to any claim, issue or matter involved in the Proceeding with respect to which there has been no prior determination pursuant to this Agreement or with respect to which there has been a prior determination that the Indemnitee was not entitled to indemnification hereunder, the Company shall pay all expenses (including attorneys' fees) actually incurred by the Indemnitee in connection with such judicial determination. 5. Agreement Not Exclusive; Subrogation Rights, etc. (a) This Agreement shall not be deemed exclusive of and shall not diminish any other rights the Indemnitee may have to be indemnified or insured or otherwise protected against any liability, loss or expense by the Company, any subsidiary of the Company or any other person or entity under any charter, bylaws, law, agreement, policy of insurance or similar protection, vote of stockholders or directors, disinterested or not, or otherwise, whether or not now in effect, both as to actions in the Indemnitee's official capacity, and as to actions in another capacity while holding such office. The Company's obligations to make payments of Indemnified Amounts hereunder shall be satisfied to the extent that payments with respect to the same Proceeding (or part thereof) have been made to or for the benefit of the Indemnitee by reason of the indemnification of the Indemnitee pursuant to any other arrangement made by the Company for the benefit of the Indemnitee. (b) In the event the Indemnitee shall receive payment from any insurance carrier or from the plaintiff in any Proceeding against the Indemnitee in respect of Indemnified Amounts after payments on account of all or part of such Indemnified Amounts have been made by the Company pursuant hereto, the Indemnitee shall promptly reimburse to the Company the amount, if any, by which the sum of such payment by such insurance carrier or such plaintiff and payments by the Company or pursuant to arrangements made by the Company to Indemnitee exceeds such Indemnified Amounts; provided, however, that such portions, if any, of such insurance proceeds that are required to be reimbursed to the insurance carrier under the terms of its insurance policy, such as deductible or co-insurance payments, shall not be deemed to be payments to the Indemnitee hereunder. In addition, upon payment of Indemnified Amounts hereunder, the Company shall be subrogated to the rights of the Indemnitee receiving such payments (to the extent thereof) against any insurance carrier (to the extent permitted under such insurance policies) or plaintiff in respect of such Indemnified Amounts and the Indemnitee shall 5 6 executed and deliver any and all instruments and documents and perform any and all other acts or deeds which the Company deems necessary or advisable to secure such rights. Such right of subrogation shall be terminated upon receipt by the Company of the amount to be reimbursed by the Indemnitee pursuant to the first sentence of this subsection (b). 6. Insurance Coverage. In the event that the Company maintains directors' and officers' liability insurance to protect itself and any director or officer of the Company against any expense, liability or loss, such insurance shall cover the Indemnitee to at least the same extent as any other director or officer of the Company. 7. Establishment of Trust. The Company may, in its sole discretion, create a trust (the "Trust") for the benefit of the Indemnitee and, to the extent such Trust has been created, from time to time upon written request of Indemnitee shall fund the Trust in an amount sufficient to satisfy any and all Indemnified Amounts (including Advanced Amounts) which are actually paid or which Indemnitee reasonably determines from time to time may be payable by the Company under this Agreement. The amount or amounts to be deposited in the Trust pursuant to the foregoing funding obligation shall be determined by the independent legal counsel appointed under Section 4 hereof. If such Trust is established, the terms thereof shall provide that (i) the Trust shall not be revoked or the principal thereof invaded without the written consent of the Indemnitee; (ii) the trustee of the Trust (the "Trustee") shall advance, within ten (10) business days of a request by the Indemnitee, any and all Advanced Amounts to the Indemnitee (and the Indemnitee hereby agrees to reimburse the Trust under the circumstances, under which the Indemnitee would be required to reimburse the Company under Section 3(b)(ii) hereof); (iii) the Company shall continue to fund the Trust from time to time in accordance with the funding obligations set forth above; (iv) the Trustee shall promptly pay to the Indemnitee all Indemnified Amounts for which the Indemnitee shall be entitled to indemnification pursuant to this Agreement; and (v) all unexpended funds in the Trust shall revert to the Company upon a final determination by a court of competent jurisdiction in a final decision from which there is no further right of appeal that the Indemnitee has been fully indemnified under the terms of this Agreement. The Trustee shall be chosen by the Indemnitee. Nothing in this Section 7 shall relieve the Company of any of its obligations under this Agreement. 8. Continuation of Indemnity. All agreements and obligations of the Company contained herein shall continue during the period the Indemnitee is a director or officer of the Company (or is serving at the request of the Company as an Affiliate Indemnitee) and shall continue thereafter for a period of ten (10) years from the date the Indemnitee ceases to serve as a director or officer of the Company or ceases to serve as an Affiliate Indemnitee (whichever is later). 9. Notice and Defense of Claim. Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification or advancement of expenses covered hereunder. Notwithstanding any other provision of this Agreement, with respect to any such Proceeding or matter as to which 6 7 Indemnitee notifies the Company of the commencement thereof: (a) The Company will be entitled to participate therein at its own expense. (b) Except as otherwise provided in this Section 9(b), to the extent it desires, the Company, jointly with any other indemnifying party similarly notified, shall be entitled to assume the defense thereof, with counsel reasonably satisfactory to Indemnitee. After notice from the Company to Indemnitee of its election to so assume the defense thereof, the Company shall not be liable to Indemnitee under this Agreement for any legal or other expenses subsequently incurred by Indemnitee in connection with the defense thereof other than reasonable costs of investigation or as otherwise provided below. Indemnitee shall have the right to employ his own counsel in such Proceeding or matter, but the fees and expenses of such counsel incurred after notice from the Company of its assumption of the defense thereof shall be at the expense of Indemnitee unless (i) the employment of counsel by Indemnitee has been authorized by the Company; (ii) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of the defense of such action; or (iii) the Company shall not in fact have employed counsel to assume the defense of such Proceeding or matter, in each of which cases the fees and expenses of counsel shall be at the expense of the Company. The Company shall not be entitled to assume the defense of any Proceeding or matter brought by or on behalf of the Company or as to which Indemnitee shall have made the conclusion provided for in (ii) above. (c) The Company shall not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any Proceeding or matter affected without its written consent. The Company shall not settle any Proceeding or matter in any manner that would impose any penalty or limitation on Indemnitee without Indemnitee's written consent. Neither the Company nor Indemnitee will unreasonably withhold their consent to any proposed settlement. 10. Defense Counsel. Indemnitee hereby agrees that in any Proceeding in which Indemnitee and other past or present directors or officers of the Company (or its successor) who are entitled to indemnification from the Company are named defendants or respondents, Indemnitee and such other past or present directors or officers shall collectively select one firm of attorneys in any jurisdiction to defend all such defendants and respondents in such Proceeding unless counsel for Indemnitee advises that there are issues which may raise conflicts of interest between Indemnitee and such other persons. 11. Indemnification for Negligence. To the extent permitted by then applicable law and subject to the provisions of this Agreement, the parties hereto recognize and acknowledge that Indemnitee may be indemnified in accordance with the provisions of this Agreement in Proceedings involving the negligence of Indemnitee. 12. Successors; Binding Agreement. This Agreement shall be binding on and shall inure to the benefit of and be enforceable by the Company's successors and assigns and by the 7 8 Indemnitee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. The Company shall require any successor or assignee (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by written agreement in form and substance reasonably satisfactory to the Company and to the Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession or assignment had taken place. 13. Enforcement. The Company has entered into this Agreement and assumed the obligations imposed on the Company hereby in order to induce the Indemnitee to act as a director or officer, as the case may be, of the Company, and acknowledge that the Indemnitee is relying upon this Agreement in continuing in such capacity. In the event the Indemnitee is required to bring any action to enforce rights or to collect moneys due under this Agreement and is successful in such action, the Company shall reimburse the Indemnitee for all of the Indemnitee's fees and expenses in bringing and pursuing such action. The Indemnitee shall be entitled to the advancement of Indemnified Amounts to the full extent contemplated by Section 3 hereof in connection with such proceeding. 14. Severability. Each of the provisions of this Agreement is a separate and distinct agreement independent of the others, so that if any provision hereof shall be held to be invalid or unenforceable for any reason, such invalidity or unenforceability shall not affect the validity or enforceability of the other provisions hereof, which other provisions shall remain in full force and effect, and, to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held illegal, invalid or unenforceable. 15. Miscellaneous. No provisions of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in writing signed by the Indemnitee and either the Chairman of the Board or the President of the Company or another officer of the Company specifically designated by the Board. No waiver by either party at any time of any breach by the other party of, or of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a wavier of similar or dissimilar provisions or conditions at the same time or at any prior or subsequent times. No agreements or representations, oral or otherwise, express or impled, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Maryland, without giving effect to the principles of conflicts of laws thereof. 16. Notices. For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, as follows: 8 9 If to the Indemnitee: ________________________________ ________________________________ ________________________________ If to the Company: American Industrial Properties REIT, Inc. 6220 North Beltline Suite 205 Irving, Texas 75063-2656 Attention: President or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 17. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 18. Effectiveness. This Agreement shall be effective as of the date first above written. IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed as of the day and year first above written. AMERICAN INDUSTRIAL PROPERTIES REIT, INC. __________________________________________ Charles W. Wolcott President and Chief Executive Officer INDEMNITEE __________________________________________ 106300 9 EX-10.8 6 AGREEMENT & ASSIGNMENT OF PARTNERSHIP 1 EXHIBIT 10.8 AGREEMENT AND ASSIGNMENT OF PARTNERSHIP INTEREST THIS AGREEMENT is made and entered into as of, although not necessarily on, the 27th day of November, 1985, by and among DONALD G. TAYLOR, BART B. BROWN, HARLAN CROW, J. MCDONALD WILLIAMS, JOEL C. PETERSON and TRAMMELL CROW PARTNERS (hereinafter collectively called "Assignors" and individually called "Assignor") and TRAMMELL CROW REAL ESTATE INVESTORS, a real estate investment trust duly organized and existing under the laws of the State of Texas, and TRAMMELL CROW VENTURES, LTD., a Texas limited partnership (hereinafter collectively called "Assignees"). WITNESSETH: WHEREAS, Assignors are all of the partners in CROW-MARYLAND #2, a Texas limited partnership (hereinafter sometimes called the "Partnership"); and WHEREAS, Assignors as sellers and Trammell Crow Ventures, Inc. and Trammell Crow Ventures, Ltd. as purchasers have executed and delivered that certain Purchase Agreement, dated as of November 8, 1985 relating to the sale of all of the interests in the Partnership, which Purchase Agreement has been partially assigned to Trammell Crow Real Estate Investors; and 2 WHEREAS, Assignors desire to assign and Assignees desire to acquire pursuant to the Purchase Agreement all of Assignors' right, title and interest in such Partnership, being one hundred percent (100%) of all of the general and limited partners' interest (hereinafter called the "Partnership Interests"), and Assignees desire to assume certain of Assignors' liabilities, obligations and responsibilities thereunder; NOW, THEREFORE, in consideration of the premises, warranties and mutual covenants set forth herein, the parties hereto agree as follows: 1. Assignment of Partnership Interest. Assignors hereby assign to Assignees, and Assignees hereby acquire from Assignors, the Partnership Interests, including but not limited to, all right, title and interest of Assignors in and to the properties (real and personal), capital, cash flow distributions, profits and losses of the Partnership, in the following interests:
NAME Interest Percentage ---- -------- ---------- Trammell Crow Real Estate General 99.99% Investors Partner Trammell Crow Ventures, Ltd. Limited 0.01% Partner
2. Effective Date. The assignment herein made is effective as of the date of this Agreement, and from and after that date (a) Assignors cease to be partners or members of the Partnership, and (b) that portion of the net profits or net losses and cash flow of the Partnership allocable to the Partnership Interests shall be credited or charged, as the case may be, to the Assignees and not to the Assignors. 3. Representations of Assignors. Assignors each respectively warrant and represent to Assignees that (a) Assignor is the owner of the Partnership Interests in the -2- 3 percentage written next to his or its signature hereto, (b) Assignor has not pledged, assigned, hypothecated or otherwise encumbered all or any part of the Partnership Interests, (c) Assignor has the power and authority rightfully to assign the Partnership Interests in accordance with this Agreement without the necessary joinder of any party, (d) all funds of the Partnership have been distributed to Assignors and upon delivery of this Agreement, Assignors shall have no further right, title or interest in any funds of the Partnership, subject to any adjustments to prorations and collection of rents applicable to periods prior to the date hereof as specified in Section 10.2 of the Purchase Agreement and by a separate proration letter executed with Assignees of even date herewith, and (e) the Partnership has no obligations or liabilities which are not described in the Purchase Agreement or relate solely to the Property as hereinafter defined. Assignors shall indemnify and hold Assignees harmless from and against any and all loss suffered by the Assignees as a result of any breach by Assignors of their foregoing representations and warranties. The representations of Assignors contained in this Paragraph 3 shall survive for a period of twelve months only after the effective date of this Agreement. Any action by Assignees for any loss, damage, cost, expense, obligation or liability (including reasonable attorneys' fees and costs) which Purchaser may sustain because of any breach or alleged breach of any such representations and warranties must be commenced within the twelve month period or be forever barred. 4. Investment Representation. Assignees represent that Assignees' acquisition of the Partnership Interests hereunder is being made for the account of Assignees and is not being made with a view to the sale or distribution thereof in a manner which would require registration under the Securities Act of 1933, as amended, or any applicable state securities law. 5. Assumption Agreement. The Partnership is the owner of certain real property and improvements situated in Anne Arundel County, Maryland and described more particularly on Exhibit "A" attached hereto and made a part hereof for all purposes (the "Property"). The Partnership is the present owner of all right, title and interest of the lessor, subject to the liens securing that certain Deed of Trust Note, dated February 22, 1979, made by the Partnership and payable to the order of Union Trust -3- 4 Company of Maryland in the original principal sum of $1,675,000.00, which note has been assigned to Teachers Insurance and Annuity Association of America, under various tenant leases covering portions of space in the Property, which lease agreements are described in Exhibit "B" attached hereto and made a part hereof (collectively the "Leases") and the Partnership has entered into certain service and maintenance contracts affecting all or a portion of the Property, which contracts are described on Exhibit "C" attached hereto and made a part hereof (collectively the "Service Contracts"). It is understood and agreed that, by its execution hereof, Trammell Crow Real Estate Investors ("REIT") hereby assumes and agrees to perform on behalf of the Partnership all of the terms, covenants and conditions of the Leases on the part of the lessor therein required to be performed arising from and after the effective date hereof, including without limitation, the obligation to repay, in accordance with the terms of the Leases, to the lessees thereunder, all security and other deposits actually received by REIT and required to be repaid by the terms thereof, and REIT covenants and agrees to indemnify, save and hold harmless Assignors from and against any and all liability, claims or causes of action existing in favor of or asserted by any party to the Leases or by any third party, arising out of or relating to REIT's failure to perform on behalf of the Partnership any of the obligations of the lessor under the Leases or the owner of the Property under the Service Contracts, subsequent to the effective date hereof. Assignors covenant and agree to discharge any and all obligations of the lessor under the Leases arising prior to the effective date hereof and to indemnify, save and hold harmless Assignees from and against any and all liability, claims or causes of action existing in favor of or asserted by any party to the Leases or by any third party, arising out of or relating to Assignors' failure to perform on behalf of the Partnership any of the obligations of the lessor under the Leases or as owner of the Property under the Service Contracts, prior to the effective date hereof. In connection with the assumption of the Partnership Interests and as partial consideration for the assignment thereof, it is understood and agreed that, by its execution hereof, REIT hereby assumes and agrees to perform on behalf of the Partnership all of the terms, covenants and conditions of the Service Contracts required to be performed therein on the part of the owner of the Property arising from and after the effective date hereof. -4- 5 6. Future Cooperation on Subsequent Documents. Assignors and Assignees mutually agree to cooperate at all times from and after the date hereof with respect to the supplying of any information requested by the other regarding any of the matter described in this Agreement, and each agrees to execute such further bills of sale, assignments, Partnership amendments, releases, indemnifications, assumptions, estoppel certificates, notifications or other such documents as may be reasonably requested and appropriate for the purpose of giving effect to, evidencing or giving notice of the transactions herein. 7. Successors and Assigns. This Agreement shall be binding upon, and shall inure to the benefit of the parties hereto and their heirs, legal representatives, successors and assigns. 8. Survival of Representations. The representations, warranties, covenants and agreements of the parties contained in this Agreement shall survive the consummation of the transactions contemplated hereby, except as set forth in Paragraph 3 hereof. 9. Modification and Waiver. No supplement, modification, waiver or termination of the Agreement or any provisions hereof shall be binding unless executed in writing by the parties to be bound thereby. No waiver of any of the provisions of this Agreement shall constitute a waiver of any other provision (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. 10. Governing Law. This Agreement is being entered into and is intended to be performed in the State of Maryland, and shall be construed and enforced in accordance with the laws of the State of Maryland. 11. Consent. By his or its execution of this Agreement, each Assignor hereby consents to the transfer by the other Assignors of all of their interests in the Partnership. 12. Limitation of Liability. Notwithstanding anything contained herein or at law to the contrary, none of the assets listed in Section 9.2 of the Purchase Agreement, the provisions of which are hereby incorporated herein by reference, shall be subject to execution in the event of the enforcement of any representation or warranty -5- 6 against Assignors or any of them. Assignors covenant and agree that any obligation or liabilitiy whatsoever of REIT which may arise at any time under this Agreement shall be satisfied, if at all, out of the REIT's trust property only. No such obligation or liability shall be personally binding upon, nor shall resort for the enforcement thereof be had to, the private property of any of its Trust Managers, shareholders, officers, employees or agents, regardless of whether such obligation or liability is in the nature of contract, tort or otherwise. 13. Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which shall constitute one agreement, and the signatures of any party to any counterpart shall be deemed to be a signature to, and may be appended to, any other counterpart. IN WITNESS WHEREOF, this Agreement is executed as of the day and year first above written.
INTEREST ASSIGNORS: TRANSFERRED ---------- ----------- /s/ DONALD G. TAYLOR 30.0% DONALD G. TAYLOR /s/ BART B. BROWN 25.0% BART B. BROWN /s/ HARLAN CROW 12.5% HARLAN CROW /s/ J. MCDONALD WILLIAMS 12.5% J. MCDONALD WILLIAMS /s/ JOEL C. PETERSON 10.0% JOEL C. PETERSON
-6- 7 TRAMMELL CROW PARTNERS 10.0% By: /s/ J. MCDONALD WILLIAM By: /s/ JOEL C. PETERSON ASSIGNEES: ---------- TRAMMELL CROW REAL ESTATE INVESTORS By: /s/ DAVID F. CLOSSEY TRAMMELL CROW VENTURES LTD. By: Trammell Crow Ventures, Inc., its general partner By: /s/ DAVID F. CLOSSEY
-7- 8 EXBIBIT A LEGAL DESCRIPTION Being known and designated as Parcel E, Block A, as shown on a Plat entitled, "Patapsco Industrial Park, a Resubdivision of Block A, Parcel B," which Plat is recorded among the Land Records of Anne Arundel County in Plat Book No. 69, Folio 10-10. 9 RENT ROLL - PATAPSCO CENTER EXHIBIT "B" Crow-Maryland #2 805-809 Barkwood Court LEASES Linthicum Heights, Md 21090 55022-95637 AS OF NOVEMBER 15, 1985
SUITE TENANT SQ. FT. % $/SF MO/RENT COM'MENT EX'PITON - ----- ------ ------- --- ---- ------- -------- -------- 809-C Affiliated Contractors 1,950 3.2 5.50 $ 894.00 06/01/83 05/31/ 805-B Commonwealth Copy Products 2,666 4.3 6.82 1636.50 04/01/85 03/31/8 809-K E.J. Dwyer 2,080 3.4 5.04 874.00 02/01/81 03/31/86 805-J Estimation 8,000 12.9 6.25 4167.00 11/01/80 02/28/86 809-K Estimation #2 1,950 3.2 4.75 772.00 06/01/83 02/28/86 809-G F.M.E. Corporation 1,950 3.2 7.44 1209.00 04/01/85 03/31/88 809-H Franklin Chemical 1,950 3.2 4.25 691.00 04/01/85 03/31/88 809-F Grumman Systems 3,900 6.3 7.69 2500.00 11/15/85 11/30/88 809-M Manfred Meyer & Associates 4,160 6.7 4.69 1625.00 11/01/84 10/31/87 805-C Maryland Medical 2,667 4.3 4.50 1000.00 07/01/80 06/30/91 805-D M.S. Ginn Co. 8,000 12.9 4.65 3100.00 12/01/81 11/30/91 805-G P.S.M. Systems 5,334 8.6 4.95 2200.00 05/01/85 06/30/88 809-N Soundcrafters S'nd Sys. 1,950 3.2 4.40 715.00 06/01/82 05/31/86 809-J Transply 4,030 6.5 3.72 1250.00 01/01/81 12/31/85 809-A Wells Fargo Alarm 3,900 6.3 3.25 1320.00 11/01/85 10/31/90 805-I Wells Fargo #2 2,667 4.3 3.97 1087.00 12/01/84 10/31/ 805-A Westinghouse Elevator 2,666 4.3 5.63 1250.00 01/01/84 12/31/85 ---------- TOTAL 59,820 96.6 $26,290.50 MLD2/17.2 11/15/85 VACANCY 2,080
10 EXHIBIT "C" OTHER AGREEMENTS Service Agreement, dated February 14, 1985, by and between Crow-Maryland #2 and Ruppert Landscape Co., Inc. 11 {THE STATE OF TEXAS LOGO} OFFICE OF THE SECRETARY OF STATE December 20, 1985 MYRA A. MCDANIEL SECRETARY OF STATE Jones, Day, Reavis & Pogue Attn: Ned W. Graber 2300 LTV Center 2001 Ross Ave. Dallas, Texas 75201 RE: PATAPSCO #1 LIMITED PARTNERSHIP FILE NO.: 16240 ALPS FILING DATE: December 6, 1985 This letter will acknowledge receipt for the above referenced document. Since the Texas Uniform Limited Partnership Act does not provide for a certificate of filing, you may use this letter as evidence of the filing in this Office. Very truly yours, /s/ LORNA SALZMAN WASSDORF Lorna Salzman Wassdorf Director Statutory Filings Division Corporations Section 12 PATAPSCO #1 LIMITED PARTNERSHIP (formerly CROW-MARYLAND #2) AMENDED AND RESTATED AGREEMENT AND CERTIFICATE OF LIMITED PARTNERSHIP THE INTERESTS EVIDENCED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES ACT OF ANY STATE, HAVE BEEN ACQUIRED FOR INVESTMENT, AND MAY NOT BE SOLD, OR OTHERWISE DISPOSED OF, OR OFFERED FOR SALE UNLESS REGISTRATION STATEMENTS UNDER SUCH ACTS WITH RESPECT TO SUCH INTERESTS ARE THEN IN EFFECT OR EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH ACTS ARE THEN APPLICABLE TO SUCH OFFER OR SALE, AND UNLESS THE PROVISIONS OF SECTION 15 OF THE AGREEMENT ARE SATISFIED. This Amended and Restated Agreement and Certificate of Limited Partnership ("Agreement") is made and entered into as of November 27, 1985, by and between the entity signing below as General Partner (hereinafter referred to as the "General Partner"), and the entity signing below as Limited Partner (hereinafter referred to, as the "Limited Partner"). The General Partner and the Limited Partner are sometimes hereinafter referred to individually as a "Partner" and collectively as the "Partners." WHEREAS, Donald G. Taylor, Bart B. Brown, Harlan Crow, J. McDonald Williams, Joel C. Peterson as Managing General Partners and Trammell Crow Partners as the Initial Limited Partner (hereinafter collectively referred to as the "Withdrawing Partners") formed a Texas limited partnership under the name of Crow-Maryland #2 (the "Partnership") pursuant to the provisions of an Agreement and Certificate of Limited Partnership, dated as of July 1, 1978; WHEREAS, the Withdrawing Partners have assigned and transferred all of their right, title and interest in the Partnership to Trammell Crow Real Estate Investors, a Texas real estate investment trust and Trammell Crow Ventures, Ltd., a Texas limited partnership, by an instrument of assignment of even date herewith; and WHEREAS, the parties hereto desire to acknowledge the retirement of the Withdrawing Partners, the conversion of certain limited partnership interests into general partnership interests, a change in the name of the Partnership and the continuance of the Partnership upon the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises, the Partners hereto agree as follows: 1. Formation and Name. The Partners hereby continue a limited partnership under the name of Patapsco #1 Limited Partnership pursuant to the provisions of the Uniform Limited Partnership Act of the State of Texas. The "Managing Partner", as defined in Section 9.1 below, may at any time change the name of the Partnership or adopt such trade or fictitious names as it may determine. 2. Capital. 2.1. Original Capital. The original capital of the Partnership shall consist of $1,967,773 cash, which shall be contributed by the Partners in the percentages set forth opposite their signatures hereto. No Partner has contributed property other than cash to the Partnership. For the purpose 13 of determining the fee for filing the certificate of limited partnership in the State of Texas, there is set forth on the signature pages of this Agreement the original cash capital contribution of the Limited Partner. Each Partner, whether a General Partner or a Limited Partner, shall have an interest in the Partnership which shall be expressed in terms of a percentage of the whole, with the present "percentage interests" being set forth opposite their signatures hereto. 2.2. Additional Funds. Any additional funds required by the Partnership to meet its cash requirements shall be borrowed by the Partnership from third parties upon such terms and conditions as the Managing Partner, in its sole discretion, deems necessary or appropriate; provided, however, that in lieu of causing the Partnership to borrow from third parties, the Managing Partner may, from time to time, make advances to the Partnership to meet all costs, expenses, or charges with respect to the operation of the Partnership and the ownership, operation, development, maintenance, and upkeep of the Partnership property including but not limited to ad valorem taxes, debt amortization (including interest payments), insurance premiums, repairs, costs of capital improvements, direct and indirect overhead expenses, advertising expenses, professional fees, wages, and utility costs, to the extent such costs, expenses, or charges exceed the cash flow, if any, derived from operations of the Partnership and the proceeds of any loans made to the Partnership. Any such advance made by the Managing Partner to the Partnership pursuant to this Section 2.2 shall be considered a contribution to the capital of the Partnership. 2.3. Limit on Contributions and Obligations of Limited Partner. The Limited Partner shall not be required to make any additional advances or contributions to the capital of the Partnership. If any additional contributions shall be made by the Limited Partner, an amendment to this Agreement and an amended certificate of limited partnership shall be executed and filed. 2.4. Capital and Drawing Accounts. A separate capital account shall be maintained for each Partner and shall consist of the sum of any contributions of cash made by it to the capital of the Partnership, plus a credit for the value of any property subsequently contributed by it, in an amount determined by the Managing Partner. A separate drawing account will be maintained for each Partner which shall consist of its share of the net profits of the Partnership allocated to it pursuant to Section 6 hereof, less its share of any net losses of the Partnership allocated to it pursuant to Section 6 hereof, and less any distributions to or withdrawals made by or attributed to it from the Partnership. 2.5. Interest on and Return of Capital. No Partner shall be entitled to any interest on its capital or drawing accounts or on its contributions to the capital of the Partnership, and except to the extent expressly provided in this Agreement, no Partner shall have the right to demand or to receive the return of all or any part of its capital or drawing accounts in the Partnership. No Partner shall have the right to demand or receive property other than cash from the Partnership. 2.6. Waiver of Right of Partition and Dissolution. Having previously been advised that it may have a right to bring an action for partition, each of the Partners does hereby agree to and does hereby irrevocably waive for the -2- 14 duration of this Agreement any right or power any such Partner might have to cause the Partnership or any of its assets to be partitioned, to cause the appointment of a receiver for the assets of the Partnership, to compel any sale of all or any portion of the assets of the Partnership pursuant to any applicable law or laws, or to file a complaint or to institute any proceeding at law or in equity to cause the termination or dissolution of the Partnership, except as expressly provided for herein. Each of the Partners hereby acknowledges and agrees that such Partner has been induced to enter into this Agreement in reliance upon the mutual waivers set forth in this Section 2.6 and that without such waivers, no Partner would have entered into this Agreement. No Partner has any interest in specific Partnership property but the interests of all Partners in the Partnership are, for all purposes, personal property. 2.7. Negative Accounts. No Partner shall be required to pay to the Partnership or to any other Partner any deficit or negative balance which may exist from time to time in its capital or drawing accounts as a result of the provisions hereof for the allocation of the Partnership's net losses, for the distribution of the Partnership's cash flow, and for the distribution of the Partnership's assets in liquidation of the Partnership. 3. Principal Office. The principal office of the Partnership shall be located at 3500 LTV Center, 2001 Ross Avenue, Dallas, Texas 75201, or at such other place as the Managing Partner may designate after giving written notice of such designation to all of the other Partners. 4. Purpose and Character of Business. The Partnership shall engage in the business of owning, holding, improving, developing, operating and managing the real property described on Exhibit "A" attached hereto and made a part hereof for all purposes and the improvements situated or to be constructed thereon, as well as the financing of such activities. It is agreed that each of the foregoing is an ordinary part of the Partnership's business. Such property may be acquired subject to, or by assuming, the liens, encumbrances and other title exceptions which affect the property; pledge, mortgage, encumber and grant security interests in Partnership property; and buy, sell, lease and deal in services, personal property and real property. It is expressly understood and agreed that the Partnership may wish to acquire real or personal property for such Partnership purposes. Such property shall be acquired in the name of the Partnership. 5. Term. The term of the Partnership shall continue until terminated or dissolved pursuant to the terms of Section 17.1 hereof. 6. Profits, Losses and Distributive Shares of Tax Items. The Partnership's net profit or net loss, as the case may be, for each fiscal year of the Partnership, as determined in accordance with such method of accounting as may be adopted for the Partnership by the Managing Partner pursuant to Section 13.3 hereof, shall be allocated one hundred percent (100%) to the General Partner and zero percent (0%) to the Limited Partner for both financial accounting and income tax purposes. 7. Calculation of Cash Flow. 7.1. Cash Flow. The cash flow of the Partnership shall be determined as of the end of each fiscal -3- 15 quarter and shall be the net profit or net loss of the Partnership, as the case may be, for such quarter as ascertained in accordance with the method of accounting then regularly used for the Partnership, increased by: (a) depreciation and other non-cash charges deducted in computing the net profit or net loss of the Partnership for such quarter; (b) any loan proceeds obtained by the Partnership during such quarter; (c) any cash that becomes available during such quarter by reason of a net reduction in any reserves referred to below in paragraphs (f) and (g); and decreased by: (d) principal payments made by the Partnership on any of its debts during such quarter; (e) any capital expenditures, including purchases of property, made by the Partnership during such quarter which are not deductible in computing the Partnership's net profit or net loss for such quarter; (f) additions to any reserves reasonably deemed necessary by the Managing Partner during such quarter for capital improvements or asset replacements; and (g) additions to any reserves reasonably deemed necessary by the Managing Partner during such quarter for security or escrow deposits or to meet working capital requirements of the Partnership and any contingent or unforeseen liabilities of the Partnership. 7.2. Distribution of Cash Flow. The cash flow of the Partnership, as determined under Section 7.1 above, shall be distributed to the Partners, in accordance with the allocations set forth in Section 6 hereof, within a reasonable time after the end of each fiscal quarter unless otherwise directed by the Managing Partner. 8. Limited Liability of Limited Partner. The Limited Partner shall not be required to make any contributions to the capital of the Partnership for the payment of any such losses nor shall the Limited Partner be responsible or obligated to any third parties for any debts or liabilities of the Partnership not dischargeable by the assets of the Partnership. 9. Management of Partnership. 9.1. Managing Partner. The Partnership shall be managed by Trammell Crow Real Estate Investors (the "Managing Partner."). All decisions relating to the business and affairs of the Partnership, and all decisions required or permitted to be made by the Partnership as a participant in any other legal entity in which it may have an interest, may be made and any necessary action taken by the Managing Partner. 9.2. Specific Power and Authority of Managing Partner. The power and authority of the Managing Partner to take such action for and on behalf of the Partnership as it may deem necessary or appropriate to enable the Partnership to carry out its business and affairs shall include, without limitation, full and complete power and authority: -4- 16 (a) to borrow money for and on behalf of the Partnership upon such terms and conditions as it, in its sole discretion, deems necessary or appropriate; (b) in order to secure any loans to the Partnership or such other entities in which the Partnership has an interest (being referred to in this Section 9 as the "Subsidiary Entities") or for Partnership purposes, to convey, mortgage, pledge, hypothecate, for and on behalf of the Partnership and upon such terms and conditions as it, in its sole discretion, deems necessary or appropriate, all or any part of the Partnership's assets, including all or any part of its interest in any other entity and all or any part of any of the assets of such other entity; (c) to execute and to deliver for and on behalf of the Partnership any promissory notes, deeds of trust, mortgages, security agreements, financing statements, assignments of leases, "master leases," "convenience leases," and other instruments required or advisable in connection with any such loans, conveyances, mortgages, pledges, or hypothecations; (d) to acquire, either directly or indirectly through ownership interests or other other participation in other entities, such real property, tangible personal property and intangible personal property as may be necessary or desirable to carry on the business of the Partnership or a Subsidiary Entity and to sell, lease, exchange or otherwise dispose of such property; (e) to construct, develop and improve the properties owned by the Partnership or any Subsidiary Entity or cause such properties to be constructed, developed and improved, including, expressly, the power and authority to consummate any interim or permanent financing with respect thereto; (f) to collect all rentals and all other income accruing to the Partnership or its Subsidiary Entity and to pay all acquisition and construction or development costs and expenses of operation, whether capital or otherwise; (g) to prepare, or have prepared, and file all tax returns for the Partnership (but not the tax returns or other reporting of the individual Partners, or of their respective heirs, representatives, executors, successors or assigns, in their individual capacities); and to make all tax elections for the Partnership, including any special basis adjustments pursuant to Section 754 of the Internal Revenue Code of 1954, as amended (the "Code"), provided, however, that the Partner benefiting from such election shall reimburse the Partnership for any additional costs incurred by the Partnership in making the election for and on behalf of the Partnership; (h) to institute, prosecute, defend and settle any legal, arbitration or administrative actions or proceedings on behalf of or against the Partnership; (i) to maintain and operate the assets of the Partnership and of any of its Subsidiary Entities or any part or parts thereof; -5- 17 (j) to employ, terminate the employment of, supervise and compensate such persons, firms or corporations for and in connection with the business of the Partnership and the acquisition, development, improvement, operation, maintenance, management, leasing, financing, refinancing, sale, exchange or other disposition of any assets of the Partnership or its Subsidiary Entities or any interest in any of such assets as the Managing Partner, in its sole discretion, may deem necessary or desirable; (k) to pay any debts and other obligations of the Partnership, including amounts due under permanent financing of improvements and other loans to the Partnership and costs of operation and maintenance of the assets of the Partnership; (l) to pay all taxes, assessments, rents and other impositions applicable to the assets of the Partnership and to undertake when appropriate any action or proceeding seeking to reduce such taxes, assessments, rents or other impositions; (m) to deposit all monies received for or on behalf of the Partnership as may be designated by the Managing Partner in accordance with Section 12 of this Agreement and to disburse and pay all funds on deposit on behalf of the Partnership in such amounts and at such times as the same are required in connection with the ownership, maintenance and operation of the assets of the Partnership or a Subsidiary Entity; (n) to sell, lease, exchange or otherwise convey and in connection with such transaction to execute and deliver all deeds and other appropriate documents, any assets and real estate owned by the Partnership; and (o) to perform other obligations provided elsewhere in this Agreement to be performed by the Managing Partners, unless this Agreement specifically requires action by more than one Managing Partner. Other than as limited by Section 9.3, the signed statement of Managing Partner, reciting that it has authority to undertake any act or has the necessary votes or consents of the Partners to take any such act, when delivered to any third party, shall be all of the evidence such third party shall need concerning the capacity of the Managing Partner, and any such third party shall be entitled to rely upon such statement and shall not be required to inquire further as to any of the facts contained in such statement, said facts being deemed to be true insofar as such third party is concerned. 9.3. Limitations on Powers and Authority of Managing Partner. Notwithstanding the powers of the Managing Partner set forth in Section 9.2, without the consent of all of the Partners, a Managing Partner shall not have the right or power to do any of the following: (a) do any act in contravention of this Agreement, or any amendment hereto; (b) do any act which would make it impossible to carry on the ordinary business of the Partnership, other than to consent to or participate in a sale of all or substantially all of the property of the Partnership in the ordinary course of the business of the Partnership; -6- 18 (c) confess a judgment against the Partnership, except pursuant to the settlement of a pending action as authorized in Subsection 9.2(h), (d) make loans of Partnership funds to any person, firm or entity other than loans to a Subsidiary Entity or for Partnership purposes; or (e) encumber assets of the Partnership or a Subsidiary Entity as security for, or otherwise guarantee the repayment of, indebtedness of persons, firms or entities other than the Partnership, the Managing Partner or a Subsidiary Entity or except for Partnership purposes. 9.4. Compensation of Partners. No Partner receive any compensation from the Partnership without the written consent of the Managing Partner to the payment of compensation by the Partnership. 9.5. Limited Partners. The Limited Partner shall have no right or authority to act for or to bind the Partnership and shall not participate in the general conduct or control of the Partnership's affairs. The Limited Partner may contract to provide advisory services to the Partnership. 9.6. Liability of Partners. The General Partner shall not be liable or accountable, in damages or otherwise, to the Partnership or to any other Partner for any error of judgment or for any mistakes of fact or law or for anything which they may do or refrain from doing hereafter in connection with the business and affairs of the Partnership except in the case of willful misconduct or gross negligence. The General Partner shall not have any personal liability for the return of the Limited Partner's capital. 9.7. Indemnity. The Partnership and the General Partner, jointly and severally, shall indemnify and shall hold the General Partner and Limited Partner, acting consistently with this Agreement, harmless from any loss or damage, including without limitation reasonable legal fees and court costs, incurred by them by reason of anything they may do or refrain from doing hereafter for and on behalf of the Partnership and in furtherance of its interests; provided, however, that (i) the Partnership shall not be required to indemnify the Partners for any loss or damage which they might incur as a result of their willful misconduct or gross negligence in the performance of their duties hereunder, (ii) this indemnification provision shall not relieve any Partner of his proportionate part of the obligations of the Partnership as a Partner, and (iii) a Partner may waive the benefits of such indemnification as well as any other rights of reimbursement he may have from the Partnership. 9.8. Other Activities of Partners and Agreements with Related Parties. Each Partner, in his individual capacity or otherwise, shall be free to engage in, to conduct, or to participate in any business or activity whatsoever, including, without limitation, the acquisition, development, management, and exploitation of real property, without any accountability, liability, or obligation whatsoever to the Partnership or to any other Partner, even if such business or activity competes with or is enhanced by the business of the Partnership. Further, the Managing Partner, in the exercise of its power and authority under this Agreement, may contract and otherwise deal with or otherwise obligate the Partnership to entities in which any one or more of the Partners may have an ownership or other -7- 19 financial interest, including without limitation, the Trammell Crow Company, Inc., a Texas corporation, its successors and assigns and any entity doing business under the name Trammell Crow Company. 10. Investment Representations of the Partners. 10.1. Investment Intent. Each of the Partners does hereby represent and warrant to the Partnership and to the other Partner that it has acquired its interest in the Partnership for investment, solely for its own account, with the intention of holding such interest for investment, and without any intention of participating directly or indirectly in any redistribution or resale of any portion of such interest in violation of the Securities Act of 1933, as amended (the "Act") or any applicable state securities law. 10.2. Unregistered Partnership Interests. Each of the Partners does hereby acknowledge that it is aware that its interest in the Partnership has not been registered under the Act in reliance upon exemptions contained in such Act and that its interest in the Partnership has not been registered under the securities law of any state in reliance upon the exemptions contained in such state securities law. Each of the Partners further understands and acknowledges that its representations and warranties contained in this Section 10 are being relied upon by the Partnership and by the other Partners as the basis for exemption of the issuance of the Partner's interest in the Partnership from registration requirements of the Act and all applicable state securities laws. Each of the Partners further acknowledges that the Partnership will not and has no obligation to register its interest in the Partnership under the Act or any state securities law and does hereby agree that the Partnership shall have no obligation to recognize any sale, transfer or assignment of its interest in the Partnership to any person unless the provisions of Section 15 hereof have been fully satisfied and the sale, transfer or assignment is otherwise permitted hereunder. 10.3. Nature of Investment. Each of the Partners does hereby acknowledge that prior to its execution of this Agreement, it received a copy of this Agreement and that it has examined this document or caused this document to be examined by his representative or attorney. Each of the Partners does hereby further acknowledge that it or its representative or attorney is familiar with this Agreement, and with the business, prospective business and affairs of the Partnership, and that except as otherwise specifically provided in this Agreement, it does not desire any further information or data relating to the Partnership or to the other Partners. Each of the Partners does hereby acknowledge that it understands that the acquisition of its interest in the Partnership is a speculative investment involving a high degree of risk and does hereby represent that it has a net worth sufficient to bear the economic risk of its investment in the Partnership and to justify its investing in a highly speculative venture of this type. 10.4. Legend on Agreement and Certificate. Each of the Partners does hereby acknowledge and agree that a legend reflecting the restrictions imposed upon the transfer of its interest in the Partnership under Section 15 hereof, under the Act and under applicable state securities laws, may be placed on the first page of this Agreement and on any certificates of limited partnership of the Partnership, or amendments to the Agreement or any such certificates. -8- 20 11. Power of Attorney. 11.1. Grant of Power. The Limited Partner does hereby irrevocably constitute and appoint the Managing Partner its true and lawful attorney, in its name, place and stead, to make, execute, consent to, swear to, acknowledge, deliver, record and file: (a) a certificate of limited partnership of the Partnership under the applicable laws of any jurisdiction in which the Managing Partner deems such filing to be necessary or desirable; (b) any other certificate or other instrument which may be required to be filed by the Partnership or the Partners under the applicable laws of any jurisdiction to the extent the Managing Partner deems such filing to be necessary or desirable; (c) any and all amendments or modifications to the said certificates or to any other instrument described above which are required by or in conformity with this Agreement (including, without limitation, Sections 15 and 16 hereof) or are otherwise agreed upon by the Partners; and (d) all certificates and other instruments which may be required to effectuate the dissolution and termination of the Partnership pursuant to the provisions of this Agreement. 11.2. Irrevocability of Power. It is expressly understood, intended and agreed by the Limited Partner for itself, its heirs, administrators, legal representatives, successors and assigns that the grant of the power of attorney to the Managing Partner pursuant to Section 11.1 above (i) is coupled with an interest by reason of the facts, among others, that the Managing Partner will be relying on the power of the Managing Partners to act as contemplated by this Section 11, the other Partner has rights in the Partnership property which the power is needed to protect and the other Partner has rights, under Section 15, in the Partnership interest of the grantor of the power, which the power is needed to protect, (ii) is irrevocable, and (iii) shall survive the death, legal incompetency, disability, bankruptcy, retirement or withdrawal of any Partner or the assignment of his interest in the Partnership. 12. Banking. The funds of the Partnership shall be kept in such accounts as may be designated by the Managing Partner. All withdrawals therefrom shall be made on such signature or signatures as shall be designated by the Managing Partner. 13. Accounting. 13.1. Fiscal Year. The fiscal year of the Partnership shall end on the last day of December of each year, unless another fiscal year end is selected by the Managing Partner. 13.2. Books of Account. The Partnership books of account shall be maintained at the principal office designated in Section 3 hereof or at such other locations and by such person or persons as may be designated by the Managing Partner. The Partnership shall pay (in amounts not to exceed -9- 21 reasonable commercial rates) the expense of maintaining its books of account, including its share, if any, of all the expenses of Trammell Crow Company, Inc., such as out-of-pocket, administrative and overhead expenses, allocable to maintenance of the Partnership's books of account. Each Partner shall have, during reasonable business hours and upon reasonable notice, access to the books of the Partnership and in addition, at its expense, shall have the right to copy such books and to require an audit of the Partnership's books of account. The Managing Partner, at the expense of the Partnership, shall cause to be prepared, and distributed to each Partner the annual Federal income tax return of the Partnership. 13.3. Method of Accounting. The Partnership books of account shall be maintained and kept, and its income, gains, losses and deductions shall be accounted for, in accordance with sound principles of cash basis accounting consistently applied, or in accordance with such other method of accounting as may be adopted hereafter by the Managing Partner. Appropriate records shall also be maintained to reflect income tax information for the Partners in accordance with applicable law and regulations. 14. Admission of Partners. Except as otherwise provided in Section 15 hereof, no person, firm, corporation or other entity shall be admitted to the Partnership as a General Partner without the consent of all of the Partners, or as a Limited Partner without the consent of the Managing Partners. 15. Transfer of Partnership Interests. 15.1. Prohibited Transfer of a Partner's Interest. (a) Except as provided in Section 16 below, each of the Partners hereby covenants and agrees that it will not sell, assign, transfer, mortgage, pledge, encumber, hypothecate or otherwise dispose of all or any part of its record or beneficial interest in the Partnership to any person, firm, corporation, or other entity without the written consent of the Managing Partner to any such proposed disposition; which consent shall operate to make such transfer or disposition a "Permitted Transfer" within the meaning of Section 15.2 of this Agreement. (b) Notwithstanding Subsection 15.1, any purported transfer (including any transfer as a pledge or other assignment as collateral), whether permitted or not, shall be void and of no effect unless and until the transferring Partner and its transferee execute, acknowledge and deliver to the Managing Partner instruments of transfer and assignment and furnish to the Managing Partner such assurances as the Managing Partner may reasonably request, including, without limitation, an opinion of counsel, satisfactory to the Managing Partner, that the transfer of such interest in the Partnership has been registered under the Act and under all applicable state securities laws or that such registration under the Act and all applicable state securities laws is not required. 15.2. Permitted Transfer of Partner's Interest. In the event a Partner makes a Permitted Transfer of ownership of all or any part of its interest in the Partnership pursuant to Section 15.1 above, the Partnership shall continue and the transferee of such interest, if he is not already a Partner of the Partnership, shall be admitted to the Partnership or, if he -10- 22 is already a Partner of the Partnership, shall continue as a Partner of the Partnership with a percentage interest in the Partnership or with an additional percentage interest in the Partnership, as the case may be, with rights or with additional rights, as the case may be, in and to all distributions made by the Partnership, in liquidation or otherwise, with a share or with an additional share, as the case may be, of the Partnership's net profits and net losses for both financial accounting and income tax purposes equal to that which the transferring Partner had with respect to the transferred interest in the Partnership, and with any other rights (including the rights of the Managing Partner, if applicable) of the transferring Partner with respect to such interest; provided, however, (i) any transferee shall be subject to the terms and provisions of this Agreement and shall promptly, upon demand of the Managing Partner, execute and deliver to the Partnership such documents as may be necessary or appropriate, in the opinion of counsel for the Partnership, to reflect such transferee's admission to the Partnership as a Partner and his agreement to be bound by the terms and provisions of this Agreement, and (ii) such transferee shall pay all reasonable expenses connected with such substitution. 16. Death, Legal Incompetency or Bankruptcy of a Limited Partner. The death, legal incompetency or bankruptcy or dissolution of a Limited Partner shall not dissolve or terminate the Partnership, and in the event the deceased, incompetent or bankrupt Limited Partner's interest in the Partnership passes to a successor or successors in interest of such Limited Partner, such successor or successors in interest shall succeed to the deceased, incompetent, bankrupt or dissolved Limited Partner's entire interest in the Partnership and shall, subject to the following sentence, become Limited Partners of the Partnership with the same percentage interest in the Partnership, the same rights in and to all distributions made by the Partnership, in liquidation or otherwise, and with the same share of the Partnership's net profits and net losses as the deceased, incompetent or bankrupt Limited Partner had with respect to its interest in the Partnership. In the event a successor or successors in interest of a Limited Partner are admitted to the Partnership as Limited Partners hereunder, such successor or successors shall execute and shall deliver to the Partnership all documents that may be necessary or appropriate, in the opinion of counsel for the Partnership, to reflect their admission to the Partnership as limited partners and their agreement to be bound by the terms and conditions of this Agreement, and shall pay all reasonable expenses connected with such substitution. 17. Liquidation and Dissolution of Partnership. 17.1. Dissolution Events. The Partnership shall be dissolved in the manner hereinafter provided upon the happening of any of the following events: (a) the date on which all or substantially all of the property of the Partnership is sold or is taken by condemnation and all proceeds thereof fully paid and received by the Partnership; (b) the date specified in a document signed by the Managing Partner of the Partnership which states its intention to dissolve the Partnership as of the specified date; -11- 23 (c) the entry of a final judgment, order or decree of a court of competent jurisdiction adjudicating the Partnership to be a bankrupt, and the expiration without appeal of the period, if any, allowed by applicable law in which to appeal therefrom; or (d) the dissolution of the Managing Partner. 17.2. Method of Liquidation. Upon the happening of any of the events specified in Section 17.1 above, the Managing Partner or, if there is no remaining Managing Partner, such person or persons as the Limited Partner shall designate, shall immediately commence to wind up the Partnership's affairs and shall liquidate the assets of the Partnership as promptly as possible, unless the Managing Partner, or such person, shall determine that an immediate sale of Partnership assets would cause undue loss to the Partnership, in which event (i) the liquidation may be deferred for a reasonable time, and/or (ii) all or part of the Partnership assets may be distributed in kind. The Partners shall continue to share net cash flow and profits and losses during the period of liquidation in the same proportions as before dissolution. The proceeds from liquidation of the Partnership shall be applied in the order of priority as follows: (a) Payment of the debts of the Partnership; then (b) To the establishment of any reserves deemed reasonably necessary or appropriate by the Managing Partner, or by the person(s) designated by the Limited Partner of the Partnership in the event there are no remaining Managing Partner of the Partnership, for any contingent or unforeseen liabilities or obligations of the Partnership. Such reserves established hereunder shall be held for the purpose of paying any such contingent or unforeseen liabilities or obligations and, at the expiration of such period as the Managing Partner, or the person(s) designated by the Limited Partner of the Partnership in the event there is no remaining Managing Partner of the Partnership, reasonably deem advisable, distributing the balance of such reserves in the manner provided hereinafter in this Section; then (c) To the payment to each Partner of its capital account; and then (d) To the Managing Partner in the sum of all remaining proceeds, including, without limitation, the balance of any reserves. 17.3. Date of Termination. The Partnership shall be terminated and dissolved when all of the cash or property available for application and distribution under Section 17.2 above shall have been applied and distributed in accordance with such Section. The establishment of any reserves in accordance with the provisions of Sections 17.2 above shall not have the effect of extending the term of the Partnership, but any such reserve shall be distributed in the manner provided in such Section upon expiration of the period established for such Reserve. 18. Miscellaneous. 18.1. Notices. Any notice, election or other communication provided for or required by this Agreement shall -12- 24 be in writing and shall be deemed to have been given when delivered by hand or when deposited in the United States Mail, certified or registered, return receipt requested, postage prepaid, properly addressed to the person to whom such notice is intended to be given at the respective addresses set forth on the signature pages of this Agreement or, in the case of the Partnership, in Section 3 above, or at such other address as such person may have previously furnished in writing to the Partnership and each Partner. 18.2. Modifications. Except for Sections 2.3, 8, 9.5, 9.8, 11.1 and 17.2 of this Agreement, this Agreement may be amended from time to time by the Managing Partner. No change or modification to Sections 2.3, 8, 9.5, 9.8, 11.1 or 17.2 of this Agreement shall be valid or binding upon the Partners, nor shall any waiver of any term or condition in the future, unless such change or modification or waiver shall be in writing and signed by all of the Partners. 18.3. Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon the Partners, their legal representatives, transferees, heirs, administrators, successors and assigns, except as provided to the contrary in this Agreement. 18.4. Duplicate Originals. For the convenience of the Partners, any number of counterparts hereof may be executed, and each such counterpart shall be deemed to be an original instrument, and all of which taken together shall constitute one agreement. 18.5. Construction. The titles of the Sections and Subsections herein have been inserted as a matter of convenience of reference only and shall not control or affect the meaning or construction of any of the terms or provisions herein. 18.6. Governing Law. This Agreement is entered into, and to be performed, in Dallas County, Texas and shall be governed by the laws of the State of Texas. Except to the extent the Texas Uniform Limited Partnership Act is inconsistent with the provisions of this Agreement, the provisions of such Act shall apply to the Partnership created hereby. 18.7. Other Instruments. The parties hereto covenant and agree that they will execute such other and further instruments and documents as are or may become necessary or convenient to effectuate and carry out the Partnership created and the obligations imposed by this Agreement. 18.8. Legal Construction. In case any one or more of the provisions contained in this Agreement shall for any reason be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision hereof and this Agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein. Furthermore, in lieu of each such illegal, invalid, or unenforceable provision there shall be added automatically as a part of this Agreement, a provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible and be legal, valid and enforceable. 18.9. Gender. Whenever the context shall so require, all words herein in any gender shall be deemed to include the masculine, feminine, or neuter gender, all singular words shall include the plural, and all plural words shall include the singular. -13- 25 IN WITNESS WHEREOF, this Agreement has been executed and sworn to as of the day and year first above written by the following General Partner and the Limited Partner, whose respective addresses and percentage interests are set forth opposite their respective signatures. Percentage Residence Addresses: Managing General Partner: Interest: 3500 LTV Center Trammell Crow Real Estate 99.99% 2001 Ross Avenue Investors Dallas, Texas 75201 By: /s/ DAVID F. CLOSSEY Amount of Initial Limited Partner: Contribution $196.78 3500 LTV Center Trammell Crow Ventures, Percentage 2001 Ross Avenue Ltd. Interest Dallas, Texas 75201 By: Trammell Crow Ventures, Inc. By: /s/ DAVID F. CLOSSEY 0.01% The following persons and entities are executing this Agreement for the sole purpose of acknowledging the assignment of all of their right, title and interest in the Partnership as aforesaid and their withdrawal as partners therefrom as of the date first written above. /s/ DONALD G. TAYLOR Donald G. Taylor /s/ BART B. BROWN Bart B. Brown /s/ HARLAN CROW Harlan Crow /s/ J. MCDONALD WILLIAMS J. McDonald Williams /s/ JOEL C. PETERSON Joel C. Peterson TRAMMELL CROW PARTNERS By: /s/ JOE C. PETERSON By: /s/ J. MCDONALD WILLIAMS -14- 26 STATE OF MARYLAND ) ) COUNTY OF MONTGOMERY ) Sworn to and subscribed before me this 21st day of November, 1985 by Donald G. Taylor. /s/ GAIL NELSON Notary Public in and for the State of Maryland My Commission Expires: July 1, 1986 STATE OF TEXAS ) ) COUNTY OF DALLAS ) Sworn to and subscribed before me this 25th day of November, 1985 by Bart B. Brown. /s/ MARY S. HOGE Notary Public in and for the State of Texas My Commission Expires: 1-28-86 STATE OF TEXAS ) ) COUNTY OF DALLAS ) Sworn to and subscribed before me this 20th day of November, 1985 by Harlan Crow. /s/ PATSEY A. CAMPBELL Notary Public in and for the State of Texas My Commission Expires: Patsey A. Campbell {SEAL} Notary Public State of Texas Commission Expires 10-02-88 STATE OF TEXAS ) ) COUNTY OF DALLAS ) Sworn to and subscribed before me this 22nd day of November, 1985 by J. McDonald Williams. /s/ JANELLE MEYER GARRETT Notary Public in and for the State of Texas My Commission Expires: 10-6-89 {SEAL} -15- 27 STATE OF TEXAS ) ) COUNTY OF DALLAS ) Sworn to and subscribed before me this 22nd day of November, 1985 by Joel C. Peterson. /s/ SUSANNE FORD Notary Public in and for the State of Texas My Commission Expires: Susanne Ford {SEAL} Notary Public State of Texas Commission Expires 4-16-89 STATE OF TEXAS ) ) COUNTY OF DALLAS ) Sworn to and subscribed before me this 22nd day of November, 1985 by Joel C. Peterson and J. McDonald William on befalf of TRAMMELL CROW PARTNERS. /s/ SUSANNE FORD Notary Public in and for the State of Texas My Commission Expires: Susanne Ford {SEAL} Notary Public State of Texas Commission Expires 4-16-89 STATE OF TEXAS ) ) COUNTY OF DALLAS ) Sworn to and subscribed before me this 22nd day of November, 1985 by David F. Clossey, Trust Manager of TRAMMELL CROW REAL ESTATE INVESTORS. /s/ SUSANNE FORD Notary Public in and for the State of Texas My Commission Expires: Susanne Ford {SEAL} Notary Public State of Texas Commission Expires 4-16-89 STATE OF TEXAS ) ) COUNTY OF DALLAS ) Sworn to and subscribed before me this 22nd day of November, 1985 by David F. Clossey, President of TRAMMELL CROW VENTURES, INC., a Texas Corporation, on behalf of TRAMMELL CROW VENTURES, LTD. /s/ SUSANNE FORD Notary Public in and for the State of Texas My Commission Expires: Susanne Ford {SEAL} Notary Public State of Texas Commission Expires 4-16-89 -16- 28 EXHIBIT A LEGAL DESCRIPTION Being known and designated as Parcel E, Block A, as shown on a Plat entitled, "Patapsco Industrial Park, a Resubdivision of Block A, Parcel B," which Plat is recorded among the Land Records of Anne Arundel County in Plat Book No. 69, Folio 10-10. 29 SECURITY AGREEMENT By this instrument (this "Agreement"), dated as of November 27, 1985, the undersigned, TRAMMELL CROW REAL ESTATE INVESTORS, a Texas real estate investment trust (hereinafter referred to as "Debtor"), whose address is 2001 Ross Avenue, 3500 LTV Center, Dallas, Texas 75201, to secure the obligations hereinafter described, does hereby GRANT, TRANSFER AND ASSIGN unto J. HENRY SCHRODER BANK & TRUST COMPANY, a New York banking corporation, the trustee under that certain indenture (the "Indenture") dated as of November 15, 1985, by and between Grantor and Trustee, a copy of which Indenture is attached hereto as Exhibit A and incorporated herein by this reference for all purposes, pertaining to certain zero coupon notes due 1997, payable to the order of the Holders, (hereinafter referred to as to "Creditor"), whose address is One State Street, New York, New York 10015, a security interest in the following described property (the "Collateral"), to wit: All right, title and interest of Debtor in and to the following described partnerships: (a) Patapsco #1 Limited Partnership (formerly known as Crow-Maryland #2), a Texas limited partnership continued under the terms of that certain Amended and Restated Agreement and Certificate of Limited Partnership of Patapsco #1 Limited Partnership, dated as of November 27, 1985, and all modifications and amendments thereto; and (b) Patapsco #2 Limited Partnership (formerly known as Crow-Patapsco Service Center #2), a Texas limited partnership continued under the terms of that certain Amended and Restated Agreement and Certificate of Limited Partnership of Patapsco #2 Limited Partnership, dated as of November 27, 1985, and all modifications and amendments thereto; TOGETHER with all rights to receive any distributions, whether capital, income or liquidation, and the proceeds therefrom. Patapsco #1 Limited Partnership and Patapsco #2 Limited Partnership are hereinafter collectively referred to as 30 the "Partnerships", or individually as a "Partnership". The Partnerships are the owners of the property located in Anne Arundel County, Maryland, more specifically described on Exhibit "B" attached hereto and incorporated herein by this reference for all purposes (the "Land"), together with all improvements and fixtures now or hereafter attached to or placed, erected, constructed or developed on the Land (the "Improvements") (collectively, the "Property"). ARTICLE I INDEBTEDNESS This Agreement is given to secure the payment of all sums and performance of all obligations and covenants contained in the provisions of this Agreement and of the Indenture. Unless otherwise defined herein, certain capitalized terms shall have the meaning ascribed to said terms by the Indenture. The above-described obligations are hereinafter collectively called the "Indebtedness". ARTICLE II SECURITY AGREEMENT 2.1 Security Interest; Financing Statement. This Agreement shall be a security agreement between Debtor and Creditor covering the Collateral constituting personal property or fixtures governed by the Uniform Commercial Code, as enacted and amended from time to time in the State of Maryland (hereinafter called the "Code"), and Debtor grants to Creditor a security interest in the Collateral pursuant to the terms hereof. Debtor shall execute and deliver to Creditor all financing statements that may be necessary or advisable to establish and maintain the validity, perfection and priority of Creditor's security interest, and Debtor shall bear all costs thereof, including all searches of the records maintained pursuant to the Uniform Commercial Code of the States of Texas and Maryland reasonably required by Creditor. If Creditor should desire to dispose of any of the Collateral pursuant to the Code, and if the Code requires prior notice to Debtor of such disposition, ten (10) days written notice by Creditor to Debtor shall be deemed to be reasonable notice. 2.2 Notice of Changes. Debtor shall give advance notice in writing to Creditor of any proposed change in Debtor's name, identity or structure and shall execute and deliver to -2- 31 Creditor, prior to or concurrently with the occurrence of any such change, all additional financing statements that Creditor may require to establish and maintain the validity and priority of Creditor's security interest with respect to any of the Collateral. ARTICLE III REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF DEBTOR Debtor does hereby warrant and represent to and covenant and agree with Creditor as follows: 3.1 Title to Collateral and Lien of this Agreement. Debtor has full title to 99.99% general partnership interest in the Collateral, free and clear of any liens, charges, encumbrances, security interests, and adverse claims whatsoever. At the date hereof, Trammell Crow Venture, Ltd., a Texas limited partnership, owns the remaining 0.01% limited partnership interest. 3.2 Limitation of Liability. Any obligation or liability whatsoever of the Debtor which may arise at any time under this Agreement, or any obligation or liability incurred by it pursuant to any other instrument, transaction or undertaking contemplated by this Agreement, shall be satisfied, if at all, out of the Debtor's property only. No such obligation or liability shall be personally binding upon nor shall there be any resort for the enforcement thereof to the private property of any of its Trust Managers, shareholders, officers, employees or agents, regardless of whether such obligations or liability are in the nature of contract, tort or otherwise. 3.3 Sale, Transfer or Disposition of Collateral. Debtor will not, without the written consent of the Creditor, sell, transfer, assign, encumber or dispose of the Collateral or any interest therein except as provided herein and in the Indenture. Debtor shall not amend the partnership agreements creating the Partnerships to reduce its management rights or its interest in the Partnerships without the prior written consent of the Creditor. 3.4 Partnership Rights. So long as there shall exist no Event of Default as hereinafter defined Debtor shall have the right to exercise all rights of and receive, retain and enjoy all of the benefits of a partner in the Partnerships, including all distributions, whether out of capital, income or -3- 32 liquidation, which are part of the Collateral, except as otherwise provided in the indenture. 3.5 Title to Property. The Partnerships have good and marketable title to the Property, free and clear of any liens, charges, encumbrances, security interests and adverse claims whatsoever, subject to the exceptions described on the attached Exhibit C which is incorporated herein by this reference for all purposes (the "Permitted Exceptions"). 3.6 Repair. Debtor will cause the Property to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, which in the judgment of the Debtor may be necessary or prudent so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however that nothing in this Section 3.6 shall prevent the Debtor from discontinuing the operation and maintenance of any of its properties if such discontinuance is, in the judgment of the Debtor, desirable in the conduct of its business and not disadvantageous in any material respect to the Holders. 3.7 Insurance. Debtor will at all times keep all the Property of an insurable nature and of the character usually insured by companies operating similar properties, insured in amounts customarily carried, and against loss or damage from such causes as are customarily insured against, by similar companies. 3.8 Taxes. Debtor will pay, prior to delinquency, all taxes, assessments and governmental charges or levies imposed upon it or the Property or the Collateral, and all claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like persons which, if unpaid, might result in the creation of a lien upon the Property; provided that items of the foregoing description need not be paid while being contested in good faith and by appropriate proceedings, so long as such contest shall not create a risk of forfeiture of all or any portion of the Property. Nothing contained herein shall constitute the consent of Creditor to subject the Property to any of the aforesaid liens. 3.9 Casualty and Condemnation. Immediately upon its obtaining knowledge of the institution or the threatened institution of any proceedings for the condemnation of the Property, Debtor shall notify Creditor of such fact. Debtor shall then, if requested by Creditor, file or defend its claim -4- 33 thereunder and prosecute same with due diligence to its final disposition. Creditor shall be entitled to participate in same and to be represented therein by counsel of its own choice, and Debtor shall deliver, or cause to be delivered, to Creditor such instruments as may be requested by it from time to time to permit such participation. 3.10 Compliance with Laws. Debtor shall cause the Property and the use thereof to comply with all laws, rules, ordinances, regulations, covenants, conditions, restrictions, orders and decrees of any governmental authority or court applicable to Debtor or the Property and its use, and Debtor shall pay all fees or charges of any kind in connection therewith. 3.11 Operation. For so long as there is no Event of Default hereunder, Debtor may use and operate, alter and improve, manage, lease and maintain the Land and Improvements in accordance with customary and prudent management practices and in accordance with the provisions hereof and of the Indenture. 3.12 Existence and Good Standing. Debtor shall cause the Partnerships to continue in existence and remain in good standing under the laws of the State of Texas and Maryland. 3.13 Successors and Assigns; Use of Terms. The covenants herein contained shall bind, and the benefits and advantages hereof shall inure to, the respective heirs, executors, administrators, personal representatives, successors and assigns of the parties hereto. Whenever used, the singular number shall include the plural and the plural the singular, and the use of any gender shall be applicable to all genders. The term "Creditor" shall include any lawful owner, holder, pledgee, or assignee of any of the Indebtedness. The duties, covenants, conditions, obligations, and warranties of Debtor in this Agreement shall be joint and several obligations of Debtor and of each Debtor, if more than one, and of each Debtor's heirs, personal representatives, successors and assigns. Each party who executes this Agreement and each subsequent owner of the Collateral, or any part thereof (other than Creditor), covenants and agrees that it will perform, or cause to be performed, each term and covenant of this Agreement as if such party were the named Debtor. 3.14 Severability. If any provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future laws effective while this Agreement is in effect, the legality, validity and enforceability of the remaining -5- 34 provisions of this Agreement shall not be affected thereby, and in lieu of each such illegal, invalid or unenforceable provision there shall be added automatically as a part of this Agreement a provision that is legal, valid and enforceable and as similar in terms to such illegal, invalid or unenforceable provision as may be possible. 3.15 Unsecured Indebtedness. If any of the Indebtedness shall be unsecured, the unsecured portion of the Indebtedness shall be completely paid prior to the payment of the secured portion of such Indebtedness, and all payments made on account of the Indebtedness shall be considered to have been paid on and applied first to the complete payment of the unsecured portion of the Indebtedness. 3.16 Modification or Termination. This Agreement may only be modified or terminated by a written instrument or instruments executed by the party against which enforcement of the modification or termination is asserted. Any alleged modification or termination that is not so documented shall not be effective as to any party. 3.17 No Partnership. Nothing contained in this Agreement is intended to create any partnership, joint venture or association between Debtor and Creditor, or in any way make Creditor a co-principal with Debtor with reference to the Collateral, and any inferences to the contrary are hereby expressly negated. 3.18 Headings. The Article, Paragraph and Subparagraph headings hereof are inserted for convenience of reference only and shall not alter, define, or be used in construing the text of such Articles, Paragraphs or Subparagraphs. 3.19 Governing Law. This Agreement and the enforcement of the provisions hereof shall be governed by the laws of the State of Texas, except with respect to the obligations of the Debtor and the rights of the Creditor under Paragraph 5.2, which shall be governed by the laws of the State of New York, and the laws of the United States applicable to transactions in such state. ARTICLE IV EVENTS OF DEFAULT 4.1 Default of Indenture. It shall be an "Event of Default" hereunder if Debtor commits an Event of Default, as that term is defined by the Indenture. -6- 35 ARTICLE V REMEDIES If an Event of Default shall occur, Creditor may exercise any one or more of the following remedies, upon reasonable notice as defined in Section 2.1 hereof: 5.1 Foreclosure Sale. Subject to the requirements of the Code and the provisions hereof, Creditor shall be entitled to sell any or all of the Collateral at a public sale, and apply the proceeds of such sale to the expenses of such sale, including without limitation, reasonable attorney's fees, and the remainder of such proceeds shall be applied to the payment of the Indebtedness. 5.2 Indemnification of Creditor. Except for gross negligence or willful misconduct, Creditor shall not be liable for any act or omission or error of judgment in connection with exercising the remedies provided herein. Creditor may rely on any document believed by it in good faith to be genuine. All money received by Creditor shall, until used or applied as herein provided, be held in trust, but need not be segregated (except to the extent required by law), and Creditor shall not be liable for interest thereon. Debtor shall indemnify Creditor against all liability and expenses that it may incur in the performance of his duties hereunder as well as all amounts indemnified against under the Indenture. 5.3 Lawsuits. Creditor may proceed by a suit or suits in equity or at law, whether for the specific performance of any covenant or agreement herein contained or in aid of the execution of any power herein granted, or for any foreclosure hereunder or for the sale of the Collateral under the judgment or decree of any court or courts of competent jurisdiction. 5.4 Remedies Cumulative, Concurrent and Nonexclusive. Creditor shall have all rights, remedies and recourses granted in this Agreement or the Indenture and available at law or equity (including, without limitation, those granted by the Code and applicable to the Collateral, or any portion thereof) and the same (a) shall be cumulative and concurrent, (b) may be pursued separately, successively or concurrently against Debtor or others obligated for the Indebtedness, or any part thereof or against any one or more of them, or against the Collateral, at the sole discretion of Creditor, (c) may be exercised as often as occasion therefor shall arise, it being agreed by Debtor that the exercise or failure to exercise any of the same -7- 36 shall in no event be construed as a waiver or release thereof or of any other right, remedy or recourse, and (d) are intended to be, and shall be, nonexclusive. 5.5 Rights and Remedies of Sureties. Debtor waives any right or remedy which Debtor may have or be able to assert pursuant to Chapter 34 of the Business and Commerce Code of the State of Texas pertaining to the rights and remedies of sureties. EXECUTED as of the date first set forth above. DEBTOR: TRAMMELL CROW REAL ESTATE INVESTORS, a Texas real estate investment trust By: /s/ DAVID F. CLOSSEY Name: Title: STATE OF TEXAS ) ) COUNTY OF DALLAS) BEFORE ME, the undersigned authority, personally appeared David F. Clossey, President of TRAMMELL CROW REAL ESTATE INVESTORS, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed same as the act of such company, for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 22nd day of November, 1985. My Commission Expires: /s/ SUSANNE FORD Susanne Ford NOTARY PUBLIC IN AND FOR {SEAL} Notary Public State of Texas THE STATE OF TEXAS Commission Expires 4-16-89 -8- 37 Patapsco #1 EXHIBIT B PROPERTY DESCRIPTION Being known and designated as Parcel E, Block A, as shown on a Plat entitled "Patapsco Industrial Park, a Resubdivision of Block A, Parcel B", which Plat is recorded among the Land Records of Anne Arundel County in Plat Book No. 69, Folio 10-10. 38 Patapsco #2 EXHIBIT B LEGAL DESCRIPTION Being known and designated as Parcel D, Block "A", as shown on a Plat entitled "Patapsco Industrial Park, Resubdivision of Block 'A' Parcel 'B'", which Plat is recorded among the Land Records of Anne Arundel County in Plat Book 69, Folio 10. 39 Patapsco #1 EXHIBIT C PERMITTED EXCEPTIONS 1. Taxes and other public charges (including assessments by any County, Municipality, Metropolitan District or Commission) payable on an annual basis after June 30, 1986. 2. Subject to the terms and restrictions contained in The Declaration of Restrictions and Covenants dated February 25, 1977, by The Arundel Corporation, a Maryland corporation, recorded among the Land Records of Anne Arundel County in Liber 2936, folio 325. 3. Subject to the Subdivision Agreement, dated August 3, 1977, by and between The Arundel Corporation and Anne Arundel County, Maryland, and recorded among the Land Records of Anne Arundel County in Liber 2993, folio 798. 4. Subject to the Right of Way Agreement to Baltimore Gas & Electric Company, dated February 27, 1978, and recorded among the Land Records of Anne Arundel County in Liber 3073, folio 821. 5. Subject to the Agreement to Consolidated Gas Electric Light and Power Company of Baltimore, dated March 23, 1931, and recorded among the Land Records of Anne Arundel County in Liber 752, folio 53. 6. Subject to the Agreement to the State Roads Commission of Maryland, dated August 24, 1949, and recorded among the Land Records of Anne Arundel County in Liber 535, folio 576. 7. Subject to terms and provisions as contained in an Agreement dated December 18, 1979 and recorded among the Land Records of Anne Arundel County in Liber No. 3162, folio 763 between Crow-Maryland #2 and Anne Arundel County, Maryland. 8. Subject to terms and provisions as contained in an Agreement dated December 18, 1978 and recorded as aforesaid in Liber No. 3169, folio 267 between Crow-Maryland #2 and Anne Arundel County, Maryland. 40 Patapsco #1 9. Deed of Trust recorded in Liber 3178, folio 647, as modified by a Deed of Appointment and Removal, dated June 23, 1980, recorded in Liber 3331, folio 831, and Deed of Trust Modification, dated July 1, 1980, recorded in Liber 3331, folio 833, all of the Land Records of Anne Arundel County, Maryland, securing payment of a Deed of Trust Note, dated February 22, 1979, made by Crow-Maryland #2 and payable to the order of Union Trust Company of Maryland in the original principal sum of $1,675,000, which has been assigned to Teachers Insurance and Annuity Association of America. 41 Patapsco #2 EXHIBIT C PERMITTED EXCEPTIONS 1. Taxes and other public charges (including any assessments by any County, Municipality, Metropolitan District or Commission) payable after June 30, 1986. 2. Subject to terms, conditions and other matters as shown on Plat Book 69, folio 10. 3. Subject to 50' wide highway protective easement shown on State Roads Commission Plat 7571. 4. Subject to terms and provisions as contained in a Public Works Agreement dated September 8, 1977 and recorded among the Land Records of Anne Arundel County in Liber 3002, folio 277, between The Arundel Corporation, Carl A. Tenhoopen and Henry D. Felton, substitute Trustees and Anne Arundel County, Maryland. 5. Subject to terms and provisions as contained in an Agreement dated September 7, 1977 and recorded as aforesaid in Liber 3002, folio 306, between The Arundel Corporation and Anne Arundel County, Maryland. 6. Subject to terms and provisions as contained in a Right of Way Agreement dated March 20, 1978 and recorded as aforesaid in Liber 3073, folio 821, between The Arundel Corporation and Baltimore Gas and Electric Company. 7. Subject to terms and provisions as contained in an Agreement dated August 3, 1977 and recorded as aforesaid in Liber 2993, folio 708, between The Arundel Corporation and Anne Arundel County, Maryland. 8. Subject to terms and provisions as contained in an Agreement dated September 27, 1943 and recorded among the Land Records of Anne Arundel County in Liber 300, folio 253, between The Arundel Corporation and Consolidated Gas Electric Light and Power Company of Baltimore. 9. Subject to terms and provisions as contained in an Agreement dated January 25, 1940 and recorded as aforesaid in Liber 210, folio 364, between The Arundel Corporation and Consolidated Gas Electric Light and Power Company of Baltimore. 10. Subject to terms and provisions as contained in an Agreement dated May 17, 1957 and recorded as aforesaid in Liber 1124, folio 314, between The Arundel Corporation and Baltimore Gas and Electric Company. 42 Patapsco #2 11. Subject to terms and provisions as contained in an Agreement dated February 24, 1953 and recorded as aforesaid in Liber 752, folio 53, between The Arundel Corporation and Consolidated Gas Electric Light and Power Company of Baltimore. 12. Subject to terms and provisions as contained in an Agreement dated May 3, 1949 and recorded as aforesaid in Liber 523, folio 481, between The Arundel Corporation and Consolidated Gas Electric Light and Power Company. 13. Subject to terms and provisions as contained in a Deed dated September 7, 1977 and recorded as aforesaid in Liber 3335, folio 201, between The Arundel Corporation, Carl A. Tenhoopen and Henry D. Felton, Substitute Trustees and Anne Arundel County, Maryland. 14. Subject to terms and provisions as contained in a Declaration of Restrictions and Covenants dated February 25, 1977 and recorded among the Land Records of Anne Arundel County in Liber 2936, folio 325, by The Arundel Corporation. 15. Subject to terms and provisions as contained in three Agreements recorded among the Land Records of Anne Arundel County in Liber EAC 3742, folio 448; Liber EAC 3795, folio 146 and Liber EAC 3795, folio 151, all to Anne Arundel County, Maryland. -2- EX-10.9 7 DEED OF TRUST (BELTLINE CENTER) 1 EXHIBIT 10.9 BELTLINE DEED OF TRUST (WITH SECURITY AGREEMENT AND ASSIGNMENT OF RENTS AND LEASES) By this instrument (this "Mortgage"), dated as of November 22, 1985, to be effective as of November 27, 1985, the undersigned, TRAMMELL CROW REAL ESTATE INVESTORS, a Texas real estate investment trust (hereinafter referred to as "Grantor"), whose address is 2001 Ross Avenue, 3500 LTV Center, Dallas, Texas 75201, to secure the obligations hereinafter described, does hereby GRANT, BARGAIN, SELL, ASSIGN and CONVEY unto GEORGE R. SIEVERS (hereinafter referred to as "Trustee"), whose address is One State Street, New York, New York 10015, acting for the benefit of J. HENRY SCHRODER BANK & TRUST COMPANY, a New York banking corporation, the trustee under that certain indenture (the "Indenture"), dated as of November 15, 1985, by and between Grantor and Trustee, securing payment of certain zero coupon notes due 1997, payable to the order of the Holders, a copy of which Indenture is attached hereto as Exhibit A and incorporated herein by this reference for all purposes, the following described mortgaged property, (the "Mortgaged Property"), to wit: All of the real property located in Dallas County, Texas, described on the attached Exhibit B which is incorporated herein by reference (the "Land"), subject to the exceptions described on the attached Exhibit C which is incorporated herein by reference (the "Permitted Exceptions"), TOGETHER WITH all of Grantor's right, title and interest in and to the following, whether now owned or hereafter acquired: (a) all improvements and fixtures now or hereafter attached to or placed, erected, constructed or developed on the Land (the "Improvements"); (b) all equipment, machinery, furnishings, inventory, chattels and all other articles of personal property (the "Personal Property") now or hereafter attached to, relating to or used in or about the Improvements or the Land; (c) all water and water rights, timber, crops and mineral interests pertaining to the Land; (d) all building materials and equipment now or hereafter delivered and installed or intended to be installed in or on the Land or the ImproVements; (e) all plans, specifications and drawings for the Improvements; (f) all deposits (including tenants' security 2 deposits and escrow deposits under contracts of sale), documents, contract rights, commitments, construction contracts, architectural agreements and general intangibles (including, without limitation, trademarks, trade names and symbols but expressly excluding the right to use the name "Trammell Crow" or any name associated therewith or derived therefrom); (g) all permits, licenses, franchises, certificates and other rights and privileges relating to or obtained in connection with the Land, the Improvements or the Personal Property; (h) all proceeds arising from or by virtue of the sale, lease or other disposition, encumbrance or refinancing, of the Land, the Improvements and the Personal Property; (i) all proceeds (including premium refunds) of each policy of insurance relating to the Land, the Improvements or the Personal Property; (j) all proceeds from the taking of any of the Land, the Improvements, the Personal Property or any rights appurtenant thereto by right of eminent domain or by private or other purchase in lieu thereof including change of grade of streets, curb cuts or other rights of access; (k) all streets, roads, public places, easements and rights-of-way, existing or proposed, public or private, located on or adjacent to or used in connection with the Land; (l) all of the leases, subleases, licenses or other agreements relating to the Land, the Improvements or the Personal Property, and all rents, deposits, royalties, bonuses, issues, profits, revenues, income or other benefits of the Land, the Improvements or the Personal Property, including, without limitation, cash, securities, letters of credit, guarantees or other instruments deposited pursuant to leases to secure performance by the lessees of their obligations thereunder and cash deposited in impound accounts for the payment of taxes and insurance under any deed of trust securing payment of the Indebtedness; (m) all heating, lighting, refrigeration, plumbing, ventilating, incinerating, water heating, transportation, communications, electrical and air-conditioning systems and equipment, sprinkler and fire-extinguishing systems, security systems, maintenance equipment and other fixtures or systems used in connection with the Land, the Improvements and the Personal Property; (n) all rights, hereditaments, strips, gores and appurtenances pertaining to the foregoing; and (o) all replacements, betterments, substitutions, renewals and additions to any of the above-described Mortgaged Property; and all proceeds of any of the above-described Mortgaged Property. TO HAVE AND TO HOLD the Mortgaged Property, together with the rights, privileges and appurtenances thereto belonging, unto the Trustee and its substitutes or successors and assigns forever, and Grantor hereby binds itself and its administrators, personal representatives, successors and -2- 3 assigns to warrant and forever defend the Mortgaged Property unto the Trustee, its substitutes or successors and assigns, against the claim or claims of all persons claiming or to claim the same or any part thereof. ARTICLE I INDEBTEDNESS This Mortgage is given to secure the payment of all sums and performance of all obligations and covenants contained in this Mortgage and of the Indenture. Unless otherwise defined herein, certain capitalized terms shall have the meaning ascribed to said terms by the Indenture. The above-described obligations are hereinafter collectively called the "Indebtedness". ARTICLE II ASSIGNMENT OF RENTS AND LEASES 2.1 Assignment of Rents, Profits, etc. Grantor hereby absolutely and unconditionally assigns to Trustee all of its right, title and interest in and to the rents, royalties, bonuses, issues, profits, revenue, income and other benefits derived from the Mortgaged Property or arising from the use or enjoyment of any portion thereof or from any lease, sublease, licenses or other agreement pertaining thereto, and any and all damages following default under such leases, and all proceeds payable under any policy of insurance covering loss of rents resulting from untenantability, together with any and all rights that Grantor may have against any tenant under such leases or any subtenants or occupants or users of any part of the Mortgaged Property (collectively, the "Rents"). Prior to an Event of Default (as hereinafter defined), Grantor shall have a license to collect and receive all Rents and to apply same in accordance with the terms and provisions of the Indenture. 2.2 Assignment of Leases. Grantor hereby absolutely and unconditionally assigns to Trustee all of its right, title and interest in and to existing and future leases, including subleases thereunder, and any and all extensions, renewals, modifications, and replacements thereof, covering any part of the Mortgaged Property (collectively, the "Leases"). Grantor hereby further assigns to Trustee all guaranties of tenants' performances under the Leases. -3- 4 2.3 Trustee in Possession. Trustee's acceptance of this assignment shall not be deemed to constitute Trustee a "mortgagee in possession" nor obligate Trustee to appear in or defend any proceeding relating to any of the Leases or to the Mortgaged Property, or to take any action hereunder, expend any money, incur any expenses, or perform any obligation or liability under the Leases, or assume any obligation for any deposits delivered to Grantor by any tenant and not delivered to Trustee, prior to entry upon and taking possession of the Mortgaged Property by Trustee. Trustee shall not be liable for any injury or damage to person or property in or about the Mortgaged Property. 2.4 Indemnification. Grantor hereby agrees to indemnify Trustee and hold Trustee harmless from all liability, damage or expense incurred by Trustee from any claims under the Leases as well as all amounts indemnified against under the Indenture. All amounts indemnified against hereunder, including reasonable attorneys' fees, if paid by Trustee shall be payable by Grantor immediately upon demand by Trustee and shall be secured hereby. 2.5 Right to Rely. After the occurrence of an Event of Default (hereinafter defined), Grantor hereby authorizes and directs the tenants under the Leases to pay Rents to Trustee upon written demand by Trustee, without further consent of Grantor, and the tenants may rely upon any written statement delivered by Trustee to the tenants. Any such payment to Trustee shall satisfy the obligations of such tenant to make payment to Grantor under the Leases to the extent of the payment made to Trustee. ARTICLE III SECURITY AGREEMENT 3.1 Security Interest. This Mortgage shall be a security agreement between Grantor, as the debtor, and Trustee, as the secured party, covering the Mortgaged Property constituting personal property or fixtures governed by the Uniform Commercial Code, as enacted and amended from time to time in the state in which the Land is situated (hereinafter called the "Code"), and Grantor grants to Trustee a security interest in such portion of the Mortgaged Property. In addition to Trustee's other rights hereunder, Trustee shall have all rights of a secured party under the Code. Grantor shall execute and deliver to Trustee all financing statements that may be necessary or advisable to establish and maintain the validity, perfection and priority of Trustee's security interest, and -4- 5 Grantor shall bear all costs thereof, including all Costs searches reasonably required by Trustee. If Trustee should desire to dispose of any of the Mortgaged Property pursuant to the Code, and if the Code requires prior notice to Grantor of such disposition, ten (10) days written notice by Trustee to Grantor shall be deemed to be reasonable notice; provided, however, Trustee may dispose of such property in accordance with the foreclosure procedures hereof in lieu of proceeding under the Code. 3.2 Notice of Changes. Grantor shall give advance notice in writing to Trustee of any proposed change in Grantor's name, identity, or structure and shall execute and deliver to Trustee, prior to or concurrently with the occurrence of any such change, all additional financing statements that Trustee may require to establish and maintain the validity and priority of Trustee's security interest with respect to any of the Mortgaged Property. 3.3 Financing Statement. Some of the items of the Mortgaged Property described herein are goods that are or are to become fixtures related to the Land, and it is intended that, as to those goods, this instrument shall be effective as a financing statement filed as a fixture filing from the date of its filing for record in the real estate records of the county in which the Mortgaged Property is situated. Information concerning the security interest created by this instrument may be obtained from Trustee, as secured party, at the address of Trustee stated above. The mailing address of Grantor as debtor is as stated above. ARTICLE IV REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF GRANTOR Grantor does hereby warrant and represent to and covenant and agree with Trustee as follows: 4.1 Title to Mortgaged Property and Lien of this Mortgage. Grantor has good and indefeasible title to the Land and the Improvements, and good and marketable title to the remainder of the Mortgaged Property, free and clear of any liens, charges, encumbrances, security interests and adverse claims whatsoever, except for the Permitted Exceptions. 4.2 Limitation of Liability. Any obligation or liability whatsoever of the Grantor which may arise at any time under -5- 6 this Mortgage, or any obligation or liability incurred by it pursuant to any other instrument, transaction or undertaking contemplated by this Mortgage, shall be satisfied, if at all, out of the Grantor's property only. No such obligation or liability shall be personally binding upon nor shall there be any resort for the enforcement thereof to the private property of any of its Trust Managers, shareholders, officers, employees or agents, regardless of whether such obligations or liability are in the nature of contract, tort or otherwise. 4.3 Repair. Grantor will cause the Mortgaged Property to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, which in the judgment of the Grantor may be necessary or prudent so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however that nothing in this Section 4.3 shall prevent the Grantor from discontinuing the operation and maintenance of any of its properties if such discontinuance is, in the judgment of the Grantor, desirable in the conduct of its business and not disadvantageous in any material respect to the Holders. 4.4 Insurance. (a) Grantor will at all times keep all the Mortgaged Property of an insurable nature and of the character usually insured by companies operating similar properties, insured in amounts customarily carried, and against loss or damage from such causes as are customarily insured against, by similar companies. (b) All such insurance shall be effected with insurance carriers having a claims paying rating of "AA" or better by Standard & Poor's Corporation. All policies or other contracts for such insurance on the Mortgaged Property shall provide that the proceeds of such insurance (except in the case of any particular casualty resulting in damage or destruction not exceeding $1,700,000.00 in the aggregate) shall be payable, subject to the requirements of any Prior Lien, to the Trustee as its interest may appear (by means of a standard mortgagee clause or other similar clause acceptable to the Trustee, without contribution). Each policy or other contract for such insurance, or such mortgagee clause, shall contain an agreement by the insurer that, notwithstanding any right of cancellation reserved to such insurer, such policy or contract shall not be cancelled unless and until the insurer has provided Trustee written notice thirty calendar days prior to cancellation. As -6- 7 soon as practicable after the execution of this Mortgage, and within 120 calendar days after the close of each fiscal year thereafter, and at any time upon the request of the Trustee, Grantor will deliver to the Trustee an officer certificate containing a detailed list of the insurance in force upon the Mortgaged Property on a date therein specified (which date shall be within 30 calendar days of the filing of such certificate), including the names of the insurers with which the policies and other contracts of insurance of the Mortgaged Property are carried, the numbers, amounts and expiration dates of such policies and other contracts and the property and hazards covered thereby, and stating that the insurance so listed complies with this Section 4.4, together with copies of all insurance policies or certificates thereof. (c) All proceeds of any insurance of any part of the Mortgaged Property not payable to the Trustee or the trustee, mortgagee or other holder or beneficiary of a Prior Lien shall be applied in accordance with the Indenture. In the event that the proceeds of insurance are made available for restoration, Grantor shall restore the Improvements to substantially the same condition and quality of the Improvements prior to the casualty. 4.5 Taxes. Grantor will pay, prior to delinquency, all taxes, assessments and governmental charges or levies imposed upon it or the Mortgaged Property, and all claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like persons which, if unpaid, might result in the creation of a lien upon the Mortgaged Property; provided that items of the foregoing description need not be paid while being contested in good faith and by appropriate proceedings, so long as such contest shall not create a risk of forfeiture of all or any portion of the Mortgaged Property. Nothing contained herein shall constitute the consent of Trustee to subject the Mortgaged Property to any of the aforesaid liens. 4.6 Casualty and Condemnation. All proceeds, judgments, decrees and awards for injury or damage to the Mortgaged Property, and all awards pursuant to proceedings for condemnation thereof, are hereby assigned in their entirety to Trustee, who shall apply the same in accordance with the Indenture. Immediately upon its obtaining knowledge of the institution or the threatened institution of any proceedings for the condemnation of the Mortgaged Property, Grantor shall notify Trustee of such fact. Grantor shall then, if requested by Trustee, file or defend its claim thereunder and prosecute same with due diligence to its final disposition and shall cause any awards or settlements to be paid over to Trustee for disposition pursuant to the terms of sub-section 4.4(c) -7- 8 hereinabove. Trustee shall be entitled to participate in same and to be represented therein by counsel of its own choice, and Grantor shall deliver, or cause to be delivered, to Trustee such instruments as may be requested by it from time to time to permit such participation. 4.7 Compliance with Laws. Grantor shall cause the Mortgaged Property and the use thereof to comply with all laws, rules, ordinances, regulations, covenants, conditions, restrictions, orders and decrees of any governmental authority or court applicable to Grantor or the Mortgaged Property and its use, and Grantor shall pay all fees or charges of any kind in connection therewith. 4.8 Operation. For so long as there is no Event of Default hereunder, Grantor may use and operate, alter and improve, manage, lease and maintain the Land, Improvements and Personal Property in accordance with customary and prudent management practices and in accordance with the provisions hereof and of the Indenture. 4.9 Successors and Assigns; Use of Terms. The covenants herein contained shall bind, and the benefits and advantages hereof shall inure to, the respective heirs, executors, administrators, personal representatives, successors and assigns of the parties hereto. Whenever used, the singular number shall include the plural and the plural the singular, and the use of any gender shall be applicable to all genders. The duties, covenants, conditions, obligations and warranties of Grantor in this instrument shall be joint and several obligations of Grantor and of each Grantor, if more than one, and of each Grantor's heirs, personal representatives, successors and assigns. Each party who executes this instrument and each subsequent owner of the Mortgaged Property, or any part thereof (other than Trustee), covenants and agrees that it will perform, or cause to be performed, each term and covenant of this instrument as if such party were the named Grantor. 4.10 Severability. If any provision of this instrument is held to be illegal, invalid, or unenforceable under present or future laws effective while this instrument is in effect, the legality, validity and enforceability of the remaining provisions of this instrument shall not be affected thereby, and in lieu of each such illegal, invalid or unenforceable provision there shall be added automatically as a part of this instrument a provision that is legal, valid and enforceable and -8- 9 as similar in terms to such illegal, invalid or unenforceable provision as may be possible. 4.11 Unsecured Indebtedness. If any of the Indebtedness shall be unsecured, the unsecured portion of the Indebtedness shall be completely paid prior to the payment of the secured portion of such Indebtedness, and all payments made on account of the Indebtedness shall be considered to have been paid on and applied first to the complete payment of the unsecured portion of the Indebtedness. 4.12 Modification or Termination. This Mortgage may only be modified in accordance with the terms of the Indenture. 4.13 No Partnership. Nothing contained in this Mortgage is intended to create any partnership, joint venture or association between Grantor and Trustee, or in any way make Trustee a co-principal with Grantor with reference to the Mortgaged Property, and any inferences to the contrary are hereby expressly negated. 4.14 Headings. The Article, Paragraph and Subparagraph headings hereof are inserted for convenience of reference only and shall not alter, define, or be used in construing the text of such Articles, Paragraphs or Subparagraphs. 4.15 Governing Law. This Mortgage and the enforcement of the provisions hereof shall be governed by the laws of the State of Texas except with respect to the obligations of the Grantor and the rights of the Trustee under Paragraph 2.4, which shall be governed by the laws of the State of New York, and the laws of the United States applicable to transactions, in such state. ARTICLE V EVENTS OF DEFAULT 5.1 Default of Indenture. It shall be an "Event of Default" hereunder if Grantor commits an Event of Default, as that term is defined by the Indenture. ARTICLE VI REMEDIES If an Event of Default shall occur, Trustee may exercise any one or more of the remedies provided in the Indenture or the following remedies, without notice: -9- 10 6.1 Enforcement of Assignment of Rents and Leases. Trustee may: (a) terminate the license granted to Grantor to collect the Rents and enforce the Leases, and thereafter collect and sue for the Rents in Trustee's own name, give receipts and releases therefor, and after deducting all expenses of collection, including reasonable attorneys' fees, apply the net proceeds thereof to any Indebtedness in accordance with the Indenture; (b) make, modify, enforce, cancel or accept surrender of any Leases, evict tenants, adjust the Rents, maintain, decorate, refurbish, repair, clean, and make space ready for renting, and otherwise do anything Trustee deems advisable in connection with the Mortgaged Property; (c) apply the Rents so collected to the operation and management of the Mortgaged Property, including the payment of reasonable management, brokerage and attorneys' fees, or to the Indebtedness; and (d) require Grantor to transfer all security deposits and records thereof to Trustee. 6.2 Foreclosure. Trustee may sell all or part of the Mortgaged Property, at public auction, to the highest bidder, for cash, at the door of the county courthouse of the county in Texas in which such Mortgaged Property or any part thereof is situated, between the hours of 10:00 o'clock A.M. and 4:00 o'clock P.M. on the first Tuesday of any month, after giving notice of the time, place and terms of said sale and of the property to be sold, by filing written notice thereof at least twenty-one (21) days preceding the date of the sale at the courthouse door of the county in which the sale is to be made, and if the property to be sold is situated in more than one county one notice shall be posted at the courthouse door of each county in which the property to be sold is situated, and by filing a copy of the above-described notice in the office of the county clerk of the county in which the sale is to be made or, if the Mortgaged Property is in more than one county, by filing a copy of the notice with the county clerk of each county in which a portion of the Mortgaged Property is situated. In addition, Trustee shall, at least twenty-one (21) days preceding the date of sale, serve written notice of the proposed sale by certified mail on each debtor obligated to pay the debt secured hereby according to the records of Trustee. Service of such notice shall be completed upon deposit of the notice, enclosed in a postpaid wrapper, properly addressed to -10- 11 such debtor at the most recent address as shown by the records of Trustee, in a post office or official depository under the care and custody of the United States Postal Service. The affidavit of any person having knowledge of the facts to the effect that such service was completed shall be prima facie evidence of the fact of service. Any notice that is required or permitted to be given to Grantor may be addressed to Grantor at Grantor's address as stated above. Any notice that is to be given by certified mail to any other debtor may, if no address for such other debtor is shown by the records of Trustee, be addressed to such other debtor at the address of Grantor as is shown by the records of Trustee. Notwithstanding the foregoing provisions of this paragraph, notice of such sale given in accordance with the requirements of the applicable laws of the State of Texas in effect at the time of such sale shall constitute sufficient notice of such sale. Trustee may sell all or any portion of the Mortgaged Property, together or in lots or parcels, and may execute and deliver to the purchaser or purchasers of such property good and sufficient deeds of conveyance of fee simple title with covenants of general warranty made on behalf of Grantor. In no event shall Trustee be required to exhibit, present or display at any such sale any of the personalty described herein to be sold at such sale. Trustee making such sale shall receive the proceeds thereof and shall apply the same as follows: (a) first, he shall pay the reasonable expenses of Trustee (including any attorneys' fees) and the costs and expenses of such sale; (b) second, he shall pay, so far as may be possible, the Indebtedness; (c) third, he shall pay the residue, if any, to the persons legally entitled thereto. Payment of the purchase price to Trustee shall satisfy the obligation of the purchaser at such sale therefor, and such purchaser shall not be responsible for the application thereof. The sale or sales by Trustee of less than the whole of the Mortgaged Property shall not exhaust the power of sale herein granted, and Trustee is specifically empowered to make successive sale or sales under such power until the whole of the Mortgaged Property shall be sold; and if the proceeds of such sale or sales of less than the whole of the Mortgaged Property shall be less than the aggregate of the Indebtedness and the expenses thereof, this Deed of Trust and the lien, security interest and assignment hereof shall remain in full force and effect as to the unsold portion of the Mortgaged Property just as though no sale or sales had been made; provided, however, that Grantor shall never have any right to require the sale or sales of less than the whole of the Mortgaged Property, but Trustee shall have the right, at its sole election, to request Trustee to sell less than the whole of the Mortgaged Property. If default is made hereunder, the holder of the Indebtedness or any part thereof on which the -11- 12 payment is delinquent shall have the option to proceed with foreclosure in satisfaction of such item either through judicial proceedings or by directing Trustee to proceed as if under a full foreclosure, conducting the sale as herein provided without declaring the entire Indebtedness due, if sale is made because of default of an installment, or a part of an installment, such sale may be made subject to the unmatured part of the Indebtedness; and it is agreed that such sale, if so made, shall not in any manner affect the unmatured part of the Indebtedness, but as to such unmatured part this Deed of Trust shall remain in full force and effect as though no sale had been made under the provisions of this paragraph. Several sales may be made hereunder without exhausting the right of sale for any unmatured part of the Indebtedness. At any such sale (a) Grantor hereby agrees, in its behalf and in behalf of its heirs, executors, administrators, successors, personal representatives and assigns, that any and all recitals made in any deed of conveyance given by Trustee with respect to the identity of Trustee, the occurrence or existence of any default, the acceleration of the maturity of any of the Indebtedness, the request to sell, the notice of sale, the giving of notice to all debtors legally entitled thereto, the time, place, terms, and manner of sale, receipt, distribution and application of the money realized therefrom, or the due and proper appointment of a substitute Trustee, and, without being limited by the foregoing, with respect to any other act or thing having been duly done by Trustee or by Trustee hereunder, shall be taken by all courts of law and equity as prima facie evidence that the statements or recitals state facts and are without further question to be so accepted, and Grantor hereby ratifies and confirms every act that Trustee or any substitute Trustee hereunder may lawfully do in the premises by virtue hereof, and (b) the purchaser may disaffirm any easement granted, or rental, lease or other contract made, in violation of any provision of this Deed of Trust, and may take immediate possession of the Mortgaged Property free from, and despite the terms of, such grant of easement and rental or lease contract. Trustee may bid and become the purchaser of all or any part of the Mortgaged Property at any trustee's or foreclosure sale hereunder, and the amount of Trustee's successful bid may be credited on the Indebtedness. Notwithstanding the above, Trustee may cause the liens of this Deed of Trust to be foreclosed in any other manner provided for under the laws of the State of Texas. 6.3 Tenancy at Will. In the event of a trustee's sale hereunder and if at the time of such sale Grantor or any other party occupies the portion of the Mortgaged Property so sold or any part thereof, such occupant, at the option of such -12- 13 purchaser, shall immediately become the tenant of the purchaser at such sale, which tenancy, at the option of such purchaser, shall be a tenancy at will, at a reasonable rental per day based upon the value of the portion of the Mortgaged Property so occupied, such rental to be due and payable daily to the purchaser. An action of forcible detainer shall lie if the tenant holds over after a demand in writing for possession of such Mortgaged Property. 6.4 Indemnification of Trustee. Except for gross negligence or willful misconduct, Trustee shall not be liable for any act or omission or error of judgment in connection with exercising the remedies provided herein. Trustee may rely on any document believed by him in good faith to be genuine. All money received by Trustee shall, until used or applied as herein provided, be held in trust, but need not be segregated (except to the extent required by law), and Trustee shall not be liable for interest thereon. Grantor shall indemnify Trustee and hold Trustee harmless against all liability, cost, damage or expense that Trustee may incur in the performance of his duties hereunder. 6.5 Lawsuits. Trustee may proceed by a suit or suits in equity or at law, whether for the specific performance of any covenant or agreement herein contained or in aid of the execution of any power herein granted, or for any foreclosure hereunder or for the sale of the Mortgaged Property under the judgment or decree of any court or courts of competent jurisdiction. 6.6 Entry on Mortgaged Property. Upon occurrence of an Event of Default hereunder, Trustee may enter into and upon and take possession of all or any part of the Mortgaged Property, and may exclude Grantor, and all persons claiming under Grantor, and its or their agents or servants, wholly or partly therefrom; and, holding the same, Trustee may use, administer, manage, operate, and control the Mortgaged Property and may exercise all rights and powers of Grantor in the name, place and stead of Grantor, or otherwise, as Trustee shall deem best; and in the exercise of any off the foregoing rights and powers Trustee shall not be liable to Grantor for any loss or damage thereby sustained unless due solely to the willful misconduct or gross negligence of Trustee. Trustee's powers shall include the right to complete construction of any part of the Mortgaged Property and to make any repairs or alterations necessary or advisable for the successful operation of the Mortgaged Property. -13- 14 6.7 Trustee or Receiver. Trustee may make application to a court of competent jurisdiction, as a matter of strict right and without notice to Grantor or regard to the adequacy of the Mortgaged Property for the repayment of the Indebtedness, for appointment of a receiver of the Mortgaged Property, and Grantor does hereby irrevocably consent to such appointment. Any such receiver shall have all the usual powers and duties of receivers in similar cases, including the full power to rent, maintain and otherwise operate the Mortgaged Property upon such terms as may be approved by the court, and shall apply the Rents in accordance with the provisions hereof. 6.8 Remedies Cumulative, Concurrent and Nonexclusive. Trustee shall have all rights, remedies and recourses granted in this Mortgage or the Indenture or available at law or equity (including, without limitation, those granted by the Code and applicable to the Mortgaged Property, or any portion thereof) and the same (a) shall be cumulative and concurrent, (b) may be pursued separately, successively or concurrently against Grantor or others obligated for the Indebtedness, or any part thereof or against any one or more of them, or against the Mortgaged Property, at the sole discretion of Trustee, (c) may be exercised as often as occasion therefor shall arise, it being agreed by Grantor that the exercise or failure to exercise any of the same shall in no event be construed as a waiver or release thereof or of any other right, remedy or recourse, and (d) are intended to be, and shall be, nonexclusive, nor shall exercise of any one or more constitute a waiver of a right to any other right, remedy or recourse thereafter. 6.9 Rights and Remedies of Sureties. Grantor waives any right or remedy which Grantor may have or be able to assert pursuant to Chapter 34 of the Business and Commerce Code of the State of Texas pertaining to the rights and remedies of sureties. 6.10 Compensation to Trustee. Grantor hereby agrees to pay to Trustee reasonable compensation for all services rendered by it hereunder and to reimburse Trustee upon request for all reasonable expenses, disbursements and advances incurred or made by Trustee in accordance with any provision hereof. This Deed of Trust is being delivered and recorded prior to its effective date and such delivery shall continue through the effective date and thereafter to the extent necessary to complete such delivery and the conveyance intended by this Deed of Trust. -14- 15 EXECUTED as of the date first set forth above. GRANTOR: TRAMMELL CROW REAL ESTATE INVESTORS a Texas real estate investment trust By: /s/ DAVID F. CLOSSEY Name: David F. Clossey Trust Manager STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, personally appeared David F. Clossey, Trust Manager of Trammell Crow Real Estate Investors, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed same as the act of such trust, for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 22nd day of November, 1985. My Commission Expires: /s/ SUSANNE FORD NOTARY PUBLIC IN AND FOR THE STATE OF TEXAS Susanne Ford {SEAL} NOTARY PUBLIC STATE OF TEXAS COMMISSION EXPIRES: 4-10-89 5300r -15- 16 EXHIBIT B BELTLINE - CENTER BEING a tract of land situated in the S.A. & M.G.R.R. SURVEY, ABSTRACT NO. 1148, City of Irving, Dallas County, Texas, being all of LAS COLINAS BUSINESS PARK, SIXTEENTH INSTALLMENT recorded in Volume 81200, Page 1120, Dallas County, Map and Deed Records, and being more particularly described as follows: BEGINNING at a set iron rod at the intersection of the south right-of-way line of Gateway Drive (70 feet wide) and the west right-of-way line of Campus Circle Drive (50 feet wide); THENCE South 0 degrees 01 minute 00 seconds East, along the west line of Campus Circle Drive, a distance of 395.14 feet to a set iron rod found for the point of curvature of a circular curve to the left having a radius of 430.00 feet; THENCE in a southerly direction, along said west line and curve, through a central angle of 1 degree 35 minutes 29 seconds and an arc length of 11.94 feet to a set iron rod for a corner; THENCE South 67 degrees 23 minutes 18 seconds West, departing said west line, a distance of 450.04 feet to a set iron rod for corner; THENCE North 44 degrees 49 minutes 35 seconds West, a distance of 35.00 feet to a set iron rod being on the east right-of-way line of Beltline Road (130 feet wide); THENCE North 0 degrees 01 minute 00 seconds West, along said east line, a distance of 530.17 feet to a set iron rod for the point of curvature of a circular curve to the right having a radius of 25.00 feet; THENCE in a northeasterly direction, through central angle of 90 degrees 00 minutes 00 seconds and an arc distance of 39.27 feet to a set iron rod on the south line of Gateway Drive; THENCE North 89 degrees 59 minutes 00 seconds East, along said south line, a distance of 415.00 feet to the POINT OF BEGINNING AND CONTAINING 218,866 square feet or 5.025 acres of land. 17 EXHIBIT C BELTLINE - CENTER a. Restrictive Covenants: Restrictive covenants recorded in Volume 81193, Page 2811, of the Deed Records of Dallas County, Texas. {8} Those recorded in Volume 73166, Page 1001; Volume 77154, Page 1096; Volume 78154, Page 0534; Volume 79122, Page 0749; Volume 82071, Page 3244; and Volume 80165, Page 0517, corrected in Volume 81213, Page 2023, all as recorded in the Deed Records of Dallas County, Texas, {17} b. Easement to Texas Power and Light Company, recorded in Volume 85019, Page 2354, of the Deed Records of Dallas County, Texas. {9} c. 15-foot utility easement along West, North and East sides, 10-foot utility easement along South side, 30-foot building set back line along North and East sides, and 50-foot building set back line along West side of subject property as shown by the recorded plat in Volume 81200, Page 1120, of the Plat or Map Records of Dallas County, Texas. {12} d. Rights of parties in possession and rights of tenants in possession under any unrecorded leases or rental agreements. e. Terms, provisions, conditions, obligations, assessments, and liens contained in instrument recorded in Volume 73166, Page 1001, of the Deed Records of Dallas County, Texas, as corrected in Volume 77154, Page 1096, Volume 79122, Page 749, and Volume 82071, Page 3244, and as supplemented in Volume 78154, Page 534, and Volume 80165, Page 517, corrected in Volume 81213, Page 2023, all of the Deed Records of Dallas County, Texas. {14} f. Sanitary sewer manhole, water meters, fire hydrants, gas meters, and transformer pads as shown by survey of Raul Wong, Jr., dated or revised 10/24/85. {10} 18 STATE OF TEXAS ) ) COUNTY OF DALLAS ) I hereby certify that this instrument was filed on the date and time stamped hereon by me and was duly recorded in the volume and page of the named records of Dallas County, Texas as stamped hereon by me. {SEAL} NOV 26 1985 /s/ EARL BULLOCK COUNTY CLERK, DALLAS COUNTY, TEXAS {STAMP} WHEN RECORDED RETURN TO: C. RICHARD WHITE TITLE ESCROW SERVICES, INC. P.O. BOX 860219 PLANO, TEXAS 75086 EX-10.10 8 DEED OF TRUST (GATEWAY 5 & 6) 1 EXHIBIT 10.10 GATEWAY DEED OF TRUST (WITH SECURITY AGREEMENT AND ASSIGNMENT OF RENTS AND LEASES) By this instrument (this "Mortgage"), dated as of November 22, 1985, to be effective as of November 27, 1985, the undersigned, TRAMMELL CROW REAL ESTATE INVESTORS, a Texas real estate investment trust (hereinafter referred to as "Grantor"), whose address is 2001 Ross Avenue, 3500 LTV Center, Dallas, Texas 75201, to secure the obligations hereinafter described, does hereby GRANT, BARGAIN, SELL, ASSIGN and CONVEY unto GEORGE R. SIEVERS (hereinafter referred to as "Trustee"), whose address is One State Street, New York, New York 10015, acting for the benefit of J. HENRY SCHRODER BANK & TRUST COMPANY, a New York banking corporation, the trustee under that certain indenture (the "Indenture"), dated as of November 15, 1985, by and between Grantor and Trustee, securing payment of certain zero coupon notes due 1997, payable to the order of the Holders, a copy of which Indenture is attached hereto as Exhibit A and incorporated herein by this reference for all purposes, the following described mortgaged property (the "Mortgaged Property"), to wit: All of the real property located in Dallas County, Texas, described on the attached Exhibit B which is incorporated herein by reference (the "Land"), subject to the exceptions described on the attached Exhibit C which is incorporated herein by reference (the "Permitted Exceptions"), TOGETHER WITH all of Grantor's right, title and interest in and to the following, whether now owned or hereafter acquired: (a) all improvements and fixtures now or hereafter attached to or placed, erected, constructed or developed on the Land (the "Improvements"); (b) all equipment, machinery, furnishings, inventory, chattels and all other articles of personal property (the "Personal Property") now or hereafter attached to, relating to or used in or about the Improvements or the Land; (c) all water and water rights, timber, crops and mineral interests pertaining to the Land; (d) all building materials and equipment now or hereafter delivered and installed or 2 intended to be installed in or on the Land or the Improvements; (e) all plans, specifications and drawings for the Improvements; (f) all deposits (including tenants security deposits and escrow deposits under contracts of sale), documents, contract rights, commitments, construction contracts, architectural agreements and general intangibles (including, without limitation, trademarks, trade names and symbols but expressly excluding the right to use the name "Trammell Crow" or any name associated therewith or derived therefrom); (g) all permits, licenses, franchises, certificates and other rights and privileges relating to or obtained in connection with the Land, the Improvements or the Personal Property; (h) all proceeds arising from or by virtue of the sale, lease or other disposition, encumbrance or refinancing, of the Land, the Improvements and the Personal Property; (i) all proceeds (including premium refunds) of each policy of insurance relating to the Land, the Improvements or the Personal Property; (j) all proceeds from the taking of any of the Land, the Improvements, the Personal Property or any rights appurtenant thereto by right of eminent domain or by private or other purchase in lieu thereof including change of grade of streets, curb cuts or other rights of access; (k) all streets, roads, public places, easements and rights-of-way, existing or proposed, public or private, located on or adjacent to or used in connection with the Land; (l) all of the leases, subleases, licenses or other agreements relating to the Land, the Improvements or the Personal Property, and all rents, deposits, royalties, bonuses, issues, profits, revenues, income or other benefits of the Land, the Improvements or the Personal Property, including, without limitation, cash, securities, letters of credit, guarantees or other instruments deposited pursuant to leases to secure performance by the lessees of their obligations thereunder and cash deposited in impound accounts for the payment of taxes and insurance under any deed of trust securing payment of the Indebtedness; (m) all heating, lighting, refrigeration, plumbing, ventilating, incinerating, water heating, transportation, communications, electrical and air-conditioning systems and equipment, sprinkler and fire-extinguishing systems, security systems, maintenance equipment and other fixtures or systems used in connection with the Land, the Improvements and the Personal Property; (n) all rights, hereditaments, strips, gores and appurtenances pertaining to the foregoing; and (o) all replacements, betterments, substitutions, renewals and additions to any of the above-described Mortgaged Property; and all proceeds of any of the above-described Mortgaged Property. -2- 3 TO HAVE AND TO HOLD the Mortgaged Property, together with the rights, privileges and appurtenances thereto belonging, unto the Trustee and its substitutes or successors and assigns forever, and Grantor hereby binds itself and its administrators, personal representatives, successors and assigns to warrant and forever defend the Mortgaged Property unto the Trustee, its substitutes or successors and assigns, against the claim or claims of all persons claiming or to claim the same or any part thereof. ARTICLE I INDEBTEDNESS This Mortgage is given to secure the payment of all sums and performance of all obligations and covenants contained in this Mortgage and of the Indenture. Unless otherwise defined herein, certain capitalized terms shall have the meaning ascribed to said terms by the Indenture. The above-described obligations are hereinafter collectively called the "Indebtedness" ARTICLE II ASSIGNMENT OF RENTS AND LEASES 2.1 Assignment of Rents, Profits, etc. Grantor hereby absolutely and unconditionally assigns to Trustee all of its right, title and interest in and to the rents, royalties, bonuses, issues, profits, revenue, income and other benefits derived from the Mortgaged Property or arising from the use or enjoyment of any portion thereof or from any lease, sublease, licenses or other agreement pertaining thereto, and any and all damages following default under such leases, and all proceeds payable under any policy of insurance covering loss of rents resulting from untenantability, together with any and all rights that Grantor may have against any tenant under such leases or any subtenants or occupants or users of any part of the Mortgaged Property (collectively, the "Rents"). Prior to an Event of Default (as hereinafter defined), Grantor shall have a license to collect and receive all Rents and to apply same in accordance with the terms and provisions of the Indenture. -3- 4 2.2 Assignment of Leases. Grantor hereby absolutely and unconditionally assigns to Trustee all of its right, title and interest in and to existing and future leases, including subleases thereunder, and any and all extensions, renewals, modifications, and replacements thereof, covering any part of the Mortgaged Property (collectively, the "Leases"). Grantor hereby further assigns to Trustee all guaranties of tenants' performances under the Leases. 2.3 Trustee in Possession. Trustee's acceptance of this assignment shall not be deemed to constitute Trustee a "mortgagee in possession" nor obligate Trustee to appear in or defend any proceeding relating to any of the Leases or to the Mortgaged Property, or to take any action hereunder, expend any money, incur any expenses, or perform any obligation or liability under the Leases, or assume any obligation for any deposits delivered to Grantor by any tenant and not delivered to Trustee, prior to entry upon and taking possession of the Mortgaged Property by Trustee. Trustee shall not be liable for any injury or damage to person or property in or about the Mortgaged Property. 2.4 Indemnification. Grantor hereby agrees to indemnify Trustee and hold Trustee harmless from all liability, damage or expense incurred by Trustee from any claims under the Leases as well as all amounts indemnified against under the Indenture. All amounts indemnified against hereunder, including reasonable attorneys' fees, if paid by Trustee shall be payable by Grantor immediately upon demand by Trustee and shall be secured hereby. 2.5 Right to Rely. After the occurrence of an Event of Default (hereinafter defined), Grantor hereby authorizes and directs the tenants under the Leases to pay Rents to Trustee upon written demand by Trustee, without further consent of Grantor, and the tenants may rely upon any written statement delivered by Trustee to the tenants. Any such payment to Trustee shall satisfy the obligations of such tenant to make payment to Grantor under the Leases to the extent of the payment made to Trustee. ARTICLE III SECURITY AGREEMENT 3.1 Security Interest. This Mortgage shall be a security agreement between Grantor, as the debtor, and Trustee, as the secured party, covering the Mortgaged Property constituting -4- 5 personal property or fixtures governed by the Uniform Commercial Code, as enacted and amended from time to time in the state in which the Land is situated (hereinafter called the "Code"), and Grantor grants to Trustee a security interest in such portion of the Mortgaged Property. In addition to Trustee's other rights hereunder, Trustee shall have all rights of a secured party under the Code. Grantor shall execute and deliver to Trustee all financing statements that may be necessary or advisable to establish and maintain the validity, perfection and priority of Trustee's security interest, and Grantor shall bear all costs thereof, including all Code searches reasonably required by Trustee. If Trustee should desire to dispose of any of the Mortgaged Property pursuant to the Code, and if the Code requires prior notice to Grantor of such disposition, ten (10) days written notice by Trustee to Grantor shall be deemed to be reasonable notice; provided, however, Trustee may dispose of such property in accordance with the foreclosure procedures hereof in lieu of proceeding under the Code. 3.2 Notice of Changes. Grantor shall give advance notice in writing to Trustee of any proposed change in Grantor's name, identity, or structure and shall execute and deliver to Trustee, prior to or concurrently with the occurrence of any such change, all additional financing statements that Trustee may require to establish and maintain the validity and priority of Trustee's security interest with respect to any of the Mortgaged Property. 3.3 Financing Statement. Some of the items of the Mortgaged Property described herein are goods that are or are to become fixtures related to the Land, and it is intended that, as to those goods, this instrument shall be effective as a financing statement filed as a fixture filing from the date of its filing for record in the real estate records of the county in which the Mortgaged Property is situated. Information concerning the security interest created by this instrument may be obtained from Trustee, as secured party, at the address of Trustee stated above. The mailing address of Grantor as debtor is as stated above. -5- 6 ARTICLE IV REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF GRANTOR Grantor does hereby warrant and represent to and covenant and agree with Trustee as follows: 4.1 Title to Mortgaged Property and Lien of this Mortgage. Grantor has good and indefeasible title to the Land and the Improvements, and good and marketable title to the remainder of the Mortgaged Property, free and clear of any liens, charges, encumbrances, security interests and adverse claims whatsoever, except for the Permitted Exceptions. 4.2 Limitation of Liability. Any obligation or liability whatsoever of the Grantor which may arise at any time under this Mortgage, or any obligation or liability incurred by it pursuant to any other instrument, transaction or undertaking contemplated by this Mortgage, shall be satisfied, if at all, out of the Grantor's property only. No such obligation or liability shall be personally binding upon nor shall there be any resort for the enforcement thereof to the private property of any of its Trust Managers, shareholders, officers, employees or agents, regardless of whether such obligations or liability are in the nature of contract, tort or otherwise. 4.3 Repair. Grantor will cause the Mortgaged Property to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, which in the judgment of the Grantor may be necessary or prudent so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however that nothing in this Section 4.3 shall prevent the Grantor from discontinuing the operation and maintenance of any of its properties if such discontinuance is, in the judgment of the Grantor, desirable in the conduct of its business and not disadvantageous in any material respect to the Holders. 4.4 Insurance. (a) Grantor will at all times keep all the Mortgaged Property of an insurable nature and of the character usually insured by companies operating similar properties, insured in amounts customarily carried, and against loss or damage such causes as are customarily insured against, by similar companies. -6- 7 (b) All such insurance shall be effected with insurance carriers having a claims paying rating of "AA" or better by Standard & Poor's Corporation. All policies or other contracts for such insurance on the Mortgaged Property shall provide that the proceeds of such insurance (except in the case of any particular casualty resulting in damage or destruction not exceeding $1,250,000.00 in the aggregate) shall be payable, subject to the requirements of any Prior Lien, to the Trustee as its interest may appear (by means of a standard mortgagee clause or other similar clause acceptable to the Trustee, without contribution). Each policy or other contract for such insurance, or such mortgagee clause, shall contain an agreement by the insurer that, notwithstanding any right of cancellation reserved to such insurer, such policy or contract shall not be cancelled unless and until the insurer has provided Trustee written notice thirty calendar days prior to cancellation. As soon as practicable after the execution of this Mortgage, and within 120 calendar days after the close of each fiscal year thereafter, and at any time upon the request of the Trustee, Grantor will deliver to the Trustee an officer certificate containing a detailed list of the insurance in force upon the Mortgaged Property on a date therein specified (which date shall be within 30 calendar days of the filing of such certificate), including the names of the insurers with which the policies and other contracts of insurance of the Mortgaged Property are carried, the numbers, amounts and expiration dates of such policies and other contracts and the property and hazards covered thereby, and stating that the insurance so listed complies with this Section 4.4, together with copies of all insurance policies or certificates thereof. (c) All proceeds of any insurance of any part of the Mortgaged Property not payable to the Trustee or the trustee, mortgagee or other holder or beneficiary of a Prior Lien shall be applied in accordance with the Indenture. In the event that the proceeds of insurance are made available for restoration, Grantor shall restore the Improvements to substantially the same condition and quality of the Improvements prior to the casualty. 4.5 Taxes. Grantor will pay, prior to delinquency, all taxes, assessments and governmental charges or levies imposed upon it or the Mortgaged Property, and all claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like persons which, if unpaid, might result in the creation of a lien upon the Mortgaged Property; provided that items of the foregoing description need not be paid while being contested in good faith and by appropriate proceedings, so long as such contest shall not create a risk of forfeiture of all or -7- 8 any portion of the Mortgaged Property. Nothing contained herein shall constitute the consent of Trustee to subject the Mortgaged Property to any of the aforesaid liens. 4.6 Casualty and Condemnation. All proceeds, judgments, decrees and awards for injury or damage to the Mortgaged Property, and all awards pursuant to proceedings for condemnation thereof, are hereby assigned in their entirety to Trustee, who shall apply the same in accordance with the Indenture. Immediately upon its obtaining knowledge of the institution or the threatened institution of any proceedings for the condemnation of the Mortgaged Property, Grantor shall notify Trustee of such fact. Grantor shall then, if requested by Trustee, file or defend its claim thereunder and prosecute same with due diligence to its final disposition and shall cause any awards or settlements to be paid over to Trustee for disposition pursuant to the terms of sub-section 4.4(c) hereinabove. Trustee shall be entitled to participate in same and to be represented therein by counsel of its own choice, and Grantor shall deliver, or cause to be delivered, to Trustee such instruments as may be requested by it from time to time to permit such participation. 4.7 Compliance with Laws. Grantor shall cause the Mortgaged Property and the use thereof to comply with all laws, rules, ordinances, regulations, covenants, conditions, restrictions, orders and decrees of any governmental authority or court applicable to Grantor or the Mortgaged Property and its use, and Grantor shall pay all fees or charges of any kind in connection therewith. 4.8 Operation. For so long as there is no Event of Default hereunder, Grantor may use and operate, alter and improve, manage, lease and maintain the Land, Improvements and Personal Property in accordance with customary and prudent management practices and in accordance with the provisions hereof and of the Indenture. 4.9 Successors and Assigns; Use of Terms. The covenants herein contained shall bind, and the benefits and advantages hereof shall inure to, the respective heirs, executors, administrators, personal representatives, successors and assigns of the parties hereto. Whenever used, the singular number shall include the plural and the plural the singular, and the use of any gender shall be applicable to all genders. The duties, covenants, conditions, obligations and warranties of Grantor in this instrument shall be joint and several obligations of Grantor and of each Grantor, if more than one, and of each Grantor's heirs, personal representatives, -8- 9 successors and assigns. Each party who executes this instrument and each subsequent owner of the Mortgaged Property, or any part thereof (other than Trustee), covenants and agrees that it will perform, or cause to be performed, each term and covenant of this instrument as if such party were the named Grantor. 4.10 Severability. If any provision of this instrument is held to be illegal, invalid, or unenforceable under present or future laws effective while this instrument is in effect, the legality, validity and enforceability of the remaining provisions of this instrument shall not be affected thereby, and in lieu of each such illegal, invalid or unenforceable provision there shall be added automatically as a part of this instrument a provision that is legal, valid and enforceable and as similar in terms to such illegal, invalid or unenforceable provision as may be possible. 4.11 Unsecured Indebtedness. If any of the Indebtedness shall be unsecured, the unsecured portion of the Indebtedness shall be completely paid prior to the payment of the secured portion of such Indebtedness, and all payments made on account of the Indebtedness shall be considered to have been paid on and applied first to the complete payment of the unsecured portion of the Indebtedness. 4.12 Modification or Termination. This Mortgage may only be modified in accordance with the terms of the Indenture. 4.13 No Partnership. Nothing contained in this Mortgage is intended to create any partnership, joint venture or association between Grantor and Trustee, or in any way make Trustee a co-principal with Grantor with reference to the Mortgaged Property, and any inferences to the contrary are hereby expressly negated. 4.14 Headings. The Article, Paragraph and Subparagraph headings hereof are inserted for convenience of reference only and shall not alter, define, or be used in construing the text of such Articles, Paragraphs or Subparagraphs. 4.15 Governing Law. This Mortgage and the enforcement of the provisions hereof shall be governed by the laws of the State of Texas except with respect to the obligations of the Grantor and the rights of the Trustee under Paragraph 2.4, which shall be governed by the laws of the State of New York, and the laws of the United States applicable to transactions in such state. -9- 10 ARTICLE V EVENTS OF DEFAULT 5.1 Default of Indenture. It shall be an "Event of Default" hereunder if Grantor commits an Event of Default, as that term is defined by the Indenture. ARTICLE VI REMEDIES If an Event of Default shall occur, Trustee may exercise any one or more of the remedies provided in the Indenture or the following remedies, without notice: 6.1 Enforcement of Assignment of Rents and Leases. Trustee may: (a) terminate the license granted to Grantor to collect the Rents and enforce the Leases, and thereafter collect and sue for the Rents in Trustee's own name, give receipts and releases therefor, and after deducting all expenses of collection, including reasonable attorneys' fees, apply the net proceeds thereof to any Indebtedness in accordance with the Indenture; (b) make, modify, enforce, cancel or accept surrender of any Leases, evict tenants, adjust the Rents, maintain, decorate, refurbish, repair, clean, and make space ready for renting, and otherwise do anything Trustee deems advisable in connection with the Mortgaged Property; (c) apply the Rents so collected to the operation and management of the Mortgaged Property, including the payment of reasonable management, brokerage and attorneys' fees, or to the Indebtedness; and (d) require Grantor to transfer all security deposits and records thereof to Trustee. 6.2 Foreclosure. Trustee may sell all or part of the Mortgaged Property, at public auction, to the highest bidder, for cash, at the door of the county courthouse of the county in Texas in which such Mortgaged Property or any part thereof is situated, between the hours of 10:00 o'clock A.M. and 4:00 o'clock P.M. on the first Tuesday of any month, after giving notice of the time, place and terms of said sale and of the -10- 11 property to be sold, by filing written notice thereof at least twenty-one (21) days preceding the date of the sale at the courthouse door of the county in which the sale is to be made, and if the property to be sold is situated in more than one county one notice shall be posted at the courthouse door of each county in which the property to be sold is situated, and by filing a copy of the above-described notice in the office of the county clerk of the county in which the sale is to be made or, if the Mortgaged Property is in more than one county, by filing a copy of the notice with the county clerk of each county in which a portion of the Mortgaged Property is situated. In addition, Trustee shall, at least twenty-one (21) days preceding the date of sale, serve written notice of the proposed sale by certified mail on each debtor obligated to pay the debt secured hereby according to the records of Trustee. Service of such notice shall be completed upon deposit of the notice, enclosed in a postpaid wrapper, properly addressed to such debtor at the most recent address as shown by the records of Trustee, in a post office or official depository under the care and custody of the United States Postal Service. The affidavit of any person having knowledge of the facts to the effect that such service was completed shall be prima facie evidence of the fact of service. Any notice that is required or permitted to be given to Grantor may be addressed to Grantor at Grantor's address as stated above. Any notice that is to be given by certified mail to any other debtor may, if no address for such other debtor is shown by the records of Trustee, be addressed to such other debtor at the address of Grantor as is shown by the records of Trustee. Notwithstanding the foregoing provisions of this paragraph, notice of such sale given in accordance with the requirements of the applicable laws of the State of Texas in effect at the time of such sale shall constitute sufficient notice of such sale. Trustee may sell all or any portion of the Mortgaged Property, together or in lots or parcels, and may execute and deliver to the purchaser or purchasers of such property good and sufficient deeds of conveyance of fee simple title with covenants of general warranty made on behalf of Grantor. In no event shall Trustee be required to exhibit, present or display at any such sale any of the personalty described herein to be sold at such sale. Trustee making such sale shall receive the proceeds thereof and shall apply the same as follows: (a) first, he shall pay the reasonable expenses of Trustee (including any attorneys' fees) and the costs and expenses of such sale; (b) second, he shall pay, so far as may be possible, the Indebtedness; (c) third, he shall pay the residue, if any, to the persons legally entitled thereto. Payment of the purchase price to Trustee shall satisfy the obligation of the purchaser at such sale therefor, -11- 12 and such purchaser shall not be responsible for the application thereof. The sale or sales by Trustee of less than the whole of the Mortgaged Property shall not exhaust the power of sale herein granted, and Trustee is specifically empowered to make successive sale or sales under such power until the whole of the Mortgaged Property shall be sold; and if the proceeds of such sale or sales of less than the whole of the Mortgaged Property shall be less than the aggregate of the Indebtedness and the expenses thereof, this Deed of Trust and the lien, security interest and assignment hereof shall remain in full force and effect as to the unsold portion of the Mortgaged Property just as though no sale or sales had been made; provided, however, that Grantor shall never have any right to require the sale or sales of less than the whole of the Mortgaged Property, but Trustee shall have the right, at its sole election, to request Trustee to sell less than the whole of the Mortgaged Property. If default is made hereunder, the holder of the Indebtedness or any part thereof on which the payment is delinquent shall have the option to proceed with foreclosure in satisfaction of such item either through judicial proceedings or by directing Trustee to proceed as if under a full foreclosure, conducting the sale as herein provided without declaring the entire Indebtedness due, if sale is made because of default of an installment, or a part of an installment, such sale may be made subject to the unmatured part of the Indebtedness; and it is agreed that such sale, if so made, shall not in any manner affect the unmatured part ofthe Indebtedness, but as to such unmatured part this Deed of Trust shall remain in full force and effect as though no sale had been made under the provisions of this paragraph. Several sales may be made hereunder without exhausting the right of sale for any unmatured part of the Indebtedness. At any such sale (a) Grantor hereby agrees, in its behalf and in behalf of its heirs, executors, administrators, successors, personal representatives and assigns, that any and all recitals made in any deed of conveyance given by Trustee with respect to the identity of Trustee, the occurrence or existence of any default, the acceleration of the maturity of any of the Indebtedness, the request to sell, the notice of sale, the giving of notice to all debtors legally entitled thereto, the time, place, terms, and manner of sale, receipt, distribution and application of the money realized therefrom, or the due and proper appointment of a substitute Trustee, and, without being limited by the foregoing, with respect to any other act or thing having been duly done by Trustee or by Trustee hereunder, shall be taken by all courts of law and equity as prima facie evidence that the statements or recitals state facts and are without further question to be so accepted, and Grantor hereby -12- 13 ratifies and confirms every act that Trustee or any substitute Trustee hereunder may lawfully do in the premises by virtue hereof, and (b) the purchaser may disaffirm any easement granted, or rental, lease or other contract made, in violation of any provision of this Deed of Trust, and may take immediate possession of the Mortgaged Property free from, and despite the terms of, such grant of easement and rental or lease contract. Trustee may bid and become the purchaser of all or any part of the Mortgaged Property at any trustee's or foreclosure sale hereunder, and the amount of Trustee's successful bid may be credited on the Indebtedness. Notwithstanding the above, Trustee may cause the liens of this Deed of Trust to be foreclosed in any other manner provided for under the laws of the State of Texas. 6.3 Tenancy at Will. In the event of a trustee's sale hereunder and if at the time of such sale Grantor or any other party occupies the portion of the Mortgaged Property so sold or any part thereof, such occupant, at the option of such purchaser, shall immediately become the tenant of the purchaser at such sale, which tenancy, at the option of such purchaser, shall be a tenancy at will, at a reasonable rental per day based upon the value of the portion of the Mortgaged Property so occupied, such rental to be due and payable daily to the purchaser. An action of forcible detainer shall lie if the tenant holds over after a demand in writing for possession of such Mortgaged Property. 6.4 Indemnification of Trustee. Except for gross negligence or willful misconduct, Trustee shall not be liable for any act or omission or error of judgment in connection with exercising the remedies provided herein. Trustee may rely on any document believed by him in good faith to be genuine. All money received by Trustee shall, until used or applied as herein provided, be held in trust, but need not be segregated (except to the extent required by law), and Trustee shall not be liable for interest thereon. Grantor shall indemnify Trustee and hold Trustee harmless against all liability, cost, damage or expense that Trustee may incur in the performance of his duties hereunder. 6.5 Lawsuits. Trustee may proceed by a suit or suits in equity or at law, whether for the specific performance of any covenant or agreement herein contained or in aid of the execution of any power herein granted, or for any foreclosure hereunder or for the sale of the Mortgaged Property under the judgment or decree of any court or courts of competent jurisdiction. -13- 14 6.6 Entry on Mortgaged Property. Upon occurrence of an Event of Default hereunder, Trustee may enter into and upon and take possession of all or any part of the Mortgaged Property, and may exclude Grantor, and all persons claiming under Grantor, and its or their agents or servants, wholly or partly therefrom; and, holding the same, Trustee may use, administer, manage, operate, and control the Mortgaged Property and may exercise all rights and powers of Grantor in the name, place and stead of Grantor, or otherwise, as Trustee shall deem best; and in the exercise of any of the foregoing rights and powers Trustee shall not be liable to Grantor for any loss or damage thereby sustained unless due solely to the willful misconduct or gross negligence of Trustee. Trustee's powers shall include the right to complete construction of any part of the Mortgaged Property and to make any repairs or alterations necessary or advisable for the successful operation of the Mortgaged Property. 6.7 Trustee or Receiver. Trustee may make application to a court of competent jurisdiction, as a matter of strict right and without notice to Grantor or regard to the adequacy of the Mortgaged Property for the repayment of the Indebtedness, for appointment of a receiver of the Mortgaged Property, and Grantor does hereby irrevocably consent to such appointment. Any such receiver shall have all the usual powers and duties of receivers in similar cases, including the full power to rent, maintain and otherwise operate the Mortgaged Property upon such terms as may be approved by the court, and shall apply theRents in accordance with the provisions hereof. 6.8 Remedies Cumulative, Concurrent and Nonexclusive. Trustee shall have all rights, remedies and recourses granted in this Mortgage or the Indenture or available at law or equity (including, without limitation, those granted by the Code and applicable to the Mortgaged Property, or any portion thereof) and the same (a) shall be cumulative and concurrent, (b) may be pursued separately, successively or concurrently against Grantor or others obligated for the Indebtedness, or any part thereof or against any one or more of them, or against the Mortgaged Property, at the sole discretion of Trustee, (c) may be exercised as often as occasion therefor shall arise, it being agreed by Grantor that the exercise or failure to exercise any of the same shall in no event be construed as a waiver or release thereof or of any other right, remedy or recourse, and (d) are intended to be, and shall be, nonexclusive, nor shall exercise of any one or more constitute a waiver of a right to any other right, remedy or recourse therafter. -14- 15 6.9 Rights and Remedies of Sureties. Grantor waives any right or remedy which Grantor may have or be able to assert pursuant to Chapter 34 of the Business and Commerce Code of the State of Texas pertaining to the rights and remedies of sureties. 6.10 Compensation to Trustee. Grantor hereby agrees to pay to Trustee reasonable compensation for all services rendered by it hereunder and to reimburse Trustee upon request for all reasonable expenses, disbursements and advances incurred or made by Trustee in accordance with any provisions hereof. This Deed of Trust is being delivered and recorded prior to its effective date and such delivery shall continue through the effective date and thereafter to the extent necessary to complete such delivery and the conveyance intended by this Deed of Trust. EXECUTED as of the date first set forth above. GRANTOR: TRAMMELL CROW REAL ESTATE INVESTORS, a Texas real estate investment trust By: /s/ DAVID CLOSSEY Name: David Clossey Trust Manager -15- 16 STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, personally appeared David Clossey, Trust Manager of Trammell Crow Real Estate Investors, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed same as the act of such trust, for the purposes and consideration therein expressed, and in the capacity therein stated. UNDER MY HAND AND SEAL OF OFFICE, this 22nd day of Nov., 1985. My Commission Expires: /s/ LINDA L. SLAVIK NOTARY PUBLIC IN AND FOR THE STATE OF TEXAS {SEAL} LINDA L. SLAVIK Notary Public State of Texas Commission expires 3-31-89 5299r -16- 17 EXHIBIT B GATEWAY BEING a tract of land situated in Dallas County, Texas in the City of Irving, out of the S. A. & M. G. R. R. Survey, Abstract No. 1433, and also being part of the Las Colinas Business Park, Second Installment, and addition to the City of Irving, according to the plat recorded in Volume 81057, Page 436 of the Deed Records of Dallas County, Texas and being more particularly described as follows: BEGINNING at a found iron rod at the intersection of the west line of Commerce Drive (60 foot right-of-way) and the south line of Gateway Drive (70 foot right-of-way); THENCE South 0 degrees 01 minutes 00 seconds West, along the west line of Commerce Drive, a distance of 620.00 feet to a found "x" for a corner; THENCE South 89 degrees 59 minutes 00 seconds West, departing the west line of said Commerce Drive, a distance of 127.03 feet to a found "x" for a corner; THENCE North 44 degrees 49 minutes 35 seconds West, a distance of 332.10 feet to a found "x" for a corner; THENCE South 60 degrees 23 minutes 03 seconds West, a distance of 64.31 feet to a found "x" for a corner; THENCE North 0 degrees 01 minutes 00 seconds West, a distance of 416.16 feet to a set iron rod on the south line of said Gateway Drive; THENCE North 89 degrees 59 minutes 00 seconds East, along the south line of said Gateway Drive, a distance of 417.00 feet to the POINT OF BEGINNING AND CONTAINING 218,681 square feet or 5.020 acres of land. 18 EXHIBIT C GATEWAY a. Restrictive Covenants: Those recorded in Volume 73166, Page 1001; Volume 77154, Page 1096; Volume 79122, Page 749; and in Volume 80165, Page 517, corrected in Volume 81213, Page 2023, all as recorded in the Deed Records of Dallas County, Texas. {2} b. Mutual and Reciprocal Easement recorded in Volume 82113, Page 3706, Deed Records of Dallas County, Texas. {3} c. 15-foot utility easement along North and East sides, 10-foot by 10-foot easement in the Northwest portion of the subject property, and 30-foot building set back line, all as shown on the plat recorded in Volume 81057, Page 436, Deed Records of Dallas County, Texas. {4} d. Terms, provisions, conditions, obligations, assessments, and liens contained in instrument recorded in Volume 73166, Page 1001, of the Deed Records of Dallas County, Texas, corrected in Volume 77154, Page 1096, and in Volume 79122, Page 749, of the Deed Records of Dallas County, Texas, and as supplemented in Volume 80165, Page 517, and Volume 81213, Page 2023, Deed Records of Dallas County, Texas. {10} e. Water meters, gas meter, 8-foot by 8-foot transformer pad, and protrusion of concrete pavement along West line as shown by survey of Raul Wong, Jr., dated or revised 10/24/85. {5} FILE FOR RECORD This 26 day of Nov. 1985 at 2:37 o'clock pm Earl Bullock, County Clerk Dallas County, Texas By: /s/ VICKEY JOHNSON, Deputy WHEN RECORDED RETURN TO: C. RICHARD WHITE TITLE ESCROW SERVICES, INC. P.O. BOX 860219 PLANO, TEXAS 75086 EX-10.11 9 DEED OF TRUST (NORTHGATE II) 1 EXHIBIT 10.11 NORTHGATE DEED OF TRUST (WITH SECURITY AGREEMENT AND ASSIGNMENT OF RENTS AND LEASES) By this instrument (this "Mortgage"), dated as of November 22, 1985, to be effective as of November 27, 1985, the undersigned, TRAMMELL CROW REAL ESTATE INVESTORS, a Texas real estate investment trust (hereinafter referred to as "Grantor"), whose address is 2001 Ross Avenue, 3500 LTV Center, Dallas, Texas 75201, to secure the obligations hereinafter described, does hereby GRANT, BARGAIN, SELL, ASSIGN and CONVEY unto GEORGE R. SIEVERS (hereinafter referred to as "Trustee"), whose address is One State Street, New York, New York 10015, acting for the benefit of J. HENRY SCHRODER BANK & TRUST COMPANY, a New York banking corporation, the trustee under that certain indenture (the "Indenture"), dated as of November 15, 1985, by and between Grantor and Trustee, securing payment of certain zero coupon notes due 1997, payable to the order of the Holders, a copy of which Indenture is attached hereto as Exhibit A and incorporated herein by this reference for all purposes, the following described mortgaged property (the "Mortgaged Property"), to wit: All of the real property located in Dallas County, Texas, described on the attached Exhibit B which is incorporated herein by reference (the "Land"), subject to the exceptions described on the attached Exhibit C which is incorporated herein by reference (the "Permitted Exceptions"), TOGETHER WITH all of Grantor's right, title and interest in and to the following, whether now owned or hereafter acquired: (a) all improvements and fixtures now or hereafter attached to or placed, erected, constructed or developed on the Land (the "Improvements"); (b) all equipment, machinery, furnishings, inventory, chattels and all other articles of personal property (the "Personal Property") now or hereafter attached to, relating to or used in or about the Improvements or the Land; (c) all water and water rights, timber, crops and mineral interests pertaining to the Land; (d) all building materials and equipment now or hereafter delivered and installed or intended to be installed in or on the Land or the Improvements; (e) all plans, specifications and drawings for the Improvements; (f) all deposits (including tenants' security deposits and escrow deposits under contracts of sale), 2 documents, contract rights, commitments, construction contracts, architectural agreements and general intangibles (including, without limitation, trademarks, trade names and symbols but expressly excluding the right to use the name "Trammell Crow" or any name associated therewith or derived therefrom); (g) all permits, licenses, franchises, certificates and other rights and privileges relating to or obtained in connection with the Land, the Improvements or the Personal Property; (h) all proceeds arising from or by virtue of the sale, lease or other disposition, encumbrance or refinancing, of the Land, the Improvements and the Personal Property; (i) all proceeds (including premium refunds) of each policy of insurance relating to the Land, the Improvements or the Personal Property; (j) all proceeds from the taking of any of the Land, the Improvements, the Personal Property or any rights appurtenant thereto by right of eminent domain or by private or other purchase in lieu thereof including change of grade of streets, curb cuts or other rights of access; (k) all streets, roads, public places, easements and rights-of-way, existing or proposed, public or private, located on or adjacent to or used in connection with the Land; (l) all of the leases, subleases, licenses or other agreements relating to the Land, the Improvements or the Personal Property, and all rents, deposits, royalties, bonuses, issues, profits, revenues, income or other benefits of the Land, the Improvements or the Personal Property, including, without limitation, cash, securities, letters of credit, guarantees or other instruments deposited pursuant to leases to secure performance by the lessees of their obligations thereunder and cash deposited in impound accounts for the payment of taxes and insurance under any deed of trust securing payment of the Indebtedness; (m) all heating, lighting, refrigeration, plumbing, ventilating, incinerating, water heating, transportation, communications, electrical and air-conditioning systems and equipment, sprinkler and fire-extinguishing systems, security systems, maintenance equipment and other fixtures or systems used in connection with the Land, the Improvements and the Personal Property; (n) all rights, hereditaments, strips, gores and appurtenances pertaining to the foregoing; and (o) all replacements, betterments, substitutions, renewals and additions to any of the above-described Mortgaged Property; and all proceeds of any of the above-described Mortgaged Property. TO HAVE AND TO HOLD the Mortgaged Property, together with the rights, privileges and appurtenances thereto belonging, unto the Trustee and its substitutes or successors and assigns forever, and Grantor hereby binds itself and its administrators, personal representatives, successors and -2- 3 assigns to warrant and forever defend the Mortgaged Property unto the Trustee, its substitutes or successors and assigns, against the claim or claims of all persons claiming or to claim the same or any part thereof. ARTICLE I INDEBTEDNESS This Mortgage is given to secure the payment of all sums and performance of all obligations and covenants contained in this Mortgage and of the Indenture. Unless otherwise defined herein, certain capitalized terms shall have the meaning ascribed to said terms by the Indenture. The above-described obligations are hereinafter collectively called the "Indebtedness". ARTICLE II ASSIGNMENT OF RENTS AND LEASES 2.1 Assignment of Rents, Profits, etc. Grantor hereby absolutely and unconditionally assigns to Trustee all of its right, title and interest in and to the rents, royalties, bonuses, issues, profits, revenue, income and other benefits derived from the Mortgaged Property or arising from the use or enjoyment of any portion thereof or from any lease, sublease, licenses or other agreement pertaining thereto, and any and all damages following default under such leases, and all proceeds payable under any policy of insurance covering loss of rents resulting from untenantability, together with any and all rights that Grantor may have against any tenant under such leases or any subtenants or occupants or users of any part of the Mortgaged Property (collectively, the "Rents"). Prior to an Event of Default (as hereinafter defined), Grantor shall have a license to collect and receive all Rents and to apply same in accordance with the terms and provisions of the Indenture. 2.2 Assignment of Leases. Grantor hereby absolutely and unconditionally assigns to Trustee all of its right, title and interest in and to existing and future leases, including subleases thereunder, and any and all extensions, renewals, modifications, and replacements thereof, covering any part of the Mortgaged Property (collectively, the "Leases"). Grantor hereby further assigns to Trustee all guaranties of tenants' performances under the Leases. -3- 4 2.3 Trustee in Possession. Trustee's acceptance of this assignment shall not be deemed to constitute Trustee a "mortgagee in possession" nor obligate Trustee to appear in or defend any proceeding relating to any of the Leases or to the Mortgaged Property, or to take any action hereunder, expend any money, incur any expenses, or perform any obligation or liability under the Leases, or assume any obligation for any deposits delivered to Grantor by any tenant and not delivered to Trustee, prior to entry upon and taking possession of the Mortgaged Property by Trustee. Trustee shall not be liable for any injury or damage to person or property in or about the Mortgaged Property. 2.4 Indemnification. Grantor hereby agrees to indemnify Trustee and hold Trustee harmless from all liability, damage or expense incurred by Trustee from any claims under the Leases as well as all amounts indemnified against under the Indenture. All amounts indemnified against hereunder, including reasonable attorneys' fees, if paid by Trustee shall be payable by Grantor immediately upon demand by Trustee and shall be secured hereby. 2.5 Right to Rely. After the occurrence of an Event of Default (hereinafter defined), Grantor hereby authorizes and directs the tenants under the Leases to pay Rents to Trustee upon written demand by Trustee, without further consent of Grantor, and the tenants may rely upon any written statement delivered by Trustee to the tenants. Any such payment to Trustee shall satisfy the obligations of such tenant to make payment to Grantor under the Leases to the extent of the payment made to Trustee. ARTICLE III SECURITY AGREEMENT 3.1 Security Interest. This Mortgage shall be a security agreement between Grantor, as the debtor, and Trustee, as the secured party, covering the Mortgaged Property constituting personal property or fixtures governed by the Uniform Commercial Code, as enacted and amended from time to time in the state in which the Land is situated (hereinafter called the "Code"), and Grantor grants to Trustee a security interest in such portion of the Mortgaged Property. In addition to Trustee's other rights hereunder, Trustee shall have all rights of a secured party under the Code. Grantor shall execute and deliver to Trustee all financing statements that may be necessary or advisable to establish and maintain the validity, -4- 5 perfection and priority of Trustee's security interest, and Grantor shall bear all costs thereof, including all Code searches reasonably required by Trustee. If Trustee should desire to dispose of any of the Mortgaged Property pursuant to the Code, and if the Code requires prior notice to Grantor of such disposition, ten (10) days written notice by Trustee to Grantor shall be deemed to be reasonable notice; provided, however, Trustee may dispose of such property in accordance with the foreclosure procedures hereof in lieu of proceeding under the Code. 3.2 Notice of Changes. Grantor shall give advance notice in writing to Trustee of any proposed change in Grantor's name, identity, or structure and shall execute and deliver to Trustee, prior to or concurrently with the occurrence of any such change, all additional financing statements that Trustee may require to establish and maintain the validity and priority of Trustee's security interest with respect to any of the Mortgaged Property. 3.3 Financing Statement. Some of the items of the Mortgaged Property described herein are goods that are or are to become fixtures related to the Land, and it is intended that, as to those goods, this instrument shall be effective as a financing statement filed as a fixture filing from the date of its filing for record in the real estate records of the county in which the Mortgaged Property is situated. Information concerning the security interest created by this instrument may be obtained from Trustee, as secured party, at the address of Trustee stated above. The mailing address of Grantor as debtor is as stated above. ARTICLE IV REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF GRANTOR Grantor does hereby warrant and represent to and covenant and agree with Trustee as follows: 4.1 Title to Mortgaged Property and Lien of this Mortgage. Grantor has good and indefeasible title to the Land and the Improvements, and good and marketable title to the remainder of the Mortgaged Property, free and clear of any liens, charges, encumbrances, security interests and adverse claims whatsoever, except for the Permitted Exceptions. -5- 6 4.2 Limitation of Liability. Any obligation or liability whatsoever of the Grantor which may arise at any time under this Mortgage, or any obligation or liability incurred by it pursuant to any other instrument, transaction or undertaking contemplated by this Mortgage, shall be satisfied, if at all, out of the Grantor's property only. No such obligation or liability shall be personally binding upon nor shall there be any resort for the enforcement thereof to the private property of any of its Trust Managers, shareholders, officers, employees or agents, regardless of whether such obligations or liability are in the nature of contract, tort or otherwise. 4.3 Repair. Grantor will cause the Mortgaged Property to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, which in the judgment of the Grantor may be necessary or prudent so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however that nothing in this Section 4.3 shall prevent the Grantor from discontinuing the operation and maintenance of any of its properties if such discontinuance is, in the judgment of the Grantor, desirable in the conduct of its business and not disadvantageous in any material respect to the Holders. 4.4 Insurance. (a) Grantor will at all times keep all the Mortgaged Property of an insurable nature and of the character usually insured by companies operating similar properties, insured in amounts customarily carried, and against loss or damage from such causes as are customarily insured against, by similar companies. (b) All such insurance shall be effected with insurance carriers having a claims paying rating of "AA" or better by Standard & Poor's Corporation. All policies or other contracts for such insurance on the Mortgaged Property shall provide that the proceeds of such insurance (except in the case of any particular casualty resulting in damage or destruction not exceeding $2,775,000.00 in the aggregate) shall be payable, subject to the requirements of any Prior Lien, to the Trustee as its interest may appear (by means of a standard mortgagee clause or other similar clause acceptable to the Trustee, without contribution). Each policy or other contract for such insurance, or such mortgagee clause, shall contain an agreement by the insurer that, notwithstanding any right of cancellation -6- 7 reserved to such insurer, such policy or contract shall not be canceled unless and until the insurer has provided Trustee written notice thirty calendar days prior to cancellation. As soon as practicable after the execution of this Mortgage, and within 120 calendar days after the close of each fiscal year thereafter, and at any time upon the request of the Trustee, Grantor will deliver to the Trustee an officer certificate containing a detailed list of the insurance in force upon the Mortgaged Property on a date therein specified (which date shall be within 30 calendar days of the filing of such certificate), including the names of the insurers with which the policies and other contracts of insurance of the Mortgaged Property are carried, the numbers, amounts and expiration dates of such policies and other contracts and the property and hazards covered thereby, and stating that the insurance so listed complies with this Section 4.4, together with copies of all insurance policies or certificates thereof. (c) All proceeds of any insurance of any part of the Mortgaged Property not payable to the Trustee or the trustee, mortgagee or other holder or beneficiary of a Prior Lien shall be applied in accordance with the Indenture. In the event that the proceeds of insurance are made available for restoration, Grantor shall restore the Improvements to substantially the same condition and quality of the Improvements prior to the casualty. 4.5 Taxes. Grantor will pay, prior to delinquency, all taxes, assessments and governmental charges or levies imposed upon it or the Mortgaged Property, and all claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like persons which, if unpaid, might result in the creation of a lien upon the Mortgaged Property; provided that items of the foregoing description need not be paid while being contested in good faith and by appropriate proceedings, so long as such contest shall not create a risk of forfeiture of all or any portion of the Mortgaged Property. Nothing contained herein shall constitute the consent of Trustee to subject the Mortgaged Property to any of the aforesaid liens. 4.6 Casualty and Condemnation. All proceeds, judgments, decrees and awards for injury or damage to the Mortgaged Property, and all awards pursuant to proceedings for condemnation thereof, are hereby assigned in their entirety to Trustee, who shall apply the same in accordance with the Indenture. Immediately upon its obtaining knowledge of the institution or the threatened institution of any proceedings for the condemnation of the Mortgaged Property, Grantor shall notify Trustee of such fact. Grantor shall then, if requested -7- 8 by Trustee, file or defend its claim thereunder and prosecute same with due diligence to its final disposition and shall cause any awards or settlements to be paid over to Trustee for disposition pursuant to the terms of sub-section 4.4(c) hereinabove. Trustee shall be entitled to participate in same and to be represented therein by counsel of its own choice, and Grantor shall deliver, or cause to be delivered, to Trustee such instruments as may be requested by it from time to time to permit such participation. 4.7 Compliance with Laws. Grantor shall cause the Mortgaged Property and the use thereof to comply with all laws, rules, ordinances, regulations, covenants, conditions, restrictions, orders and decrees of any governmental authority or court applicable to Grantor or the Mortgaged Property and its use, and Grantor shall pay all fees or charges of any kind in connection therewith. 4.8 Operation. For so long as there is no Event of Default hereunder, Grantor may use and operate, alter and improve, manage, lease and maintain the Land, Improvements and Personal Property in accordance with customary and prudent management practices and in accordance with the provisions hereof and of the Indenture. 4.9 Successors and Assigns; Use of Terms. The covenants herein contained shall bind, and the benefits and advantages hereof shall inure to, the respective heirs, executors, administrators, personal representatives, successors and assigns of the parties hereto. Whenever used, the singular number shall include the plural and the plural the singular, and the use of any gender shall be applicable to all genders. The duties, covenants, conditions, obligations and warranties of Grantor in this instrument shall be joint and several obligations of Grantor and of each Grantor, if more than one, and of each Grantor's heirs, personal representatives, successors and assigns. Each party who executes this instrument and each subsequent owner of the Mortgaged Property, or any part thereof (other than Trustee), covenants and agrees that it will perform, or cause to be performed, each term and covenant of this instrument as if such party were the named Grantor. 4.10 Severability. If any provision of this instrument is held to be illegal, invalid, or unenforceable under present or future laws effective while this instrument is in effect, the legality, validity and enforceability of the remaining -8- 9 provisions of this instrument shall not be affected thereby, and in lieu of each such illegal, invalid or unenforceable provision there shall be added automatically as a part of this instrument a provision that is legal, valid and enforceable and as similar in terms to such illegal, invalid or unenforceable provision as may be possible. 4.11 Unsecured Indebtedness. If any of the Indebtedness shall be unsecured, the unsecured portion of the Indebtedness shall be completely paid prior to the payment of the secured portion of such Indebtedness, and all payments made on account of the Indebtedness shall be considered to have been paid on and applied first to the complete payment of the unsecured portion of the Indebtedness. 4.12 Modification or Termination. This Mortgage may only be modified in accordance with the terms of the Indenture. 4.13 No Partnership. Nothing contained in this Mortgage is intended to create any partnership, joint venture or association between Grantor and Trustee, or in any way make Trustee a co-principal with Grantor with reference to the Mortgaged Property, and any inferences to the contrary are hereby expressly negated. 4.14 Headings. The Article, Paragraph and Subparagraph headings hereof are inserted for convenience of reference only and shall not alter, define, or be used in construing the text of such Articles, Paragraphs or Subparagraphs. 4.15 Governing Law. This Mortgage and the enforcement of the provisions hereof shall be governed by the laws of the State of Texas except with respect to the obligations of the Grantor and the rights of the Trustee under Paragraph 2.4, which shall be governed by the laws of the State of New York, and the laws of the United States applicable to transactions in such state. ARTICLE V EVENTS OF DEFAULT 5.1 Default of Indenture. It shall be an "Event of Default" hereunder if Grantor commits an Event of Default, as that term is defined by the Indenture. -9- 10 ARTICLE VI REMEDIES If an Event of Default shall occur, Trustee may exercise any one or more of the remedies provided in the Indenture or the following remedies, without notice: 6.1 Enforcement of Assignment of Rents and Leases. Trustee may: (a) terminate the license granted to Grantor to collect the Rents and enforce the Leases, and thereafter collect and sue for the Rents in Trustee's own name, give receipts and releases therefor, and after deducting all expenses of collection, including reasonable attorneys' fees, apply the net proceeds thereof to any Indebtedness in accordance with the Indenture; (b) make, modify, enforce, cancel or accept surrender of any Leases, evict tenants, adjust the Rents, maintain, decorate, refurbish, repair, clean, and make space ready for renting, and otherwise do anything Trustee deems advisable in connection with the Mortgaged Property; (c) apply the Rents so collected to the operation and management of the Mortgaged Property, including the payment of reasonable management, brokerage and attorneys' fees, or to the Indebtedness; and (d) require Grantor to transfer all security deposits and records thereof to Trustee. 6.2 Foreclosure. Trustee may sell all or part of the Mortgaged Property, at public auction, to the highest bidder, for cash, at the door of the county courthouse of the county in Texas in which such Mortgaged Property or any part thereof is situated, between the hours of 10:00 o'clock A.M. and 4:00 o'clock P.M. on the first Tuesday of any month, after giving notice of the time, place and terms of said sale and of the property to be sold, by filing written notice thereof at least twenty-one (21) days preceding the date of the sale at the courthouse door of the county in which the sale is to be made, and if the property to be sold is situated in more than one county one notice shall be posted at the courthouse door of each county in which the property to be sold is situated, and by filing a copy of the above-described notice in the office of the county clerk of the county in which the sale is to be made -10- 11 or, if the Mortgaged Property is in more than one county, by filing a copy of the notice with the county clerk of each county in which a portion of the Mortgaged Property is situated. In addition, Trustee shall, at least twenty-one (21) days preceding the date of sale, serve written notice of the proposed sale by certified mail on each debtor obligated to pay the debt secured hereby according to the records of Trustee. Service of such notice shall be completed upon deposit of the notice, enclosed in a postpaid wrapper, properly addressed to such debtor at the most recent address as shown by the records of Trustee, in a post office or official depository under the care and custody of the United States Postal Service. The affidavit of any person having knowledge of the facts to the effect that such service was completed shall be prima facie evidence of the fact of service. Any notice that is required or permitted to be given to Grantor may be addressed to Grantor at Grantor's address as stated above. Any notice that is to be given by certified mail to any other debtor may, if no address for such other debtor is shown by the records of Trustee, be addressed to such other debtor at the address of Grantor as is shown by the records of Trustee. Notwithstanding the foregoing provisions of this paragraph, notice of such sale given in accordance with the requirements of the applicable laws of the State of Texas in effect at the time of such sale shall constitute sufficient notice of such sale. Trustee may sell all or any portion of the Mortgaged Property, together or in lots or parcels, and may execute and deliver to the purchaser or purchasers of such property good and sufficient deeds of conveyance of fee simple title with covenants of general warranty made on behalf of Grantor. In no event shall Trustee be required to exhibit, present or display at any such sale any of the personalty described herein to be sold at such sale. Trustee making such sale shall receive the proceeds thereof and shall apply the same as follows: (a) first, he shall pay the reasonable expenses of Trustee (including any attorneys' fees) and the costs and expenses of such sale; (b) second, he shall pay, so far as may be possible, the Indebtedness; (c) third, he shall pay the residue, if any, to the persons legally entitled thereto. Payment of the purchase price to Trustee shall satisfy the obligation of the purchaser at such sale therefor, and such purchaser shall not be responsible for the application thereof. The sale or sales by Trustee of less than the whole of the Mortgaged Property shall not exhaust the power of sale herein granted, and Trustee is specifically empowered to make successive sale or sales under such power until the whole of the Mortgaged Property shall be sold; and if the proceeds of such sale or sales of less than the whole of the Mortgaged Property shall be less than the aggregate of the Indebtedness -11- 12 and the expenses thereof, this Deed of Trust and the lien, security interest and assignment hereof shall remain in full force and effect as to the unsold portion of the Mortgaged Property just as though no sale or sales had been made; provided, however, that Grantor shall never have any right to require the sale or sales of less than the whole of the Mortgaged Property, but Trustee shall have the right, at its sole election, to request Trustee to sell less than the whole of the Mortgaged Property. If default is made hereunder, the holder of the Indebtedness or any part thereof on which the payment is delinquent shall have the option to proceed with foreclosure in satisfaction of such item either through judicial proceedings or by directing Trustee to proceed as if under a full foreclosure, conducting the sale as herein provided without declaring the entire Indebtedness due, if sale is made because of default of an installment, or a part of an installment, such sale may be made subject to the unmatured part of the Indebtedness; and it is agreed that such sale, if so made, shall not in any manner affect the unmatured part of the Indebtedness, but as to such unmatured part this Deed of Trust shall remain in full force and effect as though no sale had been made under the provisions of this paragraph. Several sales may be made hereunder without exhausting the right of sale for any unmatured part of the Indebtedness. At any such sale (a) Grantor hereby agrees, in its behalf and in behalf of its heirs, executors, administrators, successors, personal representatives and assigns, that any and all recitals made in any deed of conveyance given by Trustee with respect to the identity of Trustee, the occurrence or existence of any default, the acceleration of the maturity of any of the Indebtedness, the request to sell, the notice of sale, the giving of notice to all debtors legally entitled thereto, the time, place, terms, and manner of sale, receipt, distribution and application of the money realized therefrom, or the due and proper appointment of a substitute Trustee, and, without being limited by the foregoing, with respect to any other act or thing having been duly done by Trustee or by Trustee hereunder, shall be taken by all courts of law and equity as prima facie evidence that the statements or recitals state facts and are without further question to be so accepted, and Grantor hereby ratifies and confirms every act that Trustee or any substitute Trustee hereunder may lawfully do in the premises by virtue hereof, and (b) the purchaser may disaffirm any easement granted, or rental, lease or other contract made, in violation of any provision of this Deed of Trust, and may take immediate possession of the Mortgaged Property free from, and despite the terms of, such grant of easement and rental or lease contract. Trustee may bid and become the purchaser of all or any part of -12- 13 the Mortgaged Property at any trustee's or foreclosure sale hereunder, and the amount of Trustee's successful bid may be credited on the Indebtedness. Notwithstanding the above, Trustee may cause the liens of this Deed of Trust to be foreclosed in any other manner provided for under the laws of the State of Texas. 6.3 Tenancy at Will. In the event of a trustee's sale hereunder and if at the time of such sale Grantor or any other party occupies the portion of the Mortgaged Property so sold or any part thereof, such occupant, at the option of such purchaser, shall immediately become the tenant of the purchaser at such sale, which tenancy, at the option of such purchaser, shall be a tenancy at will, at a reasonable rental per day based upon the value of the portion of the Mortgaged Property so occupied, such rental to be due and payable daily to the purchaser. An action of forcible detainer shall lie if the tenant holds over after a demand in writing for possession of such Mortgaged Property. 6.4 Indemnification of Trustee. Except for gross negligence or willful misconduct, Trustee shall not be liable for any act or omission or error of judgment in connection with exercising the remedies provided herein. Trustee may rely on any document believed by him in good faith to be genuine. All money received by Trustee shall, until used or applied as herein provided, be held in trust, but need not be segregated (except to the extent required by law), and Trustee shall not be liable for interest thereon. Grantor shall indemnify Trustee and hold Trustee harmless against all liability, cost, damage or expense that Trustee may incur in the performance of his duties hereunder. 6.5 Lawsuits. Trustee may proceed by a suit or suits in equity or at law, whether for the specific performance of any covenant or agreement herein contained or in aid of the execution of any power herein granted, or for any foreclosure hereunder or for the sale of the Mortgaged Property under the judgment or decree of any court or courts of competent jurisdiction. 6.6 Entry on Mortgaged Property. Upon occurrence of an Event of Default hereunder, Trustee may enter into and upon and take possession of all or any part of the Mortgaged Property, and may exclude Grantor, and all persons claiming under Grantor, and its or their agents or servants, wholly or partly therefrom; and, holding the same, Trustee may use, administer, manage, operate, and control the Mortgaged Property and may -13- 14 exercise all rights and powers of Grantor in the name, place and stead of Grantor, or otherwise, as Trustee shall deem best; and in the exercise of any of the foregoing rights and powers Trustee shall not be liable to Grantor for any loss or damage thereby sustained unless due solely to the willful misconduct or gross negligence of Trustee. Trustee's powers shall include the right to complete construction of any part of the Mortgaged Property and to make any repairs or alterations necessary or advisable for the successful operation of the Mortgaged Property. 6.7 Trustee or Receiver. Trustee may make application to a court of competent jurisdiction, as a matter of strict right and without notice to Grantor or regard to the adequacy of the Mortgaged Property for the repayment of the Indebtedness, for appointment of a receiver of the Mortgaged Property, and Grantor does hereby irrevocably consent to such appointment. Any such receiver shall have all the usual powers and duties of receivers in similar cases, including the full power to rent, maintain and otherwise operate the Mortgaged Property upon such terms as may be approved by the court, and shall apply the Rents in accordance with the provisions hereof. 6.8 Remedies Cumulative, Concurrent and Nonexclusive. Trustee shall have all rights, remedies and recourses granted in this Mortgage or the Indenture or available at law or equity (including, without limitation, those granted by the Code and applicable to the Mortgaged Property, or any portion thereof) and the same (a) shall be cumulative and concurrent, (b) may be pursued separately, successively or concurrently against Grantor or others obligated for the Indebtedness, or any part thereof or against any one or more of them, or against the Mortgaged Property, at the sole discretion of Trustee, (c) may be exercised as often as occasion therefor shall arise, it being agreed by Grantor that the exercise or failure to exercise any of the same shall in no event be construed as a waiver or release thereof or of any other right, remedy or recourse, and (d) are intended to be, and shall be, nonexclusive, nor shall exercise of any one or more constitute a waiver of a right to any other right, remedy or recourse therafter. -14- 15 6.9 Rights and Remedies of Sureties. Grantor waives any right or remedy which Grantor may have or be able to assert pursuant to Chapter 34 of the Business and Commerce Code of the State of Texas pertaining to the rights and remedies of sureties. 6.10 Compensation to Trustee. Grantor hereby agrees to pay to Trustee reasonable compensation for all services rendered by it hereunder and to reimburse Trustee upon request for all reasonable expenses, disbursements and advances incurred or made by Trustee in accordance with any provision hereof. This Deed of Trust is being delivered and recorded prior to its effective date and such delivery shall continue through the effective date and thereafter to the extent necessary to complete such delivery and the conveyance intended by this Deed of Trust. EXECUTED as of the date first set forth above. GRANTOR: TRAMMELL CROW REAL ESTATE INVESTORS, a Texas real estate investment trust By: /s/ DAVID CLOSSEY Name: David Clossey Trust Manager STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, personally appeared David Clossey, Trust Manager of Trammell Crow Real Estate Investor known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed same as the act of such trust, for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 22nd day of Nov., 1985. My Commission Expires /s/ LINDA L. SLAVIK NOTARY PUBLIC IN AND FOR THE STATE OF TEXAS LINDA L. SLAVIK {SEAL} Notary Public State of Texas Commission expires 3-31-89 -15- 16 EXHIBIT B TRACT 1 BEING a tract of land situated in the H. HUSTEAD SURVEY, Abstract No. 587, and being part of City Block A/8088 of NORTHGATE BUSINESS PARK - PHASE II, an addition to the City of Dallas, as recorded in Volume 84171, Page 3142, of the Map Records of Dallas, Dallas County, Texas and being more particularly described as follows: BEGINNING at the most Northwesterly intersection of the West R.O.W. line of Markison Road and the South R.O.W. line of Brockwood Road, said point also being the beginning of a non-tangent curve to the left, having a central angle of 32 degrees 26 minutes 26 seconds, a radius of 258.00 feet, a tangent of 75.06 feet and a tangent bearing of S 18 degrees 26 minutes 28 seconds E; THENCE, along the West R.O.W. line of Markison Road (56 R.O.W.) an arc distance of 146.08 feet to the point of tangency; THENCE, S 50 degrees 52 minutes 54 seconds E, continuing along the West R.O.W. line of Markison Road a distance of 447.76 feet to a point for a corner; THENCE, S 39 degrees 07 minutes 06 seconds W, a distance of 544.00 feet to a point on the East R.O.W. line of Brockwood Road; THENCE, N 50 degrees 52 minutes 54 seconds W, along the East R.O.W. line of Brockwood Road a distance of 242.64 feet to the beginning of a curve to the right, having a central angle of 23 degrees 00 minutes 00 seconds, a radius of 202.00 feet and a tangent of 41.10 feet; THENCE, continuing along the East R.O.W. line of Brockwood Road an arc distance of 81.09 feet to the point of tangency; THENCE, N 27 degrees 52 minutes 54 seconds W, continuing along the East R.O.W. line of Brockwood Road, a distance of 444.45 feet to the beginning of a curve to the right, having a central angle of 87 degrees 00 minutes 00 seconds, a radius of 20.00 feet and a tangent of 18.98 feet; THENCE, along said curve to the right, an arc distance of 30.37 feet to the point of tangency, said point also being on the South R.O.W. line of Brockwood Road; THENCE, N 59 degrees 07 minutes 06 seconds E, along the South R.O.W. line of Brockwood Road, a distance of 281.15 feet to the beginning of a curve to the right, having a central angle of 18 degrees 54 minutes 34 seconds, a radius of 367.38 feet and a tangent of 61.18 feet; THENCE, continuing along the South line of Brockwood Road, an arc distance of 121.25 feet to the POINT OF BEGINNING AND CONTAINING 341,369 Square Feet or 7.8368 Acres of Land. TRACT 2 BEING a tract of land situated in the H. HUSTEAD SURVEY, Abstract No. 587, and being part of City Block B/8090 of NORTHGATE BUSINESS PARK - PHASE II, in addition to the City of Dallas, as recorded in Volume 84171, Page 3142, of the Map Records of 17 COMMENCING at the most Northwesterly intersection of Markison Road (56' R.O.W.) and Brockwood Road (56' R.0.W.), said point being the beginning of a non-tangent curve to the left, having a central angle of 18 degrees 52 minutes 41 seconds, a radius of 423.39 feet, a tangent of 70.39 feet and a tangent bearing of S 77 degrees 59 minutes 47 seconds W; THENCE, along the North R.O.W. line of Brockwood Road, an arc distance of 139.50 feet to the point of tangency; THENCE, S 59 degrees 07 minutes 06 seconds W, continuing along the North R.O.W. line of Brockwood Road a distance of 353.27 feet to a point on the West R.O.W. line of Brockwood Road, said point also being the POINT OF BEGINNING of the herein described tract of land; THENCE, S 27 degrees 52 minutes 54 seconds E, along the West line of Brockwood Road a distance of 516.57 feet to the beginning of a curve to the left, having a central angle of 23 degrees 00 minutes 00 seconds, a radius of 259.00 feet and a tangent of 52.49 feet; THENCE, along the West line of Brockwood Road an arc distance of 103.57 feet to the point of tangency; THENCE, S 50 degrees 52 minutes 54 seconds E, continuing along the West line of Brockwood Road, a distance of 55.85 feet to a point for a corner; THENCE, S 50 degrees 26 minutes 23 seconds W, a distance of 269.65; feet to a point on the East R.O.W. line of the Gulf Colorado and Santa Fe Railroad (125' R.O.W.), said point also being the beginning of a non-tangent curve to the right, having a central angle of 10 degrees 56 minutes 18 seconds, a radius of 3,744.80 feet, a tangent of 358.55 feet, and a tangent bearing of N 41 degrees 39 minutes 17 seconds W; THENCE, continuing along the East R.O.W. line of the Gulf Colorado and Santa Fe me Railroad an arc distance of 714.92 feet to a point for a corner; THENCE, N 59 degrees 07 minutes 06 seconds E, a distance of 325.27 feet to the POINT OF BEGINNING and CONTAINING 201,310 Square Feet or 4.621 Acres of Land. 18 EXHIBIT C NORTHGATE II a. Restrictive Covenants: Restrictive covenants recorded in Volume 82189, Page 3264, of the Records of Dallas County, Texas. {1} b. Easement to Dallas Power & Light Company and Southwestern Bell Telephone Company, recorded in Volume 83054, Page 3263, of the Deed Records of Dallas County, Texas. {2} c. 25-foot building set back line from Markison Road and Brockwood Road, and 10-foot by 20-foot Southwestern Bell Telephone Company easement in Northeast corner of Tract 1, all as shown on Plat recorded in Volume 81114, Page 1104, Map Records, Dallas County, Texas. {3} d. Terms, provisions, obligations and liens as set forth in Declaration recorded in Volume 82189, Page 3264, Deed Records of Dallas County, Texas. {6} e. Power poles, gas meters and valves, and overhead power lines as shown by survey of Robert L. Zollars dated or revised 10/23/85. {Tract 1} {4} f. Power poles, overhead power lines, gas meters and water meters, and protrusion of concrete pavement as shown by survey of Robert L. Zollars dated or revised 10/23/85. {Tract 2} {5} 19 STATE OF TEXAS COUNTY OF DALLAS I hereby certify that this instrument was filed on the date and time stamped hereon by me and was duly recorded in the volume and page of the named records of Dallas County, Texas as stamped hereon by me. NOV 26 1985 /s/ EARL BULLOCK {SEAL} COUNTY CLERK, Dallas County, Texas WHEN RECORDED RETURN TO: C. RICHARD WHITE TITLE ESCROW SERVICE, INC. P.O. BOX 860219 PLANO, TEXAS 75086 EX-10.12 10 DEED OF TRUST (NORTHVIEW DISTRIBUTION CENTER) 1 EXHIBIT 10.12 DEED OF TRUST (WITH SECURITY AGREEMENT AND ASSIGNMENT OF RENTS AND LEASES) By this instrument (this "Mortgage"), dated as of December 8, 1993, to be effective as of December 8, 1993, the undersigned, AMERICAN INDUSTRIAL PROPERTIES REIT, formerly known as Trammell Crow Real Estate Investors, a Texas real estate investment trust (hereinafter referred to as "Grantor"), whose address is 6220 North Beltline, Suite 205, Irving, Texas 75063, to secure the obligations hereinafter described, does hereby GRANT, BARGAIN, SELL, ASSIGN and CONVEY unto GEORGE R. SIEVERS (hereinafter referred to as "Trustee"), whose address is One State Street, New York, New York 10015, acting for the benefit of I B J SCHROEDER BANK & TRUST COMPANY, a New York banking corporation, the trustee under that certain indenture (the "Indenture"), dated as of November 15, 1985, by and between Grantor and Trustee, securing payment of certain zero coupon notes due 1997, payable to the order of the Holders, a copy of which Indenture is attached hereto as Exhibit A and incorporated herein by this reference for all purposes, the following described mortgaged property (the "Mortgaged Property"), to wit: All of the real property located in Dallas County, Texas, described on the attached Exhibit B which is incorporated herein by reference (the "Land"), subject to the exceptions described on the attached Exhibit C which is incorporated herein by reference (the "Permitted Exceptions"), TOGETHER WITH all of Grantor's right, title and interest in and to the following, whether now owned or hereafter acquired; (a) all improvements and fixtures now or hereafter attached to or placed, erected, constructed or developed on the Land (the "Improvements"); (b) all equipment, machinery, furnishings, inventory, chattels and all other articles of personal property (the "Personal Property") now or hereafter attached to, relating to or used in or about the Improvements or the Land; (c) all water and water rights, timber, crops and mineral interests pertaining to the Land; (d) all building materials and equipment now or hereafter delivered and installed or intended to be installed in or on the Land or the Improvements; (e) all plans, specifications and drawings for the Improvements; (f) all deposits (including tenants' security deposits and escrow deposits under contracts for sale), documents, Page 1 2 contract rights, commitments, construction contracts, architectural agreements and general intangibles (including, without limitation, trademarks, trade names and symbols but expressly excluding the right to use the name "American Industrial Properties" or any name associated therewith or derived therefrom); (g) all permits, licenses, franchises, certificates and other rights and privileges relating to or obtained in connection with the Land, the Improvements or the Personal Property; (h) all proceeds arising from or by virtue of the sale, lease or other disposition, encumbrance or refinancing, of the Land, the Improvements and the Personal Property; (i) all proceeds (including premium refunds) of each policy of insurance relating to the Land, the Improvements or the Personal Property; (j) all proceeds from the taking of any of the Land, the Improvements, the Personal Property or any rights appurtenant thereto by right of eminent domain or by private or other purchase in lieu thereof including change of grade of streets, curb cuts or other rights of access; (k) all streets, roads, public places, easements and rights-of-way, existing or proposed, public or private, located on or adjacent to or used in connection with the Land; (l) all of the leases, subleases, licenses or other agreements relating to the Land, the Improvements or the Personal Property, and all rents, deposits, royalties, bonuses, issues, profits, revenues, income or other benefits of the Land, the Improvements or the Personal Property, including, without limitation, cash, securities, letters of credit, guarantees or other instruments deposited pursuant to leases to secure performance by the lessees of their obligations thereunder and cash deposited in impound accounts for the payment of taxes and insurance under any deed of trust securing payment of the Indebtedness; (m) all heating, lighting, refrigeration, plumbing, ventilating, incinerating, water heating, transportation, communications, electrical and air-conditioning systems and equipment, sprinkler and fire-extinguishing systems, security systems, maintenance equipment and other fixtures or systems used in connection with the Land, the Improvements and the Personal Property; (n) all rights, hereditaments, strips, gores and appurtenances pertaining to the foregoing; and (o) all replacements, betterments, substitutions, renewals and additions to any of the above-described Mortgaged Property; and all proceeds of any of the above-described Mortgaged Property. TO HAVE AND TO HOLD the Mortgaged Property, together with the rights, privileges, and appurtenances thereto belonging, unto the Trustee and its substitutes or successors and assigns forever, and grantor hereby binds Page 2 3 itself and its administrators, personal representatives, successors and assigns to warrant and forever defend the Mortgaged Property unto the Trustee, its substitutes or successors and assigns, against the claim or claims of all persons claiming or to claim the same or any part thereof. ARTICLE I INDEBTEDNESS This Mortgaged is given to secure the payment of all sums and performance of all obligations and covenants contained in this Mortgage and of the Indenture. Unless otherwise defined herein, certain capitalized terms shall have the meaning ascribed to said terms by the Indenture. The above-described obligations are hereinafter collectively called the "Indebtedness." ARTICLE II ASSIGNMENT OF RENTS AND LEASES 2.1 Assignment of Rents, Profits, etc. Grantor hereby absolutely and unconditionally assigns to Trustee all of its right, title and interest in and to the rents, royalties, bonuses, issues, profits, revenue, income and other benefits derived from the Mortgaged Property or arising from the use or enjoyment of any portion thereof or from any lease, sublease, licenses or other agreement pertaining thereto, and any and all damages following default under such leases, and all proceeds payable under any policy of insurance covering loss or rents resulting from untenantability, together with any and all rights that Grantor may have against any tenant under such leases or any subtenants or occupants or users of any part of the Mortgaged Property (collectively, the "Rents"). Prior to an Event of Default (as hereinafter defined). Grantor shall have a license to collect and receive all Rents and to apply same in accordance with the terms and provisions of the Indenture. 2.2 Assignment of Leases. Grantor hereby absolutely and unconditionally assigns to Trustee all of its right, title and interest in and to existing and future leases, including subleases thereunder, and any and all extensions, renewals, modifications, and replacements thereof, covering any part of the Mortgaged Property (collectively, the "Leases"). Grantor hereby further assigns to Trustee all guaranties of tenants' performances under the Leases. Page 3 4 2.3 Trustee in Possession. Trustee's acceptance of this assignment shall not be deemed to constitute Trustee a "mortgagee in possession" nor obligate Trustee to appear in or defend any proceeding relating to any of the Leases or to the Mortgaged Property, or to take any action hereunder, expend any money, incur any expenses, or perform any obligation or liability under the Leases, or assume any obligation for any deposits delivered to Grantor by any tenant and not delivered to Trustee, prior to entry upon and taking possession of the Mortgaged Property by Trustee. Trustee shall not be liable for any injury or damage to person or property in or about the Mortgaged Property. 2.4 Indemnification. Grantor hereby agrees to indemnify Trustee and hold Trustee harmless from all liability, damage or expense incurred by Trustee from any claims under the Leases as well as all amounts indemnified against under the Indenture. All amounts indemnified against hereunder, including reasonable attorneys' fees, if paid by Trustee shall be payable by Grantor immediately upon demand by Trustee and shall be secured hereby. 2.5 Right to Rely. After the occurrence of an Event of Default (hereinafter defined), Grantor hereby authorizes and directs the tenants under the Leases to pay Rents to Trustee upon written demand by Trustee, without further consent of Grantor, and the tenants may rely upon any written statement delivered by Trustee to the tenants. Any such payment to Trustee shall satisfy the obligations of such tenant to make payment to Grantor under the Leases to the extent of the payment made to Trustee. ARTICLE III SECURITY AGREEMENT 3.1 Security Interest. This Mortgage shall be a security agreement between Grantor, as the debtor, and Trustee, as the secured party, covering the Mortgaged Property constituting personal property or fixtures governed by the Uniform Commercial Code, as enacted and amended from time to time in the state in which the Land is situated (hereinafter called the "Code"), and Grantor grants to Trustee a security interest in such portion of the Mortgaged Property. In addition to Trustee's other rights hereunder, Trustee shall have all rights of a secured party under the Code. Grantor shall execute and deliver to Trustee all financing statements that may be necessary or advisable to establish and maintain the validity, perfection and priority Page 4 5 of Trustee's security interest, and Grantor shall bear all costs thereof, including all Code searches reasonably required by Trustee. If Trustee should desire to dispose of any of the Mortgaged Property pursuant to the Code, and if the Code requires prior notice to Grantor of such disposition, ten (10) days written notice by Trustee to Grantor shall be deemed to be reasonable notice; provided, however, Trustee may dispose of such property in accordance with the foreclosure procedures hereof in lieu of proceeding under the Code. 3.2 Notice of Changes. Grantor shall give advance notice in writing to Trustee of any proposed change in Grantor's name, identity or structure and shall execute and deliver to Trustee, prior to or concurrently with the occurrence of any such change, all additional financing statements that Trustee may require to establish and maintain the validity and priority of Trustee's security interest with respect to any of the Mortgaged Property. 3.3 Financing Statement. Some of the items of the Mortgaged Property described herein are goods that are or are to become fixtures related to the Land, and it is intended that, as to those goods, this instrument shall be effective as a financing statement filed as a fixture filing from the date of its filing for record in the real estate records of the county in which the Mortgaged Property is situated. Information concerning the security interest created by this instrument may be obtained from Trustee, as secured party, at the address of Trustee stated above. The mailing address of Grantor as debtor is as stated above. ARTICLE IV REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF GRANTOR Grantor does hereby warrant and represent to and covenant and agree with Trustee as follows: 4.1 Title to Mortgaged Property and Lien of this Mortgage. Grantor has good and indefeasible title to the Land and the Improvements, and good and marketable title to the remainder of the Mortgaged Property, free and clear of any liens, charges, encumbrances, security interests and adverse claims whatsoever, except for the Permitted Exceptions. Page 5 6 4.2 Limitation of Liability. Any obligation or liability whatsoever of the Grantor which may arise at any time under this Mortgage, or any obligation or liability incurred by it pursuant to any other instrument, transaction or undertaking contemplated by this Mortgage, shall be satisfied, if at all, out of the Grantor's property only. No such obligation or liability shall be personally binding upon nor shall there be any resort for the enforcement thereof to the private property of any of its Trust Managers, shareholders, officers, employees or agents, regardless of whether such obligations or liability are in the nature of contract, tort or otherwise. 4.3 Repair. Grantor will cause the Mortgaged Property to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, which in the judgment of the Grantor may be necessary or prudent so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however that nothing in this Section 4.3 shall prevent the Grantor from discontinuing the operation and maintenance of any of its properties if such discontinuance is, in the judgment of the Grantor, desirable in the conduct of its business and not disadvantageous in any material respect to the Holders. 4.4 Insurance. (a) Grantor will at all times keep all the Mortgaged Property of an insurable nature and of the character usually insured by companies operating similar properties, insured in amounts customarily carried, and against loss or damage from such causes as are customarily insured against, by similar companies. (b) All such insurance shall be effected with insurance carriers having a claims paying rating of "AA" or better by Standard & Poor's Corporation. All policies or other contracts for such insurance on the Mortgaged Property shall provide that the proceeds of such insurance (except in the case of any particular casualty resulting in damage or destruction not exceeding $1,250,000.00 in the aggregate) shall be payable, subject to the requirements of any Prior Lien, to the Trustee as its interest may appear (by means of a standard mortgagee clause or other similar clause acceptable to the Trustee, without contribution). Each policy or other contract for such insurance, or such mortgagee clause, shall contain an agreement by the insurer Page 6 7 that, notwithstanding any right of cancellation reserved to such insurer, such policy or contract shall not be canceled unless and until the insurer has provided Trustee written notice thirty calendar days prior to cancellation. As soon as practicable after the execution of this Mortgage, and within 120 calendar days after the close of each fiscal year thereafter, and at any time upon the request of the Trustee, Grantor will deliver to the Trustee an officer certificate containing a detailed list of the insurance in force upon the Mortgaged Property on a date therein specified (which date shall be within 30 calendar days of the filing of such certificate), including the names of the insurers with which the policies and other contracts of insurance of the Mortgaged Property are carried, the numbers, amounts and expiration dates of such policies and other contracts and the property and hazards covered thereby, and stating that the insurance so listed complied with this Section 4.4, together with copies of all insurance policies or certificates thereof. (c) All proceeds of any insurance of any part of the Mortgaged Property not payable to the Trustee of the trustee, mortgagee or other holder or beneficiary of a Prior Lien shall be applied in accordance with the Indenture. In the event that the proceeds of insurance are made available for restoration, Grantor shall restore the Improvements to substantially the same condition and quality of the Improvements prior to the casualty. 4.5 Taxes. Grantor will pay, prior to delinquency, all taxes, assessments and governmental charges or levies imposed upon it or the Mortgaged Property, and all claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like persons which, if unpaid, might result in the creation of a lien upon the Mortgaged Property; provided that items of the foregoing description need not be paid while being contested in good faith and by appropriate proceedings, so long as such contest shall not create a risk of forfeiture of all or any portion of the Mortgaged Property. Nothing contained herein shall constitute the consent of Trustee to subject the Mortgaged Property to any of the aforesaid liens. 4.6 Casualty and Condemnation. All proceeds, judgments, decrees and awards for injury or damage to the Mortgaged Property, and all awards pursuant to proceedings for condemnation thereof, are hereby assigned in their entirety to Trustee, who shall apply the same in accordance with the Indenture. Immediately upon its obtaining knowledge of the institution or the threatened institution Page 7 8 of any proceedings for the condemnation of the Mortgaged Property, Grantor shall notify Trustee of such fact. Grantor shall then, if requested by Trustee, file or defend its claim thereunder and prosecute same with due diligence to its final disposition and shall cause any awards or settlements to be paid over to Trustee for disposition pursuant to the terms of sub-section 4.4(c) hereinabove. Trustee shall be entitled to participate in same and to be represented therein by counsel of its own choice, and Grantor shall deliver, or cause to be delivered, to Trustee such instruments as may be requested by it from time to time to permit such participation. 4.7 Compliance with Laws. Grantor shall cause the Mortgaged Property and the use thereof to comply with all laws, rules, ordinances, regulations, covenants, conditions, restrictions, orders and decrees of any governmental authority or court applicable to Grantor or the Mortgaged Property and its use, and Grantor shall pay all the fees or charges of any kind in connection therewith. 4.8 Operation. For so long as there is no Event of Default hereunder, Grantor may use and operate, alter and improve, manage, lease and maintain the Land, Improvements and Personal Property in accordance with customary and prudent management practices and in accordance with the provisions hereof and of the Indenture. 4.9 Successors and Assigns; Use of Terms. The covenants herein contained shall bind, and the benefits and advantages hereof shall inure to, the respective heirs, executors, administrators, personal representatives, successors and assigns of the parties hereto. Whenever used, the singular number shall include the plural and the plural the singular, and the use of any gender shall be applicable to all genders. The duties, covenants, conditions, obligations and warranties of Grantor in this instrument shall be joint and several obligations of Grantor and of each Grantor, if more than one, and of each Grantor's heirs, personal representatives, successors and assigns. Each party who executes this instrument and each subsequent owner of the Mortgaged Property, or any part thereof (other than Trustee), covenants and agrees that it will perform, or cause to be performed, each term and covenant of this instrument as if such party were the named Grantor. 4.10 Severability. If any provision of this instrument is held to be illegal, invalid, or unenforceable under present or future laws effective while this instrument is in effect, the legality, validity and enforceability of the Page 8 9 remaining provisions of this instrument shall not be affected thereby, and in lieu of each such illegal, invalid or unenforceable provision there shall be added automatically as a part of this instrument a provision that is legal, valid and enforceable and as similar in terms to such illegal, invalid and unenforceable provision as may be possible. 4.11 Unsecured Indebtedness. If any of the Indebtedness shall be unsecured, the unsecured portion of the Indebtedness shall be completely paid prior to the payment of the secured portion of such Indebtedness, and all payments made on account of the Indebtedness shall be considered to have been paid on and applied first to the complete payment of the unsecured portion of this Indebtedness. 4.12 Modification or Termination. This Mortgage may only be modified in accordance with the terms of the Indenture. 4.13 No Partnership. Nothing contained in this Mortgage is intended to create any partnership, joint venture or association between Grantor and Trustee, or in any way make Trustee a co-principal with Grantor with reference to the Mortgaged Property, and any inferences to the contrary are hereby expressly negated. 4.14 Headings. The Article, Paragraph and Subparagraph headings hereof are inserted for convenience of reference only and shall not alter, define, or be used in construing the text of such Articles, Paragraphs or Subparagraphs. 4.15 Governing Law. This Mortgage and the enforcement of the provisions hereof shall be governed by the laws of the State of Texas except with respect to the obligations of the Grantor and the rights of the Trustee under Paragraph 2.4, which shall be governed by the laws of the State of New York, and the laws of the United States applicable to transactions in such state. ARTICLE V EVENTS OF DEFAULT 5.1 Default of Indenture. It shall be an "Event of Default" hereunder if Grantor commits an Event of Default, as that term is defined by the Indenture. Page 9 10 ARTICLE VI REMEDIES If an Event of Default shall occur, Trustee may exercise any one or more of the remedies provided in the Indenture or the following remedies, without notice: 6.1 Enforcement of Assignment of Rents and Leases. Trustee may: (a) terminate the license granted to Grantor to collect the Rents and enforce the Leases, and thereafter collect and sue for the Rents in Trustee's own name, give receipts and releases therefor, and after deducting all expenses of collection, including reasonable attorneys' fees, apply the net proceeds thereof to any Indebtedness in accordance with the Indenture: (b) make, modify, enforce, cancel or accept surrender of any Leases, evict tenants, adjust the Rents, maintain, decorate, refurbish, repair, clean, and make space ready for renting, and otherwise do anything Trustee deems advisable in connection with the Mortgaged Property; (c) apply the Rents so collected to the operation and management of the Mortgaged Property, including the payment of reasonable management, brokerage and attorneys' fees, or to the Indebtedness; and (d) require Grantor to transfer all security deposits and records thereof to Trustee. 6.2 Foreclosure. Trustee may sell all or part of the Mortgaged Property, at public auction, to the highest bidder, for cash, at the door of the county courthouse of the county in Texas in which such Mortgaged Property or any part thereof is situated, between the hours of 10:00 o'clock a.m. and 4:00 o'clock p.m. on the first Tuesday of any month, after giving notice of the time, place and terms of said sale and of the property to be sold, by filing written notice thereof at least twenty-one (21) days preceding the date of the sale at the courthouse door of the county in which the sale is to be made, and if the property to be sold is situated in more than one county one notice shall be posted at the courthouse door of each county in which the property to be sold is situated, and by filing a copy of the above-described notice in the office of the county clerk of the county in which the sale is to be made or, if the Mortgaged Property is in more than one county, by filing a Page 10 11 copy of the notice with the county clerk of each county in which a portion of the Mortgaged Property is situated. In addition, Trustee shall, at least twenty-one (21) days preceding the date of sale, serve written notice of the proposed sale by certified mail on each debtor obligated to pay the debt secured hereby according to the records of Trustee. Service of such notice shall be completed upon deposit of the notice, enclosed in a postpaid wrapper, properly addressed to such debtor at the most recent address as shown by the records of Trustee, in a post office or official depository under the care and custody of the United States Postal Service. The affidavit of any person having knowledge of the facts to the effect that such service was completed shall be prima facie evidence of the fact of service. Any notice that is required or permitted to be given to Grantor may be addressed to Grantor at Grantor's address as stated above. Any notice that is to be given by certified mail to any other debtor may, if no address for such other debtor is shown by the records of Trustee, be addressed to such other debtor at the address of Grantor as is shown by the records of Trustee. Notwithstanding the foregoing provisions of this paragraph, notice of such sale given in accordance with the requirements of the applicable laws of the State of Texas in effect at the time of such sale shall constitute sufficient notice of such sale. Trustee may sell all or any portion of the Mortgaged Property, together or in lots or parcels, and may execute and deliver to the purchaser or purchasers of such property good and sufficient deeds of conveyance of fee simple title with covenants of general warranty made on behalf of Grantor. In no event shall Trustee be required to exhibit, present or display at any such sale any of the personalty described herein to be sold at such sale. Trustee making such sale shall receive the proceeds thereof and shall apply the same as follows: (a) first, he shall pay the reasonable expenses of Trustee (including any attorneys' fees) and the costs and expenses of such sale; (b) second, he shall pay, so far as may be possible, the Indebtedness; (c) third, he shall pay the residue, if any, to the persons legally entitled thereto. Payment of the purchase price to Trustee shall satisfy the obligation of the purchaser at such sale therefor, and such purchaser shall not be responsible for the application thereof. The sale or sales by Trustee of less than the whole of the Mortgaged Property shall not exhaust the power of sale herein granted, and Trustee is specifically empowered to make successive sale or sales under such power until the whole of the Mortgaged Property shall be sold; and if the proceeds of such sale or sales of less than the whole of the Mortgaged Property shall be less than the aggregate of the Indebtedness and the expenses Page 11 12 thereof, this Deed of Trust and the lien, security interest and assignment hereof shall remain in full force and effect as to the unsold portion of the Mortgaged Property just as though no sale or sales had been made; provided, however, that Grantor shall never have any right to require the sale or sales of less than the whole of the Mortgaged Property, but Trustee shall have the right, at its sole election, to request Trustee to sell less than the whole of the Mortgaged Property. If default is made hereunder, the holder of the Indebtedness or any part thereof on which the payment is delinquent shall have the option to proceed with foreclosure in satisfaction of such item either through judicial proceedings or by directing Trustee to proceed as if under a full foreclosure, conducting the sale as herein provided without declaring the entire Indebtedness due, if sale is made because of default of an installment, or a part of an installment, such sale may be made subject to the unmatured part of the Indebtedness; and it is agreed that such sale, if so made, shall not in any manner affect the unmatured part of the Indebtedness, but as to such unmatured part of this Deed of Trust shall remain in full force and effect as though no sale had been made under the provisions of this paragraph. Several sales may be made hereunder without exhausting the right of a sale for any unmatured part of the Indebtedness. At any such sale (a) Grantor hereby agrees, in its behalf and in behalf of its heirs, executors, administrators, successors, personal representatives and assigns, that any and all recitals made in any deed of conveyance given by Trustee with respect to the identity of Trustee, the occurrence or existence of any default, the acceleration of the maturity of any of the Indebtedness, the request to sell, the notice of sale, the giving of notice to all debtors legally entitled thereto, the time, place, terms, and manner of sale, receipt, distribution and application of the money realized therefrom, or the due and proper appointment of a substitute Trustee, and, without being limited by the foregoing, with respect to any other act or thing having been duly done by Trustee or by Trustee hereunder, shall be taken by all courts of law and equity as prima facie evidence that the statements or recitals state facts and are without further question to be so accepted, and Grantor hereby ratifies and confirms every act that Trustee or any substitute Trustee hereunder may lawfully do in the premises by virtue hereof, and (b) the purchaser may disaffirm any easement granted, or rental, lease or other contract made, in violation of any provision of this Deed of Trust, and may take immediate possession of the Mortgaged Property free from, and despite the terms of, such grant of easement and rental or lease contract. Trustee may bid and become the purchaser of all Page 12 13 or any part of the Mortgaged Property at any trustee's or foreclosure sale hereunder, and the amount of Trustee's successful bid may be credited on the Indebtedness. Notwithstanding the above, Trustee may cause the liens of the this Deed of Trust to be foreclosed in any other manner provided for under the laws of the State of Texas. 6.3 Tenancy at Will. In the event of a trustee' sale hereunder and if at the time such sale Grantor or any other party occupies the portion of the Mortgaged Property so sold or any part thereof, such occupant, at the option of such purchaser, shall immediately become the tenant of the purchaser at such sale, which tenancy, at the option of such purchaser, shall be a tenancy at will, at a reasonable rental per day based upon the value of the portion of the Mortgaged Property so occupied, such rental to be due and payable daily to the purchaser. An action of forcible detainer shall lie if the tenant holds over after a demand in writing for possession of such Mortgaged Property. 6.4 Indemnification of Trustee. Except for gross negligence of willful misconduct, Trustee shall not be liable for any act or omission or error of judgment in connection with exercising the remedies provided herein. Trustee may rely on any document believed by him in good faith to be genuine. All money received by Trustee shall, until used or applied as herein provided, be held in trust, but need not be segregated (except to the extent required by law), and Trustee shall not be liable for interest thereon. Grantor shall indemnify Trustee and hold Trustee harmless against all liability, cost, damage or expense that Trustee may incur in the performance of his duties hereunder. 6.5 Lawsuits. Trustee may proceed by a suit or suits in equity or at law, whether for the specific performance of any covenant or agreement herein contained or in aid of the execution of any power herein granted, or for any foreclosure hereunder or for the sale of the Mortgaged Property under the judgment or decree of any court of courts of competent jurisdiction. 6.6 Entry on Mortgaged Property. Upon occurrence of an Event of Default hereunder, Trustee may enter into and upon and take possession of all or any part of the Mortgaged Property, and may exclude Grantor, and all persons claiming under Grantor, and its or their agents or servants, wholly or partly therefrom; and, holding the same, Trustee may use, administer, manage, operate, and control the Mortgaged Property and may exercise all rights and powers of Grantor in the name, place and stead of Grantor, or otherwise, as Page 13 14 Trustee shall deem best; and in the exercise of any of the foregoing rights and powers Trustee shall not be liable to Grantor for any loss or damage thereby sustained unless due solely to the willful misconduct or gross negligence of Trustee. Trustee's powers shall include the right to complete construction of any part of the Mortgaged Property and to make any repairs or alterations necessary or advisable for the successful operation of the Mortgaged Property. 6.7 Trustee or Receiver. Trustee may make application to a court of competent jurisdiction, as a matter of strict right and without notice to Grantor or regard to the adequacy of the Mortgaged Property for the repayment of the Indebtedness, for appointment of a receiver of the Mortgaged Property, and Grantor does hereby irrevocably consent to such appointment. Any such receiver shall have all the usual powers and duties of receivers in similar cases, including the full power to rent, maintain and otherwise operate the Mortgaged Property upon such terms as may be approved by the court, and shall apply the Rents in accordance with the provisions hereof. 6.8 Remedies Cumulative, Concurrent and Nonexclusive. Trustee shall have all rights, remedies and recourses granted in this Mortgage or the Indenture or available at law or equity (including, without limitation, those granted by the Code and applicable to the Mortgaged Property, or any portion thereof) and the same (a) shall be cumulative and concurrent, (b) may be pursued separately, successively or concurrently against Grantor or others obligated for the Indebtedness, or any part thereof or against any one or more of them, or against the Mortgaged Property, at the sole discretion of Trustee, (c) may be exercised as often as occasion therefor shall arise, it being agreed by Grantor that the exercise or failure to exercise any of the same shall in no event be construed as a waiver or release thereof or of any other right, remedy or recourse, and (d) are intended to be, and shall be, nonexclusive, nor shall exercise of any one or more constitute a waiver of a right to any other right, remedy or recourse thereafter. 6.9 Rights and Remedies of Sureties. Grantor waivers any right or remedy which Grantor may have or be able to assert pursuant to Chapter 34 of the Business and Commerce Code of the State of Texas pertaining to the rights and remedies of sureties. 6.10 Compensation to Trustee. Grantor hereby agrees to pay to Trustee reasonable compensation for all services Page 14 15 rendered by it hereunder and to reimburse Trustee upon request for all reasonable expenses, disbursements and advances incurred or made by Trustee in accordance with any provisions hereof. This Deed of Trust is being delivered and recorded prior to its effective date and such delivery shall continue through the effective date and thereafter to the extent necessary to complete such delivery and the conveyance intended by this Deed of Trust. EXECUTED as of the date first set forth above. GRANTOR: AMERICAN INDUSTRIAL PROPERTIES REIT, a Texas real estate investment trust By: /s/ DAVID B. WARNER Name: David B. Warner Title: Vice President STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, personally appeared David B. Warner, Vice President of American Industrial Properties REIT, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed same as the act of such trust, for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 8th day of December, 1993. /s/ TERRY WINBORN My Commission Expires: Notary Public in and for the State of Texas TERRY WINBORN {SEAL} NOTARY PUBLIC STATE OF TEXAS COMM. EXP. 11/05/97 AFTER RECORDING RETURN TO: Thomas E. Charbonneau Cadwalader, Wickersham & Taft 100 Maidon Lane New York, New York 10038 Page 15 16 EXHIBIT B BEING that certain tract or parcel of land situated in the John Jackson Survey, Abstract 699 and a part of City Block No. C/8065, and being all of NORTHVIEW DISTRIBUTION CENTER, an Addition to the City of Dallas, Dallas County, Texas, as recorded in Volume 80071, Page 722, of the Plat Records of Dallas County, Texas, and being more particularly described by metes and bounds as follows: BEGINNING at a set 5/8 inch iron rod at the intersection of the north line of Miller Road (a 100 foot wide public right-of-way), and the northeasterly line of Interstate Highway, Loop 635, "IH 635" (a variable width public right-of-way), same being the southwest corner of the said Northview Distribution Center; THENCE continuing in a northerly direction with the said northeasterly line of IH 635 the following two (2) courses: North 28 degrees 22 minutes 00 seconds West, 694.58 feet to a found 5/8-inch iron rod, a concrete monument bears North 03 degrees 36 minutes East, 0.4 feet; North 33 degrees 52 minutes 51 seconds West, 512.86 feet to a set 5/8-inch iron rod on the south line of the M.K.T. Railroad (a 160 foot wide right-of-way); THENCE North 69 degrees 58 minutes 00 seconds East, along the said south line 644.17 feet to a set 5/8-inch iron rod on the west line of the G.C. & S.F. Railroad (a 150 foot right-of-way) and on the arc of a curve to the left; THENCE in a southerly direction with the said west line of the G.C. & S.F. Railroad and along the arc of the said curve to the left having a radial bearing of South 87 degrees 35 minutes 06 seconds East, a radius of 3894.80 feet, and a central angle of 18 degrees 43 minutes 02 seconds, a distance of 1272.34 feet to a found 1/2-inch iron rod on the north line of Miller Road; THENCE South 89 degrees 54 minutes 27 seconds West with the said north line of Miller Road 142.42 feet to the POINT OF BEGINNING and CONTAINING a computed area of (410,341 square feet) 9.420 acres of land, more or less. 17 EXHIBIT C 1. The following matters and all terms of the documents creating or offering evidence of the matters (We must insert matters or delete this exception.): Pipe Line Easement as granted to Enserch Corporation, dated September 18, 1979, filed September 25, 1979, recorded in Volume 79188, Page 53, Deed Records, Dallas County, Texas, and as shown as a 50 foot Lone Star Gas Company easement across parts of the North and East sides, on Plat recorded in Volume 80071, Page 722, Map Records, Dallas County, Texas, and as shown on survey prepared by Johnny D.L. Williams, R.P.L.S. No. 4818, dated April 13, 1992, last updated September 8, 1993. 2. Twenty-five foot (25') Utility (Drainage, Water and Sanitary Sewer) Easement across part of Western side, together with two Ten foot (10') wide laterals, as shown on Plat recorded in Volume 80071, Page 722, Map Records, Dallas County, Texas, and as shown on survey prepared by Johnny D.L. Williams, R.P.L.S. No. 4818, dated April 13, 1992, last updated September 8, 1993. 3. Thirty-five foot (35') Water Line Easement becoming fifteen feet (15') wide along part of Western side, flaring to Twenty-five foot (25') in Southwest corner, together with one Ten foot (10') lateral, as shown on Plat recorded in Volume 80071, Page 722, Map Records, Dallas County, Texas, and as shown on survey prepared by Johnny D.L. Williams, R.P.L.S. No. 4818, dated April 13, 1992, last updated September 8, 1993. 4. Electric and Communications System Easement as granted to Dallas Power & Light Company and Southwestern Bell Telephone Company, dated June 23, 1980, filed July 24, 1980, recorded in Volume 80146, Page 1744, Deed Records, Dallas County, Texas, as corrected by Electric and Communications System Easement as granted to Dallas Power & Light Company and Southwestern Bell Telephone Company, dated May 5, 1983, filed May 5, 1983, recorded in Volume 83090, Page 80, Deed Records, Dallas County, Texas, and as shown on survey prepared by Johnny D.L. Williams, R.P.L.S. No. 4818, dated April 13, 1992, last updated September 8, 1993. 5. Building Line located on subject property as shown on the plat recorded in Volume 80071, Page 722, Map Records, Dallas County, Texas, and as shown on survey prepared by Johnny D.L. Williams, R.P.L.S. No. 4818, dated April 13, 1992, last updated September 8, 1993, to-wit: West 10 feet South 25 feet 6. The right to control, limit or deny access from the insured property to Interstate Highway No. 635, as provided in Condemnation Cause 46,818-d, County Court at Law No. 4, recovered by the State of Texas, by judgment dated November 22, 1967, filed July 16, 1968, recorded in Volume 68011, Page 875, Deed Records, Dallas County, Texas. 7. No access to LBJ Freeway-IH635, per notation on Plat recorded in Volume 80071, Page 722, Map Records, Dallas County, Texas. 8. One (1) story concrete office warehouse buildings encroaching onto 15 foot Dallas Power & Light Company and Southwestern Bell Telephone Company easement, as shown on survey prepared by Johnny D.L. Williams, R.P.L.S. No. 4818, dated April 13, 1992, last updated September 8, 1993. 9. One (1) story concrete office warehouse building encroaching onto 25 foot Utility (Drainage, Water and Sanitary Sewer) easement on the West side of subject property as shown on survey prepared by Johnny D.L. Williams, R.P.L.S. No. 4818, dated April 13, 1992, last updated September 8, 1993. EX-10.13 11 DEED OF TRUST (TAMARAC SQUARE SPECIALTY MALL) 1 EXHIBIT 10.13 TAMARAC MALL DEED OF TRUST (WITH SECURITY AGREEMENT AND ASSIGNMENT OF RENTS AND LEASES) By this instrument (this "Mortgage"), dated as of November 22, 1985, to be effective as of November 27, 1985, the undersigned, TRAMMELL CROW REAL ESTATE INVESTORS, a Texas real estate investment trust (hereinafter referred to as "Grantor"), whose address is 2001 Ross Avenue, 3500 LTV Center, Dallas, Texas 75201, to secure the obligations hereinafter described, does hereby GRANT, BARGAIN, SELL, ASSIGN and CONVEY unto the Public Trustee of the City and County of Denver, State of Colorado (hereinafter referred to as "Trustee"), to secure payment to J. HENRY SCHRODER BANK & TRUST COMPANY, a New York banking corporation (the "Indenture Trustee") the trustee under that certain indenture (the "Indenture"), dated as of November 15, 1985, by and between Grantor and the Indenture Trustee, pertaining to certain zero coupon notes due 1997, payable to the order of the Holders, a copy of which Indenture is attached hereto as Exhibit A and incorporated herein by this reference for all purposes, the following described mortgaged property (the "Mortgaged Property"), to wit: All of the real property located in the City and County of Denver, State of Colorado, described on the attached Exhibit B which is incorporated herein by reference (the "Land"), subject to the exceptions described on the attached Exhibit C which is incorporated herein by reference (the "Permitted Exceptions"), TOGETHER WITH all of Grantor's right, title and interest in and to the following, whether now owned or hereafter acquired: (a) all improvements and fixtures now or hereafter attached to or placed, erected, constructed or developed on the Land (the "Improvements"); (b) all equipment, machinery, furnishings, inventory, chattels and all other articles of personal property (the "Personal Property") now or hereafter attached to, relating to or used in or about the Improvements or the Land; (c) all water and water rights, timber, crops and mineral interests pertaining to the Land; (d) all building materials and equipment now or hereafter delivered and installed or intended to be, installed in or on the Land or the Improvements; (e) all plans, specifications and drawings for the Improvements; (f) all deposits (including tenants" security deposits and escrow deposits under contracts of sale), documents, contract rights, commitments, construction contracts, architectural agreements and general intangibles 2 (including, without limitation, trademarks, trade names and symbols but expressly excluding the right to use the name "Trammell Crow" or any name associated therewith or derived therefrom); (g) all permits, licenses, franchises, certificates and other rights and privileges relating to or obtained in connection with the Land, the Improvements or the Personal Property; (h) all proceeds arising from or by virtue of the sale, lease or other disposition, encumbrance or refinancing, of the Land, the Improvements and the Personal Property; (i) all proceeds (including premium refunds) of each policy of insurance relating to the Land, the Improvements or the Personal Property; (j) all proceeds from the taking of any of the Land, the Improvements, the Personal Property or any rights appurtenant thereto by right of eminent domain or by private or other purchase in lieu thereof including change of grade of streets, curb cuts or other rights of access; (k) all streets, roads, public places, easements and rights-of-way, existing or proposed, public or private, located on or adjacent to or used in connection with the Land; (l) all of the leases, subleases, licenses or other agreements relating to the Land, the Improvements or the Personal Property, and all rents, deposits, royalties, bonuses, issues, profits, revenues, income or other benefits of the Land, the Improvements or the Personal Property, including, without limitation, cash, securities, letters of credit, guarantees or other instruments deposited pursuant to leases to secure performance by the lessees of their obligations thereunder and cash deposited in impound accounts for the payment of taxes and insurance under any deed of trust securing payment of the Indebtedness; (m) all heating, lighting, refrigeration, plumbing, ventilating, incinerating, water heating, transportation, communications, electrical and air-conditioning systems and equipment, sprinkler and fire-extinguishing systems, security systems, maintenance equipment and other fixtures or systems used in connection with the Land, the Improvements and the Personal Property; (n) all rights, hereditaments, strips, gores and appurtenances pertaining to the foregoing; and (o) all replacements, betterments, substitutions, renewals and additions to any of the above-described Mortgaged Property; and all proceeds of any of the above-described Mortgaged Property. TO HAVE AND TO HOLD the same, together with all and singular the privileges and appurtenances thereunto belonging, in trust, nevertheless, that in case of an Event of Default (hereinafter defined) the Indenture Trustee may declare a violation hereof and elect to advertise the Mortgaged Property for sale and demand such sale. Then, upon filing notice of such election and demand for sale with Trustee, who shall upon receipt of such notice of election and demand for sale cause a -2- 3 copy of the same to be recorded in the office of the Clerk and Recorder of the county in which said Mortgaged Property is situated, it shall and may be lawful for said Trustee to sell and dispose of the same (en masse or in separate parcels, as said Trustee may think best) and all the right, title and interest of Grantor, its successors and assigns therein, at public auction at the Bannock Street main entrance of the City and County Building in the City and County of Denver, State of Colorado, or at the main entrance to any future courthouse in and for said City and County of Denver, or on the Mortgaged Property, or any part thereof, as may be specified in the notice of such sale, for the highest and best price the same will bring in cash, four weeks public notice having been previously given of the time and place of such sale, by advertisement weekly in some newspaper of general circulation at that time published in the City and County of Denver (which date of sale may be more than sixty but not more than one hundred twenty days after the filing of notice of election and demand, unless extended by the Indenture Trustee as provided by law). A copy of such notice of sale shall be mailed within ten days from the date of the first publication thereof to Grantor at its address given herein and to such person or persons appearing to nave acquired a subsequent record interest in the Mortgaged Property at the address given in the recorded instrument evidencing such interest; provided, that where only the county and state is given as the address then such notice shall be mailed to the county seat. Trustee shall then make and give to the purchaser or purchasers of such Mortgaged Property at such sale, a certificate or certificates in writing describing such Mortgaged Property purchased, and the sum or sums paid therefor, and the time when the purchaser or purchasers (or other persons entitled thereto) shall be entitled to a deed or deeds therefor, unless the same shall be redeemed as provided by law, and said Trustee shall, upon demand by the person or persons holding the said certificate or certificates of purchase, when said demand is made, or upon demand by the person entitled to a deed to and for the Mortgaged Property purchased, at the time such demand is made (the time for redemption having expired) make and execute to such person or persons a deed or deeds to the Mortgaged Property purchased, which said deed or deeds shall be in the ordinary form of a conveyance, and shall be signed, acknowledged and delivered by Trustee, as grantor, and shall convey and quitclaim to such person or persons entitled to such deed, as grantee, the said Mortgaged Property purchased as aforesaid, and all the right, title, interest, benefit and equity of redemption of Grantor, its successors and assigns therein, and shall recite the sum or sums for which the said Mortgaged Property was sold and shall refer to the power of -3- 4 sale herein contained, and to the sale or sales made by virtue thereof. In case of an assignment of such certificate or certificates of purchase or in the case of redemption of such Mortgaged Property by a subsequent encumbrancer, such assignment or redemption shall also be referred to in such deed or deeds, but the notice of sale need not be set out in such deed or deeds. Trustee shall, out of the proceeds or avails of such sale, after first paying and retaining all fees, charges and costs of making said sale, pay to the Indenture Trustee all amounts due pursuant to the Indenture, rendering the overplus, if any, unto Grantor. Such sale or sales and said deed or deeds so made shall be a perpetual bar, both in law and equity, against Grantor and its successors and assigns, and all other persons claiming the said Mortgaged Property, or any part thereof by, through, from or under Grantor. It shall not be obligatory upon the purchaser or purchasers at any such sale to see to the application of the purchase money. If a release deed be required, Grantor or its successors or assigns shall pay the expense thereof. Nothing herein dealing with foreclosure procedures or specifying particular actions to be taken by the Indenture Trustee or by Trustee shall be deemed to contradict or add to the requirements and procedures (now or hereafter existing) of Colorado law and any such conflict or inconsistency shall be resolved in favor of Colorado law applicable at the time of foreclosure. AND Grantor, for itself and its successors and assigns, covenants and agrees to and with Trustee for the benefit of the Indenture Trustee, that at the time of the ensealing and delivery of these presents Grantor is well seised of the Property in fee simple, and that Grantor has good right, full power and lawful authority to grant, bargain, sell and convey the Mortgaged Property in manner and form as aforesaid, hereby fully and absolutely waiving and releasing all rights and claims in or to the Mortgaged Property as homestead or other exemption, under and by virtue of the Constitution of the State of Colorado or of any act of the General Assembly of said State, now existing or which may hereafter be enacted in relation thereto; and that the same are free and clear of all liens and encumbrances whatsoever, excepting only those matters set forth in Exhibit B attached hereto and by this reference made part hereof. AND the above bargained Property in the quiet and peaceable possession of Trustee, his successors and assigns, against all and every person or persons lawfully claiming or to claim the whole or any part thereof, Grantor shall and will warrant and forever defend. -4- 5 ARTICLE I INDEBTEDNESS This Mortgage is given to secure the payment of all sums and performance of all obligations and covenants contained in this Mortgage and of the Indenture. Unless otherwise defined herein, certain capitalized terms shall have the meaning ascribed to said terms by the Indenture. The above-described obligations are hereinafter collectively called the "Indebtedness." ARTICLE II ASSIGNMENT OF RENTS AND LEASES 2.1 Assignment of Rents, Profits, etc. Grantor hereby absolutely and unconditionally assigns to tne Indenture Trustee all of its right, title and interest in and to the rents, royalties, bonuses, issues, profits, revenue, income and other benefits derived from the Mortgaged Property or arising from the use or enjoyment of any portion thereof or from any lease, sublease, licenses or other agreement pertaining thereto, and any and all damages following default under such leases, and all proceeds payable under any policy of insurance covering loss of rents resulting from untenantability, together with any and all rights that Grantor may have against any tenant under such leases or any subtenants or occupants or users of any part of the Mortgaged Property (collectively, the "Rents"). Prior to an Event of Default (as hereinafter defined), Grantor shall have a license to collect and receive all Rents and to apply same in accordance with the terms and provisions of the Indenture. 2.2 Assignment of Leases. Grantor hereby absolutely and unconditionally assigns to the Indenture Trustee all of its right, title and interest in and to existing and future leases, including subleases thereunder, and any and all extensions, renewals, modifications, and replacements thereof, covering any part of the Mortgaged Property (collectively, the "Leases"). Grantor hereby further assigns to the Indenture Trustee all guaranties of tenants' performances under the Leases. 2.3 Indenture Trustee in Possession. The Indenture Trustee's acceptance of this assignment shall not be deemed to constitute the Indenture Trustee a "mortgagee in possession" nor obligate the Indenture Trustee to appear in or defend any proceeding relating to any of the Leases or to the Mortgaged -5- 6 Property, or to take any action hereunder, expend any money, incur any expenses, or perform any obligation or liability under the Leases, or assume any obligation for any deposits delivered to Grantor by any tenant and not delivered to the Indenture Trustee, prior to entry upon and taking possession of the Mortgaged Property by the Indenture Trustee. The Indenture Trustee shall not be liable for any injury or damage to person or property in or about the Mortgaged Property. 2.4 Indemnification. Grantor hereby agrees to indemnify the Indenture Trustee and hold the Indenture Trustee harmless from all liability, damage or expense incurred by the Indenture Trustee from any claims under the Leases as well as all amounts indemnified against under the Indenture. All amounts indemnified against hereunder, including reasonable attorneys' fees, if paid by the Indenture Trustee shall be payable by Grantor immediately upon demand by the Indenture Trustee and shall be secured hereby. 2.5 Right to Rely. After the occurrence of an Event of Default (hereinafter defined), Grantor hereby authorizes and directs the tenants under the Leases to pay Rents to the Indenture Trustee upon written demand by the Indenture Trustee, without further consent of Grantor, and the tenants may rely upon any written statement delivered by the Indenture Trustee to the tenants. Any such payment to the Indenture Trustee shall satisfy the obligations of such tenant to make payment to Grantor under the Leases to the extent of the payment made to the Indenture Trustee. ARTICLE III SECURITY AGREEMENT 3.1 Security Interest. This Mortgage shall be a security agreement between Grantor, as the debtor, and the Indenture Trustee, as the secured party, covering the Mortgaged Property constituting personal property or fixtures governed by the Uniform Commercial Code, as enacted and amended from time to time in the state in which the Land is situated (hereinafter called the "Code"), and Grantor grants to the Indenture Trustee a security interest in such portion of the Mortgaged Property. In addition to the Indenture Trustee's other rights hereunder, the Indenture Trustee shall have all rights of a secured party under the Code. Grantor shall execute and deliver to the Indenture Trustee all financing statements that may be necessary or advisable to establish and maintain the validity, perfection and priority of the Indenture Trustee's security -6- 7 interest, and Grantor shall bear all costs thereof, including all Code searches reasonably required by the Indenture Trustee. If the Indenture Trustee should desire to dispose of any of the Mortgaged Property pursuant to the Code, and if the Code requires prior notice to Grantor of such disposition, ten (10) days written notice by the Indenture Trustee to Grantor shall be deemed to be reasonable notice; provided, however, the Indenture Trustee may dispose of such property in accordance with the foreclosure procedures hereof in lieu of proceeding under the Code. 3.2 Notice of Changes. Grantor shall give advance notice in writing to the Indenture Trustee of any proposed change Grantor's name, identity, or structure and shall execute and deliver to the Indenture Trustee, prior to or concurrently with the occurrence of any such change, all additional financing statements that the Indenture Trustee may require to establish and maintain'the validity and priority of the Indenture Trustee's security interest with respect to any of the Mortgaged Property. 3.3 Financing Statement. Some of the items of the Mortgaged Property described herein are goods that are or are to become fixtures related to the Land, and it is intended that, as to those goods, this instrument shall be effective as a financing statement filed as a fixture filing from the date of its filing for record in the real estate records of the county in which the Mortgaged Property is situated. Information concerning the security interest created by this instrument may be obtained from the Indenture Trustee, as secured party, at the address of One State Street, New York, New York 10075. The mailing address of Grantor as debtor is as stated above. ARTICLE IV REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF GRANTOR Grantor does hereby warrant and represent to and covenant and agree with the Indenture Trustee as follows: 4.1 Title to Mortgaged Property and Lien of this Mortgage. Grantor has good and marketable title to the Land and the Improvements, and good and marketable title to the remainder of the Mortgaged Property, free and clear of any liens, charges, encumbrances, security interests and adverse claims whatsoever, except for the Permitted Exceptions. -7- 8 4.2 Limitation of Liability. Any obligation or liability whatsoever of the Grantor which may arise at any time under this Mortgage, or any obligation or liability incurred by it pursuant to any other instrument, transaction or undertaking contemplated by this Mortgage, shall be satisfied, if at all, out of the Grantor's property only. No such obligation or liability shall be personally binding upon nor shall there be any resort for the enforcement thereof to the private property of any of its Trust Managers, shareholders, officers, employees or agents, regardless of whether such obligations or liability are in the nature of contract, tort or otherwise. 4.3 Repair. Grantor will cause the Mortgaged Property to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, which in the judgment of the Grantor may be necessary or prudent so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however that nothing in this Section 4.3 shall prevent the Grantor from discontinuing the operation and maintenance of any of its properties if such discontinuance is, in the judgment of the Grantor, desirable in the conduct of its business and not disadvantageous in any material respect to the Holders. 4.4 Insurance. (a) Grantor will at all times keep all the Mortgaged Property of an insurable nature and of the character usually insured by companies operating similar properties, insured in amounts customarily carried, and against loss or damage from such causes as are customarily insured against, by similar companies. (b) All such insurance shall be effected with insurance carriers having a claims paying rating of "AA" or better by Standard & Poor's Corporation. All policies or other contracts for such insurance on the Mortgaged Property shall provide that the proceeds of such insurance (except in the case of any particular casualty resulting in damage or destruction not exceeding $931,242.75 in the aggregate) shall be payable, subject to the requirements of any Prior Lien, to the Indenture Trustee as its interest may appear (by means of a standard mortgagee clause or other similar clause acceptable to the Indenture Trustee, without contribution). Each policy or other contract for such insurance, or such mortgagee clause, shall contain an agreement by the insurer that, notwithstanding any right of cancellation reserved to such insurer, such policy or -8- 9 contract shall not be cancelled unless and until the insurer has provided the Indenture Trustee written notice thirty calendar days prior to cancellation. As soon as practicable after the execution of this Mortgage, and within 120 calendar days after the close of each fiscal year thereafter, and at any time upon the request of the Indenture Trustee, Grantor will deliver to the Indenture Trustee an officer certificate containing a detailed list of the insurance in force upon the Mortgaged Property on a date therein specified (which date shall be within 30 calendar days of the filing of such certificate), including the names of the insurers with which the policies and other contracts of insurance of the Mortgaged Property are carried, the numbers, amounts and expiration dates of such policies and other contracts and the property and hazards covered thereby, and stating that the insurance so listed complies with this Section 4.4, together with copies of all insurance policies or certificates thereof. (c) All proceeds of any insurance of any part of the Mortgaged Property not payable to the Indenture Trustee or the trustee, mortgagee or other holder or beneficiary of a Prior Lien shall be applied in accordance with the Indenture. In the event that the proceeds of insurance are made available for restoration, Grantor shall restore the Improvements to substantially the same condition and quality of the Improvements prior to the casualty. 4.5 Taxes. Grantor will pay, prior to delinquency, all taxes, assessments and governmental charges or levies imposed upon it or the Mortgaged Property, and all claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like persons which, if unpaid, might result in the creation of a lien upon the Mortgaged Property; provided that items of the foregoing description need not be paid while being contested in good faith and by appropriate proceedings, so long as such contest shall not create a risk of forfeiture of all or any portion of the Mortgaged Property. Nothing contained herein shall constitute the consent of the Indenture Trustee to subject the Mortgaged Property to any of the aforesaid liens. 4.6 Casualty and Condemnation. All proceeds, judgments, decrees and awards for injury or damage to the Mortgaged Property, and all awards pursuant to proceedings for condemnation thereof, are hereby assigned in their entirety to the Indenture Trustee, who shall apply the same in accordance with the Indenture. Immediately upon its obtaining knowledge of the institution or the threatened institution of any proceedings for the condemnation of the Mortgaged Property, Grantor shall notify the Indenture Trustee of such fact. -9- 10 Grantor shall then, if requested by the Indenture Trustee, file or defend its claim thereunder and prosecute same with due diligence to its final disposition and shall cause any awards or settlements to be paid over to the Indenture Trustee for disposition pursuant to the terms of sub-section 4.4(c) hereinabove. The Indenture Trustee shall be entitled to participate in same and to be represented therein by counsel of its own choice, and Grantor shall deliver, or cause to be delivered, to the Indenture Trustee such instruments as may be requested by it from time to time to permit such participation. 4.7 Compliance with Laws. Grantor shall cause the Mortgaged Property and the use thereof to comply with all laws, rules, ordinances, regulations, covenants, conditions, restrictions, orders and decrees of any governmental authority or court applicable to Grantor or the Mortgaged Property and its use, and Grantor shall pay all fees or charges of any kind in connection therewith. 4.8 Operation. For so long as there is no Event of Default hereunder, Grantor may use and operate, alter and improve, manage, lease and maintain the Land, Improvements and Personal Property in accordance with customary and prudent management practices and in accordance with the provisions hereof and of the Indenture. 4.9 Successors and Assigns; Use of Terms. The covenants herein contained shall bind, and the benefits and advantages hereof shall inure to, the respective heirs, executors, administrators, personal representatives, successors and assigns of the parties hereto. Whenever used, the singular number shall include the plural and the plural the singular, and the use of any gender shall be applicable to all genders. The duties, covenants, conditions, obligations and warranties of Grantor in this instrument shall be joint and several obligations of Grantor and of each Grantor, if more than one, and of each Grantor's heirs, personal representatives, successors and assigns. Each party who executes this instrument and each subsequent owner of the Mortgaged Property, or any part thereof (other than Trustee), covenants and agrees that it will perform, or cause to be performed, each term and covenant of this instrument as if such party were the named Grantor. 4.10 Severability. If any provision of this instrument is held to be illegal, invalid, or unenforceable under present or future laws effective while this instrument is in effect, the legality, validity and enforceability of the remaining provisions of this instrument shall not be affected thereby, -10- 11 and in lieu of each such illegal, invalid or unenforceable provision there shall be added automatically as a part of this instrument a provision that is legal, valid and enforceable and as similar in terms to such illegal, invalid or unenforceable provision as may be possible. 4.11 Unsecured Indebtedness. If any of the Indebtedness shall be unsecured, the unsecured portion of the Indebtedness shall be completely paid prior to the payment of the secured portion of such Indebtedness, and all payments made on account of the Indebtedness shall be considered to have been paid on and applied first to the complete payment of the unsecured portion of the Indebtedness. 4.12 Modification or Termination. This Mortgage may only be modified in accordance with the terms of the Indenture. 4.13 No Partnership. Nothing contained in this Mortgage is intended to create any partnership, joint venture or association between Grantor and the Indenture Trustee, or in any way make the Indenture Trustee a co-principal with Grantor with reference to the Mortgaged Property, and any inferences to the contrary are hereby expressly negated. 4.14 Headings. The Article, Paragraph and Subparagraph headings hereof are inserted for convenience of reference only and shall not alter, define, or be used in construing the text of such Articles, Paragraphs or Subparagraphs. 4.15 Governing Law. This Mortgage and the enforcement of the provisions hereof shall be governed by the laws of the State of Colorado and the laws of the United States applicable to transactions in such state. ARTICLE V EVENTS OF DEFAULT 5.1 Default of Indenture. It shall be an "Event of Default" hereunder if Grantor commits an Event of Default, as that term is defined by the Indenture. -11- 12 ARTICLE VI REMEDIES If an Event of Default shall occur, Trustee may exercise any one or more of the remedies provided in the Indenture or the following remedies, without notice: 6.1 Enforcement of Assignment of Rents and Leases. Trustee may: (a) terminate the license granted to Grantor to collect the Rents and enforce the Leases, and thereafter collect and sue for the Rents in Trustee's own name, give receipts and releases therefor, and after deducting all expenses of collection, including reasonable attorneys' fees, apply the net proceeds thereof to any Indebtedness in accordance with the Indenture; (b) make, modify, enforce, cancel or accept surrender of any Leases, evict tenants, adjust the Rents, maintain, decorate, refurbisn, repair, clean, and make space ready for renting, and otherwise do anything Trustee deems advisable in connection with the Mortgaged Property; (c) apply the Rents so collected to the operation and management of the Mortgaged Property, including the payment of reasonable management, brokerage and attorneys' fees, or to the indebtedness; and (d) require Grantor to transfer all security deposits and records thereof to Trustee. 6.2 Foreclosure. The Indenture Trustee may direct the Trustee sell all or part of the Mortgaged Property pursuant to the terms hereof. 6.3 Tenancy at Will. In the event of a trustee's sale hereunder and.if at the time of such sale Grantor or any other party occupies the portion of the Mortgaged Property so sold or any part thereof, such occupant, at the option of such purchaser, shall immediately become the tenant of the purchaser at such sale, which tenancy, at the option of such purchaser, shall be a tenancy at will, at a reasonable rental per day based upon the value of the portion of the Mortgaged Property so occupied, such rental to be due and payable daily to the purchaser. An action of forcible detainer shall lie if the tenant holds over after a demand in writing for possession of such Mortgaged Property. -12- 13 6.4 Indemnification of Trustee. Except for gross negligence or willful misconduct, Trustee shall not be liable for any act or omission or error of judgment in connection with exercising the remedies provided herein. Trustee may rely on any document believed by him in good faith to be genuine. All money received by Trustee shall, until used or applied as herein provided, be held in trust, but need not be segregated (except to the extent required by law), and Trustee shall not be liable for interest thereon. Grantor shall indemnify Trustee and hold Trustee harmless against all liability, cost, damage or expense that Trustee may incur in the performance of his duties hereunder. 6.5 Lawsuits. Trustee may proceed by a suit or suits in equity or at law, whether for the specific performance of any covenant or agreement herein contained or in aid of the execution of any power herein granted, or for any foreclosure hereunder or for the sale of the Mortgaged Property under the judgment or decree of any court or courts of competent jurisdiction. 6.6 Entry on Mortgaged Property. Upon occurrence of an Event of Default hereunder, the Indenture Trustee may enter into and upon and take possession of all or any part of the Mortgaged Property, and may exclude Grantor, and all persons claiming under Grantor, and its or their agents or servants, wholly or partly therefrom; and, holding the same, the Indenture Trustee may use, administer, manage, operate, and control the Mortgaged Property and may exercise all rights and powers of Grantor in the name, place and stead of Grantor, or otherwise, as the Indenture Trustee snail deem best; and in the exercise of any of the foregoing rights and powers the Indenture Trustee shall not be liable to Grantor for any loss or damage thereby sustained unless due solely to the willful misconduct or gross negligence of the indenture Trustee. The Indenture Trustee's powers shall include the right to complete construction of any part of the Mortgaged Property and to make any repairs or alterations necessary or advisable for the successful operation of the Mortgaged Property. 6.7 Trustee or Receiver. The indenture Trustee may make application to a court of competent jurisdiction, as a matter of strict right and without notice to Grantor or regard to the adequacy of the Mortgaged Property for the repayment of the Indebtedness, for appointment of a receiver of the Mortgaged Property, and Grantor does hereby irrevocably consent to such appointment. Any such receiver shall have all the usual powers and duties of receivers in similar cases, including the full -13- 14 power to rent, maintain and otherwise operate the Mortgaged Property upon such terms as may be approved by the court, and shall apply the Rents in accordance with the provisions hereof. 6.8 Remedies Cumulative, Concurrent and Nonexclusive. The Indenture Trustee shall have all rights, remedies and recourses granted in this Mortgage or the Indenture or available at law or equity (including, without limitation, those granted by the Code and applicable to the Mortgaged Property, or any portion thereof) and the same (a) shall be cumulative and concurrent, (b) may be pursued separately, successively or concurrently against Grantor or others obligated for the Indebtedness, or any part thereof or against any one or more of them, or against the Mortgaged Property, at the sole discretion of the Indenture Trustee, (c) may be exercised as often as occasion therefor shall arise, it being agreed by Grantor that the exercise or failure to exercise any of the same shall in no event be construed as a waiver or release thereof or of any other right, remedy or recourse, and (d) are intended to be, and shall be, nonexclusive, nor shall exercise of any one or more constitute a waiver of a right to any other right, remedy or recourse thereafter. 6.9 Compensation to Indenture Trustee. Grantor hereby agrees to pay to Indenture Trustee reasonable compensation for all services rendered by it hereunder and to reimburse Indenture Trustee upon request for all reasonable expenses, disbursements and advances incurred or made by Indenture Trustee in accordance with any provision hereof. This Deed of Trust is being delivered and recorded prior to its effective date and such delivery shall continue through the effective date and thereafter to the extent necessary to complete such delivery and the conveyance intended by this Deed of Trust. EXECUTED as of the date first set forth above. GRANTOR: TRAMMELL CROW REAL ESTATE INVESTOR a Texas real estate investment trust By: /s/ DAVID CLOSSEY Name: David Clossey Trust Manager 5428r -14- 15 STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, personally appeared David F. Clossey, Trust Manager of Trammell Crow Real Estate Investors, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed same as the act of such trust, for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE this 22 day of November, 1985. My Commission Expires: /s/ JUDITH ANN KELLY NOTARY PUBLIC IN AND FOR STATE OF TEXAS {SEAL} Judith Ann Kelly Notary Publtc State of Texas Commission Expires 10-14-87. -15- 16 EXHIBIT B Tamarac Mall RESTAURANT SITE A part of the Southwest One Quarter of Section 33, Township 4 South, Range 67 West of the Sixth Principal Meridian, City and County of Denver, State of Colorado, described as follows: Commencing at the Southwest corner of said Section 33; thence Northerly along the West line of said Section 33, 75.00 feet to the Point of Beginning, said point being on the North right of way line of Hampden Avenue; thence continuing along the aforesaid course 187.50 feet; thence on an angle to the right of 89 degrees 58'43", 239.95 feet; thence on an angle to the right of 90 degrees 01' 17", 189.13 feet to a point on said North right of way line; thence on an angle to the right of 98 degrees 30'40" and along said right of way line, 10.97 feet; thence on an angle to the left of 8 degrees 31'57" and along said right of way line, 229.10 feet to the Point of Beginning; TOGETHER WITH all right, title, and interest of the owner of said property in, to, or under that certain Reciprocal Easement Agreement among Tamarac Square #1, Annuity Board of the Southern Baptist Convention, and Tamarac Square #2, dated May 23, 1974, and recorded on September 11, 1974, in Book 943 at Page 167 of the real property records of the City and County of Denver, Colorado. Page 1 of 3 Pages. 17 Tamarac Mall - continued SAVINGS AND LOAN SITE A parcel of land located in the West one-half of the Southwest quarter of Section 33, Township 4 South, Range 67 West of the Sixth Principal Meridian, City and County of Denver, State of Colorado, more particularly described as follows: Beginning at a point on the North right-of-way line of Hampden Avenue as deeded and recorded in Book 948 at Page 518 of the records of Arapahoe County, said point being 60.00 feet North of the South line of said Southwest one-quarter and also being the true point of beginning of the right-of-way description of South Tamarac Drive as deeded and recorded in Book 73 at Page 7 of the records of the City and County of Denver; thence Westerly along said North right-of-way line of Hampden Avenue and parallel to the South line of said Southwest one-quarter, 479.50 feet: thence on an angle to the right of 90 degrees 00' 00", 212.50 feet; thence on an angle to the right of 90 degrees 00' 00", 479.50 feet to a point on the Westerly right-of-way line of said South Tamarac Drive; thence on an angle to the right of 90 degrees 00' 00", and along said right-of-way line 212.50 feet to the point of beginning; excepting the Southerly 10 feet thereof; TOGETHER WITH all right, title, and interest of the owner of said property in, to, or under that certain Reciprocal Easement Agreement among Tamarac Square #1, Annuity Board of the Southern Baptist Convention, and Tamarac Square #2, dated May 23, 1974, and recorded on September 11, 1974, in Book 943 at Page 167 of the real property records of City and County of Denver, Colorado. Page 2 of 3 Pages 18 Tamarac Mall - continued SPECIALITY CENTER SITE A parcel of land located in the West one-half of the Southwest quarter of Section 33, Township 4 South, Range 67 West of the Sixth Principal Meridian, City and County of Denver, State of Colorado, more particularly described as follows: Commencing on a point on the north Right-of-Way line of Hampden Avenue as deeded and recorded in Book 948 at Page 518 of the Records of Arapahoe County, said point being 60 feet North of the South line of said Southwest quarter and also being the true point of beginning of the Right-of-way description of South Tamarac Drive as deeded and recorded in Book 73 at Page 7 of the Records of the City and County of Denver; thence Northerly along the Westerly Right-of-Way of said South Tamarac Drive 212.50 feet to the point of beginning; thence continuing along the aforesaid course 277.50 feet to a point of curve; thence along a curve to the left having a radius of 1,658.00 feet, a central angle of 28 degrees 12' 32", an arc distance of 816.29 feet; thence on an angle to the left of 89 degrees 23' 43", 125.60 feet to a point of curve; thence along a curve to the right having a radius of 25.00 feet; a central angle of 83 degrees 40' 30", an arc distance of 36.51 feet; thence on an angle to the left of 85 degrees 49' 18", 65.88 feet; thence on an angle to the left of 60 degrees 14' 58", 232.98 feet; thence on an angle to the right of 90 degrees 00' 00", 120.75 feet; thence on an angle to the left of 90 degrees 00' 00", 140.54 feet; thence on an angle to the right of 90 degree 00' 00", 140.54 feet; thence on an angle to the right of 45 degrees 00' 00", 82.05 feet; thence on an angle to the left of 63 degrees 57' 15", 117.46 feet; thence on an angle to the left of 90 degrees 00' 00", 874.80 feet to a point on the North Right-of Way line of Hampden Avenue; thence on an angle of the left of 71 degrees 02' 45", and along said North Right-of Way line 30.36 feet; thence on an angle to the left of 90 degrees 00' 00", 202.50 feet; thence on an angle to the right of 90 degrees 00' 00", 479.50 feet to the point of beginning; TOGETHER WITH all right, title and interest of the owner of said property in, to, or under that certain Reciprocal Easement Agreement among Tamarac Square #1, Annuity Board of the Southern Baptist Convention, and Tamarac Square #2, dated May 23, 1974, and recorded on September 11, 1974, in Book 943 at Page 167 of the real property records of the City and County of Denver, Colorado. 19 EXCEPT the following described parcel: A parcel of land located in the W 1/2 of the SW 1/4 of Section 33; Township 4 South, Range 67 West of the 6th P.M., more particularly described as follows: COMMENCING on a point on the North right of way line of Hampden Avenue as deeded and recorded in Book 948 at Page 518 of the Records of Arapahoe County, said point being 60 feet North of the South line of said SW 1/4 and also being the TRUE POINT OF BEGINNING of the right of way description of South Tamarac Drive as deeded and recorded in Book 73 at Page 7 of the Records of the City and County of Denver; thence Northerly along the Westerly right of way of said South Tamarac Drive, 490.00 feet to a point of curve; thence along a curve to the left having a radius of 1,658.00 feet, a central angle of 28 degrees 12'32" an arc distance of 816.29 feet; thence on an angle to the left of 89 degrees 23'43", 125.60 feet to a point of curve; thence along a curve to the right having a radius of 25.00 feet, a central angle of 83 degrees 40'30" an arc distance of 36.51 feet; thence on an angle to the left of 85 degrees 49'18", 65.88 feet; thence on an angle to the left of 60 degrees 14'58", 232.98 feet; thence on an angle to the right of 90 degrees 00'00", 120.75 feet; thence on an angle to the left of 90 degrees 00'00", 140.54 feet; thence on an angle to the right of 90 degrees 00'00", 106.40 feet; thence on an angle to the right of 45 degrees 00'00", 48.75 feet to the TRUE POINT OF BEGINNING; thence continuing along the aforesaid course, 33.30 feet; thence on an angle to the left of 63 degrees 57'15" 117.46 feet; thence on an angle to the left of 90 degrees 00'00", 15.58 feet; thence on an angle to the left of 85 degrees 43'51" 86.20 feet; thence on an angle to the right of 5 degree 28'18", 46.80 feet to the TRUE POINT OF BEGINNING; 3371j 20 Tamarac Mall EXHIBIT C TRACTS A, B and C 1. Covenants, Conditions and Restrictions, which do not contain a forfeiture or reverter clause, but omitting restrictions, if any, based on race, color, religion or national origin, as contained in instrument recorded March 30, 1973 in Book 667 at Page 674. 2. Terms, agreements, provisions, conditions and obligations as contained in Reciprocal Easement among Tamarac Square #1, Annuity Board of the Southern Baptist Convention and Tamarac Square #2, recorded September 11, 1974 in Book 943 at Page 167. 3. Existing leases as disclosed by Assignment of Leases and Rents and Other Income recorded December 31, 1985 in Book 1175 at Page 738. 4. Easement and right of way for sewer purposes, as granted to the City and County of Denver, a Colorado Municipal Corporation, by Trammell Crow Company, a General Partnership, in the instrument recorded May 10, 1976 in Book 1243 at Page 243 and as amended by instrument recorded February 2, 1977 in Book 1384 at Page 596. 5. Pedestrian Bridge Agreement by and between the City and County of Denver, a Municipal Corporation, and Crow-Denoff Associates, a Colorado Limited Partnership, recorded June 9, 1980 in Book 2175 at Page 468. 6. Gulch Agreement by and between Crow Tamarac Square Associates, Crow Denoff Associates, Crow-Watson #7, and Crow-Watson #1, recorded May 11, 1984 in Book 3095 at Page 521. 7. Lease, and the terms and conditions thereof, between Crow-Tamarac Square Associates, Lessor and Chili's Inc., a Texas Corporation, Lessee, recorded July 11, 1984 in Book 3145 at Page 500, providing for a term of 10 years, expires on November 30, 1988, with an option for renewal. 8. Easement and right of way for utility easement, as granted to Public Service Company of Colorado by Crow-Watson #7, a Texas Limited Partnership, in the instrument recorded January 15, 1985 as Reception No. 064967. 9. Short Form Lease between Tamarac Square #1, a Texas General Partnership, Lessor, and Tamarac Square #2, a Texas General Partnership, Lessee, dated March 28, 1974 and recorded September 11, 1974 in Book 943 at Page 152. 21 10. Sublease between Tamarac Square #2, a Texas General Partnership, Sublessor, and The Empire Savings, Building and Loan Association, a Colorado Savings and Loan Association, Sublessee, as evidenced by Short Form Sublease dated April 23, 1974, recorded September 11, 1974 in Book 943 at Page 155, providing for a term of 26 years (commencing date not set forth) together with options to extend said term 4 successive periods of 10 years each. 11. Non-Disturbance Agreement between Tamarac Square #1, a Partnership and The Empire Savings, Building and Loan Association, a Colorado Corporation, recorded September 11, 1974 in Book 943 at Page 164. 12. Easement and right of way for construction, maintenance, removal and replacement of a sidewalk 2 feet in width, as Square #1 granted to the City and County of Denver by Tamarac Square #1 in the instrument recorded December 20, 1974 in Book 988 Page 582. 13. Easement and right of way for pipelines and appurtenances granted to the City and County of Denver, acting by and through its Board of Water Commissioners, by Tamarac Square #1, a Co-Partnership, in the instrument recorded May 28, 1975 in Book 1060 at Page 701, as amended by instruments recorded July 11, 1975 in Book 1085 at Page 666 and September 29, 1975 in Book 1128 at Page 567. 14. Lease between Tamarac Square #1, a Partnership, Lessor, and Stanton-Woods, Inc., a Colorado Corporation, Lessee, recorded March 31, 1977 in Book 1412 at Page 370, providing for a term of 5 years, with an option to extend the lease for 2 additional terms of 5 years each as to all space under this Short Form Lease. 15. Non-Disturbance Agreement between Connecticut General Life Insurance Company and The Empire Savings, Building and Loan Association, recorded August 7, 1978 in Book 1720 at Page 40. 16. Assignment of Ground Lease described under Exceptions Number 9 and 10 herein, to the Empire Savings, Building and Loan Association, recorded August 7, 1978 in Book 1720 at Page 29. 17. Amendment to Lease described under Exceptions Numbered 9 and 10 herein to the Empire Savings, Building and Loan Association, recorded August 7, 1978 in Book 1720 at Page 25. -2- 22 18. Easement and right of way for construction easement, as granted to Crow-Watson #1, a Texas Limited Partnership by Tamarac Square #1, a Texas Limited Partnership, in the instrument recorded September 29, 1978 in Book 1759 at Page 260. 19. Easement and right of way for Sanitary Sewer granted by Monaco Investment Co. to Goldsmith Gulch Sanitation District by instrument recorded March 21, 1963 in Book 1416 at Page 379, Arapahoe County Records. 20. Easement and right of way to construct, operate, maintain and remove such communication and other facilities, as granted to The Mountain States Telephone and Telegraph Company, a Colorado Corporation by Community Development Co., et al, in the instrument recorded September 30, 1970 in Book 230 at Page 614. 21. Easement and right of way for ingress and egress purposes, as granted to the City and County of Denver, a Municipal Corporation, by Tamarac Square #1, a Partnership of Trammell Crow Company, in the instrument recorded December 5, 1974 in Book 981 at Page 338. 22. Easement and right of way for the installation, construction, reconstruction, maintenance, operation, control and use of electric conductors, conduit equipment and related facilities in and through the electric service system, as granted to Public Service Company of Colorado, a Colorado Corporation, by Tamarac Square #1, a Partnership, in the instrument recorded May 2, 1975 in Book 1047 at Page 187. 23. Easement and right of way for utility lines, as granted to Public Service Company of Colorado by Mickey E. Fouts, in the instrument recorded June 20, 1975 in Book 1074 at Page 209. 24. Easement and right of way for sewer purposes, as granted to the City and County of Denver, a Colorado Municipal Corporation, by Tamarac Square #1, a Co-Partnership, in the instrument recorded September 23, 1975 in Book 1125 at Page 176. 25. Easement and right of way for utility lines, as granted to Public Service Company of Colorado by Mickey E. Fouts of Trammell Crow Company, in the instrument recorded September 17, 1976 in Book 1318 at Page 641. -3- 23 26. Easement and right of way for gas distribution main system and all pipelines, fixtures and devices, used or useful in the operation of said system, as granted to Public Service Company of Colorado by Crow Tamarac Square Associates, a Texas Limited Partnership, in the instrument recorded November 8, 1976 in Book 1344 at Page 89. 27. Terms, agreements, provisions, conditions and obligations as contained in Assignment of Real Estate Lease and Agreement recorded January 3, 1977 in Book 1370 at Page 46, among Teper's Jewelers, Inc., Lessee/Borrower, Tamarac Square #1, a Partnership, Lessor, and Southwest State Bank, Assignee. 28. Easement and right of way for the installation, construction, reconstruction, maintenance, operation, control and use of electric conductors, conduit, equipment and related facilities in and through the electric service system, including conduit and direct buried cable, as granted to Public Service Company of Colorado, a Colorado Corporation, by Crow-Tamarac Square Associates, in the instrument recorded March 14, 1977 in Book 1403 at Page 230. 29. Terms, agreements, provisions, conditions and obligations as contained in Consent & Waiver, recorded April 13, 1977 in Book 1419 at Page 410, among Crow-Tamarac Square Associates, Owner/Landlord or Mortgagee of Real Estate, Benihana of Tokyo, Inc., Occupant/Purchaser or Lessor of equipment from Equico Lessors, Inc., described in Schedule A of said instrument in book 1419 at Page 410. 30. Terms, agreements, provisions, conditions and obligations as contained in Assignment of Real Estate Lease and Agreement recorded December 23, 1976 in Book 1366 at Page 300 and re-recorded February 10, 1982 in Book 2533 at Page 103, among Maximus Four Ltd., d/b/a Bagel Nosh, Lessee/Borrower, Tamarac Square #1, Lessor and Southeast State Bank, Assignee. 31. Reciprocal Easement Agreement by and between Annuity Board of The Southern Baptist Convention and Crow Tamarac Square Associates, recorded July 17, 1978 in Book 1706 at Page 91. 32. Rights of tenants in possession under approved leases. 33. Lien for taxes not yet due and payable. 3224j -4- EX-10.14 12 DEED OF TRUST (TAMARAC SQUARE CONVENIENCE CENTER) 1 EXHIBIT 10.14 TAMARAC CENTER DEED OF TRUST (WITH SECURITY AGREEMENT AND ASSIGNMENT OF RENTS AND LEASES) By this instrument (this "Mortgage"), dated as of November 22, 1985, to be effective as of November 27, 1985, the undersigned, TRAMMELL CROW REAL ESTATE INVESTORS, a Texas real estate investment trust (hereinafter referred to as "Grantor"), whose address is 2001 Ross Avenue, 3500 LTV Center, Dallas, Texas 75201, to secure the obligations hereinafter described, does hereby GRANT, BARGAIN, SELL, ASSIGN and CONVEY unto the Public Trustee of the City and County of Denver, State of Colorado (hereinafter referred to as "Trustee"), to secure payment to J. HENRY SCHRODER BANK & TRUST COMPANY, a New York banking corporation (the "Indenture Trustee") the trustee under that certain indenture (the "Indenture"), dated as of November 15, 1985, by and between Grantor and the Indenture Trustee, pertaining to certain zero coupon notes due 1997, payable to the order of the Holders, a copy of which Indenture is attached hereto as Exhibit A and incorporated herein by this reference for all purposes, the following described mortgaged property (the "Mortgaged Property"), to wit: All of the real property located in the City and County of Denver, State of Colorado, described on the attached Exhibit B which is incorporated herein by reference (the "Land"), subject to the exceptions described on the attached Exhibit C which is incorporated herein by reference (the "Permitted Exceptions"), TOGETHER WITH all of Grantor's right, title and interest in and to the following, whether now owned or hereafter acquired: (a) all improvements and fixtures now or hereafter attached to or placed, erected, constructed or developed on the Land (the "Improvements"); (b) all equipment, machinery, furnishings, inventory, chattels and all other articles of personal property (the "Personal Property") now or hereafter attached to, relating to or used in or about the Improvements or the Land; (c) all water and water rights, timber, crops and mineral interests pertaining to the Land; (d) all building materials and equipment now or hereafter delivered and installed or intended to be installed in or on the Land or the Improvements; (e) all plans, specifications and drawings for the Improvements; (f) all deposits (including tenants' security deposits and escrow deposits under contracts of sale), documents, contract rights, commitments, construction contracts, architectural agreements and general intangibles 2 (including, without limitation, trademarks, trade names and symbols but expressly excluding the right to use the name "Trammell Crow" or any name associated therewith or derived therefrom); (g) all permits, licenses, franchises, certificates and other rights and privileges relating to or obtained in connection with the Land, the Improvements or the Personal Property; (h) all proceeds arising from or by virtue of the sale, lease or other disposition, encumbrance or refinancing, of the Land, the Improvements and the Personal Property; (i) all proceeds (including premium refunds) of each policy of insurance relating to the Land, the Improvements or the Personal Property; (j) all proceeds from the taking of any of the Land, the Improvements, the Personal Property or any rights appurtenant thereto by right of eminent domain or by private or other purchase in lieu thereof including change of grade of streets, curb cuts or other rights of access; (k) all streets, roads, public places, easements and rights-of-way, existing or proposed, public or private, located on or adjacent to or used in connection with the Land; (l) all of the leases, subleases, licenses or other agreements relating to the Land, the Improvements or the Personal Property, and all rents, deposits, royalties, bonuses, issues, profits, revenues, income or other benefits of the Land, the Improvements or the Personal Property, including, without limitation, cash, securities, letters of credit, guarantees or other instruments deposited pursuant to leases to secure performance by the lessees of their obligations thereunder and cash deposited in impound accounts for the payment of taxes and insurance under any deed of trust securing payment of the Indebtedness; (m) all heating, lighting, refrigeration, plumbing, ventilating, incinerating, water heating, transportation, communications, electrical and air-conditioning systems and equipment, sprinkler and fire-extinguishing systems, security systems, maintenance equipment and other fixtures or systems used in connection with the Land, the Improvements and the Personal Property; (n) all rights, hereditaments, strips, gores and appurtenances pertaining to the foregoing; and (o) all replacements, betterments, substitutions, renewals and additions to any of the above-described Mortgaged Property; and all proceeds of any of the above-described Mortgaged Property. TO HAVE AND TO HOLD the same, together with all and singular the privileges and appurtenances thereunto belonging, in trust, nevertheless, that in case of an Event of Default (hereinafter defined) the Indenture Trustee may declare a violation hereof and elect to advertise the Mortgaged Property for sale and demand such sale. Then, upon filing notice of such election and demand for sale with Trustee, who shall upon receipt of such notice of election and demand for sale cause a -2- 3 copy of the same to be recorded in the office of the Clerk and Recorder of the county in which said Mortgaged Property is situated, it shall and may be lawful for said Trustee to sell and dispose of the same (en masse or in separate parcels, as said Trustee may think best) and all the right, title and interest of Grantor, its successors and assigns therein, at public auction at the Bannock Street main entrance of the City and County Building in the City and County of Denver, State of Colorado, or at the main entrance to any future courthouse in and for said City and County of Denver, or on the Mortgaged Property, or any part thereof, as may be specified in the notice of such sale, for the highest and best price the same will bring in cash, four weeks' public notice having been previously given of the time and place of such sale, by advertisement weekly in some newspaper of general circulation at that time published in the City and County of Denver (which date of sale may be more than sixty but not more than one hundred twenty days after the filing of notice of election and demand, unless extended by the Indenture Trustee as provided by law). A copy of such notice of sale shall be mailed within ten days from the date of the first publication thereof to Grantor at its address given herein and to such person or persons appearing to have acquired a subsequent record interest in the Mortgaged Property at the address given in the recorded instrument evidencing such interest; provided, that where only the county and state is given as the address then such notice shall be mailed to the county seat. Trustee shall then make and give to the purchaser or purchasers of such Mortgaged Property at such sale, a certificate or certificates in writing describing such Mortgaged Property purchased, and the sum or sums paid therefor, and the time when the purchaser or purchasers (or other persons entitled thereto) shall be entitled to a deed or deeds therefor, unless the same shall be redeemed as provided by law, and said Trustee shall, upon demand by the person or persons holding the said certificate or certificates of purchase, when said demand is made, or upon demand by the person entitled to a deed to and for the Mortgaged Property purchased, at the time such demand is made (the time for redemption having expired) make and execute to such person or persons a deed or deeds to the Mortgaged Property purchased, which said deed or deeds shall be in the ordinary form of a conveyance, and shall be signed, acknowledged and delivered by Trustee, as grantor, and shall convey and quitclaim to such person or persons entitled to such deed, as grantee, the said Mortgaged Property purchased as aforesaid, and all the right, title, interest, benefit and equity of redemption of Grantor, its successors and assigns therein, and shall recite the sum or sums for which the said Mortgaged Property was sold and shall refer to the power of -3- 4 sale herein contained, and to the sale or sales made by virtue thereof. In case of an assignment of such certificate or certificates of purchase or in the case of redemption of such Mortgaged Property by a subsequent encumbrancer, such assignment or redemption shall also be referred to in such deed or deeds, but the notice of sale need not be set out in such deed or deeds. Trustee shall, out of the proceeds or avails of such sale, after first paying and retaining all fees, charges and costs of making said sale, pay to the Indenture Trustee all amounts due pursuant to the Indenture, rendering the overplus, if any, unto Grantor. Such sale or sales and said deed or deeds so made shall be a perpetual bar, both in law and equity, against Grantor and its successors and assigns, and all other persons claiming the said Mortgaged Property, or any part thereof by, through, from or under Grantor. It shall not be obligatory upon the purchaser or purchasers at any such sale to see to the application of the purchase money. If a release deed be required, Grantor or its successors or assigns shall pay the expense thereof. Nothing herein dealing with foreclosure procedures or specifying particular actions to be taken by the Indenture Trustee or by Trustee shall be deemed to contradict or add to the requirements and procedures (now or hereafter existing) of Colorado law and any such conflict or inconsistency shall be resolved in favor of Colorado law applicable at the time of foreclosure. AND Grantor, for itself and its successors and assigns, covenants and agrees to and with Trustee for the benefit of the Indenture Trustee, that at the time of the ensealing and delivery of these presents Grantor is well seised of the Property in fee simple, and that Grantor has good right, full power and lawful authority to grant, bargain, sell and convey the Mortgaged Property in manner and form as aforesaid, hereby fully and absolutely waiving and releasing all rights and claims in or to the Mortgaged Property as homestead or other exemption, under and by virtue of the Constitution of the State of Colorado or of any act of the General Assembly of said State, now existing or which may hereafter be enacted in relation thereto; and that the same are free and clear of all liens and encumbrances whatsoever, excepting only those matters set forth in Exhibit B attached hereto and by this reference made part hereof. AND the above bargained Property in the quiet and peaceable possession of Trustee, his successors and assigns, against all and every person or persons lawfully claiming or to claim the whole or any part thereof, Grantor shall and will warrant and forever defend. -4- 5 ARTICLE I INDEBTEDNESS This Mortgage is given to secure the payment of all sums and performance of all obligations and covenants contained in this Mortgage and of the Indenture. Unless otherwise defined herein, certain capitalized terms shall have the meaning ascribed to said terms by the Indenture. The above-described obligations are hereinafter collectively called the "Indebtedness." ARTICLE II ASSIGNMENT OF RENTS AND LEASES 2.1 Assignment of Rents, Profits, etc. Grantor hereby absolutely and unconditionally assigns to the Indenture Trustee all of its right, title and interest in and to the rents, royalties, bonuses, issues, profits, revenue, income and other benefits derived from the Mortgaged Property or arising from the use or enjoyment of any portion thereof or from any lease, sublease, licenses or other agreement pertaining thereto, and any and all damages following default under such leases, and all proceeds payable under any policy of insurance covering loss of rents resulting from untenantability, together with any and all rights that Grantor may have against any tenant under such leases or any subtenants or occupants or users of any part of the Mortgaged Property (collectively, the "Rents"). Prior to an Event of Default (as hereinafter defined), Grantor shall have a license to collect and receive all Rents and to apply same in accordance with the terms and provisions of the Indenture. 2.2 Assignment of Leases. Grantor hereby absolutely and unconditionally assigns to the Indenture Trustee all of its right, title and interest in and to existing and future leases, including subleases thereunder, and any and all extensions, renewals, modifications, and replacements thereof, covering any part of the Mortgaged Property (collectively, the "Leases"). Grantor hereby further assigns to the Indenture Trustee all guaranties of tenants' performances under the Leases. 2.3 Indenture Trustee in Possession. The Indenture Trustee's acceptance of this assignment shall not be deemed to constitute the Indenture Trustee a "mortgagee in possession" nor obligate the Indenture Trustee to appear in or defend any proceeding relating to any of the Leases or to the Mortgaged -5- 6 Property, or to take any action hereunder, expend any money, incur any expenses, or perform any obligation or liability under the Leases, or assume any obligation for any deposits delivered to Grantor by any tenant and not delivered to the Indenture Trustee, prior to entry upon and taking possession of the Mortgaged Property by the Indenture Trustee. The Indenture Trustee shall not be liable for any injury or damage to person or property in or about the Mortgaged Property. 2.4 Indemnification. Grantor hereby agrees to indemnify the Indenture Trustee and hold the Indenture Trustee harmless from all liability, damage or expense incurred by the Indenture Trustee from any claims under the Leases as well as all amounts indemnified against under the Indenture. All amounts indemnified against hereunder, including reasonable attorneys' fees, if paid by the Indenture Trustee shall be payable by Grantor immediately upon demand by the Indenture Trustee and shall be secured hereby. 2.5 Right to Rely. After the occurrence of an Event of Default (hereinafter defined), Grantor hereby authorizes and directs the tenants under the Leases to pay Rents to the Indenture Trustee upon written demand by the Indenture Trustee, without further consent of Grantor, and the tenants may rely upon any written statement delivered by the Indenture Trustee to the tenants. Any such payment to the Indenture Trustee shall satisfy the obligations of such tenant to make payment to Grantor under the Leases to the extent of the payment made to the Indenture Trustee. ARTICLE III SECURITY AGREEMENT 3.1 Security Interest. This Mortgage shall be a security agreement between Grantor, as the debtor, and the Indenture Trustee, as the secured party, covering the Mortgaged Property constituting personal property or fixtures governed by the Uniform Commercial Code, as enacted and amended from time to time in the state in which the Land is situated (hereinafter called the "Code"), and Grantor grants to the Indenture Trustee a security interest in such portion of the Mortgaged Property. In addition to the Indenture Trustee's other rights hereunder, the Indenture Trustee shall have all rights of a secured party under the Code. Grantor shall execute and deliver to the Indenture Trustee all financing statements that may be necessary or advisable to establish and maintain the validity, perfection and priority of the Indenture Trustee's security -6- 7 interest, and Grantor shall bear all costs thereof, including all Code searches reasonably required by the Indenture Trustee. If the Indenture Trustee should desire to dispose of any of the Mortgaged Property pursuant to the Code, and if the Code requires prior notice to Grantor of such disposition, ten (10) days written notice by the Indenture Trustee to Grantor shall be deemed to be reasonable notice; provided, however, the Indenture Trustee may dispose of such property in accordance with the foreclosure procedures hereof in lieu of proceeding under the Code. 3.2 Notice of Changes. Grantor shall give advance notice in writing to the Indenture Trustee of any proposed change in Grantor's name, identity, or structure and shall execute and deliver to the Indenture Trustee, prior to or concurrently with the occurrence of any such change, all additional financing statements that the Indenture Trustee may require to establish and maintain the validity and priority of the Indenture Trustee's security interest with respect to any of the Mortgaged Property. 3.3 Financing Statement. Some of the items of the Mortgaged Property described herein are goods that are or are to become fixtures related to the Land, and it is intended that, as to those goods, this instrument shall be effective as a financing statement filed as a fixture filing from the date of its filing for record in the real estate records of the county in which the Mortgaged Property is situated. Information concerning the security interest created by this instrument may be obtained from the Indenture Trustee, as secured party, at the address of One State Street, New York, New York 10015. The mailing address of Grantor as debtor is as stated above. ARTICLE IV REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF GRANTOR Grantor does hereby warrant and represent to and covenant and agree with the Indenture Trustee as follows: 4.1 Title to Mortgaged Property and Lien of this Mortgage. Grantor has good and marketable title to the Land and the Improvements, and good and marketable title to the remainder of the Mortgaged Property, free and clear of any liens, charges, encumbrances, security interests and adverse claims whatsoever, except for the Permitted Exceptions. -7- 8 4.2 Limitation of Liability. Any obligation or liability whatsoever of the Grantor which may arise at any time under this Mortgage, or any obligation or liability incurred by it pursuant to any other instrument, transaction or undertaking contemplated by this Mortgage, shall be satisfied, if at all, out of the Grantor's property only. No such obligation or liability shall be personally binding upon nor shall there be any resort for the enforcement thereof to the private property of any of its Trust Managers, shareholders, officers, employees or agents, regardless of whether such obligations or liability are in the nature of contract, tort or otherwise. 4.3 Repair. Grantor will cause the Mortgaged Property to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, which in the judgment of the Grantor may be necessary or prudent so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however that nothing in this Section 4.3 shall prevent the Grantor from discontinuing the operation and maintenance of any of its properties if such discontinuance is, in the judgment of the Grantor, desirable in the conduct of its business and not disadvantageous in any material respect to the Holders. 4.4 Insurance. (a) Grantor will at all times keep all the Mortgaged Property of an insurable nature and of the character usually insured by companies operating similar properties, insured in amounts customarily carried, and against loss or damage from such causes as are customarily insured against, by similar companies. (b) All such insurance shall be effected with insurance carriers having a claims paying rating of "AA" or better by Standard & Poor's Corporation. All policies or other contracts for such insurance on the Mortgaged Property shall provide that the proceeds of such insurance (except in the case of any particular casualty resulting in damage or destruction not exceeding $931,242.75 in the aggregate) shall be payable, subject to the requirements of any Prior Lien, to the Indenture Trustee as its interest may appear (by means of a standard mortgagee clause or other similar clause acceptable to the Indenture Trustee, without contribution). Each policy or other contract for such insurance, or such mortgagee clause, shall contain an agreement by the insurer that, notwithstanding any right of cancellation reserved to such insurer, such policy or -8- 9 contract shall not be cancelled unless and until the insurer has provided the Indenture Trustee written notice thirty calendar days prior to cancellation. As soon as practicable after the execution of this Mortgage, and within 120 calendar days after the close of each fiscal year thereafter, and at any time upon the request of the Indenture Trustee, Grantor will deliver to the Indenture Trustee an officer certificate containing a detailed list of the insurance in force upon the Mortgaged Property on a date therein specified (which date shall be within 30 calendar days of the filing of such certificate), including the names of the insurers with which the policies and other contracts of insurance of the Mortgaged Property are carried, the numbers, amounts and expiration dates of such policies and other contracts and the property and hazards covered thereby, and stating that the insurance so listed complies with this Section 4.4, together with copies of all insurance policies or certificates thereof. (c) All proceeds of any insurance of any part of the Mortgaged Property not payable to the Indenture Trustee or the trustee, mortgagee or other holder or beneficiary of a Prior Lien shall be applied in accordance with the Indenture. In the event that the proceeds of insurance are made available for restoration, Grantor shall restore the Improvements to substantially the same condition and quality of the Improvements prior to the casualty. 4.5 Taxes. Grantor will pay, prior to delinquency, all taxes, assessments and governmental charges or levies imposed upon it or the Mortgaged Property, and all claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like persons which, if unpaid, might result in the creation of a lien upon the Mortgaged Property; provided that items of the foregoing description need not be paid while being contested in good faith and by appropriate proceedings, so long as such contest shall not create a risk of forfeiture of all or any portion of the Mortgaged Property. Nothing contained herein shall constitute the consent of the Indenture Trustee to subject the Mortgaged Property to any of the aforesaid liens. 4.6 Casualty and Condemnation. All proceeds, judgments, decrees and awards for injury or damage to the Mortgaged Property, and all awards pursuant to proceedings for condemnation thereof, are hereby assigned in their entirety to the Indenture Trustee, who shall apply the same in accordance with the Indenture. Immediately upon its obtaining knowledge of the institution or the threatened institution of any proceedings for the condemnation of the Mortgaged Property, Grantor shall notify the Indenture Trustee of such fact. -9- 10 Grantor shall then, if requested by the Indenture Trustee, file or defend its claim thereunder and prosecute same with due diligence to its final disposition and shall cause any awards or settlements to be paid over to the Indenture Trustee for disposition pursuant to the terms of sub-section 4.4(c) hereinabove. The Indenture Trustee shall be entitled to participate in same and to be represented therein by counsel of its own choice, and Grantor shall deliver, or cause to be delivered, to the Indenture Trustee such instruments as may be requested by it from time to time to permit such participation. 4.7 Compliance with Laws. Grantor shall cause the Mortgaged Property and the use thereof to comply with all laws, rules, ordinances, regulations, covenants, conditions, restrictions, orders and decrees of any governmental authority or court applicable to Grantor or the Mortgaged Property and its use, and Grantor shall pay all fees or charges of any kind in connection therewith. 4.8 Operation. For so long as there is no Event of Default hereunder, Grantor may use and operate, alter and improve, manage, lease and maintain the Land, Improvements and Personal Property in accordance with customary and prudent management practices and in accordance with the provisions hereof and of the Indenture. 4.9 Successors and Assigns; Use of Terms. The covenants herein contained shall bind, and the benefits and advantages hereof shall inure to, the respective heirs, executors, administrators, personal representatives, successors and assigns of the parties hereto. Whenever used, the singular number shall include the plural and the plural the singular, and the use of any gender shall be applicable to all genders. The duties, covenants, conditions, obligations and warranties of Grantor in this instrument shall be joint and several obligations of Grantor and of each Grantor, if more than one, and of each Grantor's heirs, personal representatives, successors and assigns. Each party who executes this instrument and each subsequent owner of the Mortgaged Property, or any part thereof (other than Trustee), covenants and agrees that it will perform, or cause to be performed, each term and covenant of this instrument as if such party were the named Grantor. 4.10 Severability. If any provision of this instrument is held to be illegal, invalid, or unenforceable under present or future laws effective while this instrument is in effect, the legality, validity and enforceability of the remaining provisions of this instrument shall not be affected thereby, -10- 11 and in lieu of each such illegal, invalid or unenforceable provision there shall be added automatically as a part of this instrument a provision that is legal, valid and enforceable and as similar in terms to such illegal, invalid or unenforceable provision as may be possible. 4.11 Unsecured Indebtedness. If any of the Indebtedness shall be unsecured, the unsecured portion of the Indebtedness shall be completely paid prior to the payment of the secured portion of such Indebtedness, and all payments made on account of the Indebtedness shall be considered to have been paid on and applied first to the complete payment of the unsecured portion of the Indebtedness. 4.12 Modification or Termination. This Mortgage may only be modified in accordance with the terms of the Indenture. 4.13 No Partnership. Nothing contained in this Mortgage is intended to create any partnership, joint venture or association between Grantor and the Indenture Trustee, or in any way make the Indenture Trustee a co-principal with Grantor with reference to the Mortgaged Property, and any inferences to the contrary are hereby expressly negated. 4.14 Headings. The Article, Paragraph and Subparagraph headings hereof are inserted for convenience of reference only and shall not alter, define, or be used in construing the text of such Articles, Paragraphs or Subparagraphs. 4.15 Governing Law. This Mortgage and the enforcement of the provisions hereof shall be governed by the laws of the State of Colorado and the laws of the United States applicable to transactions in such state. ARTICLE V EVENTS OF DEFAULT 5.1 Default of Indenture. It shall be an "Event of Default" hereunder if Grantor commits an Event of Default, as that term is defined by the Indenture. -11- 12 ARTICLE VI REMEDIES If an Event of Default shall occur, Trustee may exercise any one or more of the remedies provided in the Indenture or the following remedies, without notice: 6.1 Enforcement of Assignment of Rents and Leases. Trustee may: (a) terminate the license granted to Grantor to collect the Rents and enforce the Leases, and thereafter collect and sue for the Rents in Trustee's own name, give receipts and releases therefor, and after deducting all expenses of collection, including reasonable attorneys' fees, apply the net proceeds thereof to any Indebtedness in accordance with the Indenture; (b) make, modify, enforce, cancel or accept surrender of any Leases, evict tenants, adjust the Rents, maintain, decorate, refurbish, repair, clean, and make space ready for renting, and otherwise do anything Trustee deems advisable in connection with the Mortgaged Property; (c) apply the Rents so collected to the operation and management of the Mortgaged Property, including the payment of reasonable management, brokerage and attorneys' fees, or to the Indebtedness; and (d) require Grantor to transfer all security deposits and records thereof to Trustee. 6.2 Foreclosure. The Indenture Trustee may direct the Trustee sell all or part of the Mortgaged Property pursuant to the terms hereof. 6.3 Tenancy at Will. In the event of a trustee's sale hereunder and if at the time of such sale Grantor or any other party occupies the portion of the Mortgaged Property so sold or any part thereof, such occupant, at the option of such purchaser, shall immediately become the tenant of the purchaser at such sale, which tenancy, at the option of such purchaser, shall be a tenancy at will, at a reasonable rental per day based upon the value of the portion of the Mortgaged Property so occupied, such rental to be due and payable daily to the purchaser. An action of forcible detainer shall lie if the tenant holds over after a demand in writing for possession of such Mortgaged Property. -12- 13 6.4 Indemnification of Trustee. Except for gross negligence or willful misconduct, Trustee shall not be liable for any act or omission or error of judgment in connection with exercising the remedies provided herein. Trustee may rely on any document believed by him in good faith to be genuine. All money received by Trustee shall, until used or applied as herein provided, be held in trust, but need not be segregated (except to the extent required by law), and Trustee shall not be liable for interest thereon. Grantor shall indemnify Trustee and hold Trustee harmless against all liability, cost, damage or expense that Trustee may incur in the performance of his duties hereunder. 6.5 Lawsuits. Trustee may proceed by a suit or suits in equity or at law, whether for the specific performance of any covenant or agreement herein contained or in aid of the execution of any power herein granted, or for any foreclosure hereunder or for the sale of the Mortgaged Property under the judgment or decree of any court or courts of competent jurisdiction. 6.6 Entry on Mortgaged Property. Upon occurrence of an Event of Default hereunder, the Indenture Trustee may enter into and upon and take possession of all or any part of the Mortgaged Property, and may exclude Grantor, and all persons claiming under Grantor, and its or their agents or servants, wholly or partly therefrom; and, holding the same, the Indenture Trustee may use, administer, manage, operate, and control the Mortgaged Property and may exercise all rights and powers of Grantor in the name, place and stead of Grantor, or otherwise, as the Indenture Trustee shall deem best; and in the exercise of any of the foregoing rights and powers the Indenture Trustee shall not be liable to Grantor for any loss or damage thereby sustained unless due solely to the willful misconduct or gross negligence of the Indenture Trustee. The Indenture Trustee's powers shall include the right to complete construction of any part of the Mortgaged Property and to make any repairs or alterations necessary or advisable for the successful operation of the Mortgaged Property. 6.7 Trustee or Receiver. The Indenture Trustee may make application to a court of competent jurisdiction, as a matter of strict right and without notice to Grantor or regard to the adequacy of the Mortgaged Property for the repayment of the Indebtedness, for appointment of a receiver of the Mortgaged Property, and Grantor does hereby irrevocably consent to such appointment. Any such receiver shall have all the usual powers and duties of receivers in similar cases, including the full -13- 14 power to rent, maintain and otherwise operate the Mortgaged Property upon such terms as may be approved by the court, and shall apply the Rents in accordance with the provisions hereof. 6.8 Remedies Cumulative, Concurrent and Nonexclusive. The Indenture Trustee shall have all rights, remedies and recourses granted in this Mortgage or the Indenture or available at law or equity (including, without limitation, those granted by the Code and applicable to the Mortgaged Property, or any portion thereof) and the same (a) shall be cumulative and concurrent, (b) may be pursued separately, successively or concurrently against Grantor or others obligated for the Indebtedness, or any part thereof or against any one or more of them, or against the Mortgaged Property, at the sole discretion of the Indenture Trustee, (c) may be exercised as often as occasion therefor shall arise, it being agreed by Grantor that the exercise or failure to exercise any of the same shall in no event be construed as a waiver or release thereof or of any other right, remedy or recourse, and (d) are intended to be, and shall be, nonexclusive, nor shall exercise of any one or more constitute a waiver of a right to any other right, remedy or recourse thereafter. 6.9 Compensation to Trustee. Grantor hereby agrees to pay to Trustee reasonable compensation for all services rendered by it hereunder and to reimburse Trustee upon request for all reasonable expenses, disbursements and advances incurred or made by Trustee in accordance with any provision hereof. ARTICLE VII 7.1 Prior Liens. It is expressly understood and agreed that the lien of this Mortgage is subject, subordinate and inferior to the lien of that certain Deed of Trust duly filed of public record in Volume 1759, Page 347 of the Deed of Trust Records of Denver County, Colorado (the "Prior Lien"), securing the payment of that certain promissory note dated September 29, 1978, in the original principal amount of $1,600,000.00, executed by Crow-Watson #1 and payable to the order of Connecticut General Life Insurance Company. Notwithstanding anything contained herein to the contrary, in the event that any of the obligations of Grantor herein (except for the obligations set forth in paragraph 2.4 hereof) conflict with any of the obligations of Grantor set forth in the Prior Lien, the obligations of the Prior Lien shall control and such conflicting obligations hereof shall be of no force and effect to the extent of such conflict. -14- 15 This Deed of Trust is being delivered and recorded prior to its effective date and such delivery shall continue through the effective date and thereafter to the extent necessary to complete such delivery and the conveyance intended by this Deed of Trust. EXECUTED as of the date first set forth above. GRANTOR: TRAMMELL CROW REAL ESTATE INVESTORS, a Texas real estate investment trust By: /s/ DAVID CLOSSEY Name: David Clossey Trust Manager 5361r -15- 16 STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, personally appeared David F. Clossey, Trust Manager of Trammell Crow Real Estate Investors, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed same as the act of such trust, for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 22nd day of November, 1985. My Commission Expires: /s/ SUSANNE FORD NOTARY PUBLIC IN AND FOR THE STATE OF TEXAS SUSANNE FORD {SEAL} NOTARY PUBLIC STATE OF TEXAS COMMISSION EXPIRES: 4-16-89 5361r -16- 17 Tamarac Center EXHIBIT B A parcel of land located in the W 1/2 of the SW 1/4 of Section 33, Township 4 South, Range 67 West of the 6th P.M., more particularly described as follows: COMMENCING on a point on the North Right-of-Way line of Hampden Avenue as deeded and recorded in Book 948 at Page 518 of the Records of Arapahoe County, said point being 60 feet North of the South line of said SW 1/4 and also being the TRUE POINT OF BEGINNING of the right of way description of South Tamarac Drive as deeded and recorded in Book 73 at Page 7 of the Records of the City and County of Denver; thence Northerly along the Westerly right of way of said South Tamarac Drive, 490.00 feet to a point of curve; thence along a curve to the left having a radius of 1,658.00 feet, a central angle of 28 degrees 12' 32", an arc distance of 816.29 feet; thence on an angle to the left of 89 degrees 23' 43", 125.60 feet to a point of curve; thence along a curve to the right having a radius of 25.00 feet, a central angle of 83 degrees 40' 30", an arc distance of 36.51 feet; thence on an angle to the left of 85 degrees 49' 18", 15.83 feet to the POINT OF BEGINNING; thence continuing along the aforesaid course, 50.05 feet; thence on an angle to the left of 60 degrees 14' 58", 232.98 feet; thence on an angle to the right of 90 degrees 00' 00", 120.75 feet; thence on an angle to the left of 90 degrees 00' 00", 140.54 feet; thence on an angle to the right of 90 degrees 00' 00", 106.40 feet; thence on an angle to the right of 45 degrees 00' 00", 5.56 feet; thence on an angle to the right of 44 degrees 45' 45", 360.19 feet; thence on an angle to the left of 24 degrees 37' 00", 105.81 feet to a point on the Southerly right of way of Eastman Avenue and a point of curve; thence on an angle to the right of 91 degrees 03' 11" and along said Southerly right of way and along a curve to the left having a radius of 680.00 feet, a central angle of 10 degrees 31' 56", an arc distance 125.00 feet to a point of tangent; thence along said Southerly right of way and along said tangent, 123.72 feet; thence on an angle to the right of 94 degrees 44' 50", 221.22 feet to the POINT OF BEGINNING. TOGETHER WITH all right, title and interest of the owner of said property in, to or under that certain Reciprocal Easement Agreement among Tamarac Square #1, Annuity Board of the South Baptist Convention and Tamarac Square #2, date May 23, 1974 and recorded on September 11, 1974 in Book 943 at Page 167 of the real property records of the City and County of Denver, Colorado. 18 TOGETHER WITH all right, title and interest of the owner in, to or under that certain reciprocal easement agreement between Annuity Board of the Southern Baptist Convention and Crow Tamarac Square Associates dated June 7, 1978 and recorded July 17, 1978 in Book 1706 at Page 91. TOGETHER WITH all right, title and interest of the owner of said property in, to or under that certain Construction Easement from Crow Tamarac Square Associates to Crow-Watson #1, dated September 28, 1978 and recorded September 29, 1978 in Book 1759 at Page 260. -2- 19 Tamarac Center EXHIBIT C - PARCEL D 1. Easement and right of way for Sanitary Sewer granted by Monaco Investment Co. to Goldsmith Gulch Sanitation District by instrument recorded March 21, 1963 in Book 1416 at Page 379, Arapahoe County Records. 2. Easement and right of way to construct, operate, maintain and remove such communication and other facilities, as granted to The Mountain States Telephone and Telegraph Company, a Colorado Corporation by Community Development Co., et al, in the instrument recorded September 30, 1970 in Book 230 at Page 614. 3. Covenants, Conditions and Restrictions, which do not contain a forfeiture or reverter clause, but omitting restrictions, if any, based on race, color, religion or national origin, as contained in instrument recorded March 30, 1973 in Book 667 at Page 674. 4. Terms, agreements, provisions, conditions and obligations as contained in Reciprocal Easement among Tamarac Square #1, Annuity Board of the Southern Baptist Convention and Tamarac Square #2, recorded September 11, 1974 in Book 943 at Page 167. 5. Easement and right of way for sewer purposes, as granted to the City and County of Denver, a Colorado Municipal Corporation, by Trammell Crow Company, a General Partnership, in the instrument recorded May 10, 1976 in Book 1243 at Page 243 and as amended by instrument recorded February 2, 1977 in Book 1384 at Page 596. 6. Reciprocal Easement Agreement by and between Annuity Board of The Southern Baptist Convention and Crow Tamarac Square Associates, recorded July 17, 1978 in Book 1706 at Page 91. 7. Easement and right of way for construction easement, as granted to Crow-Watson #1, a Texas Limited Partnership by Tamarac Square #1, a Texas Limited Partnership, in the instrument recorded September 29, 1978 in Book 1759 at Page 260. 8. Pedestrian Bridge Agreement by and between the City and County of Denver, a Municipal Corporation, and Crow-Denoff Associates, a Colorado Limited Partnership, recorded June 9, 1980 in Book 2175 at Page 468. 20 9. Easement and right of way for a Right-of-Way Easement and the right to construct, operate, maintain and remove such communication and other facilities, as granted to Mountain States Telephone and Telegraph Company, a Colorado Corporation by Crow-Watson #1, a Texas Limited Partnership, in the instrument recorded September 26, 1983 in Book 2916 at Page 599. 10. Gulch Agreement by and between Crow Tamarac Square Associates, Crow Denoff Associates, Crow-Watson #7, and Crow-watson #1, recorded May 11, 1984 in Book 3095 at Page 521. 11. Easement and right of way for utility easement, as granted to Public Service Company of Colorado by Crow-Watson #7, a Texas Limited Partnership, in the instrument recorded January 15, 1985 as Reception No. 064966. 12. Deed of Trust from Crow-Watson #1, a Texas Limited Partnership, to the Public Trustee of the City and County of Denver for the use of Connecticut General Life Insurance Company to secure a loan in the original principal amount of $1,600,000 dated September 29, 1978, and recorded on October 2, 1978 in Book 1759 at Page 347. 13. Assignment of Rents recorded October 2, 1978 in Book 1759 at Page 371, given in connection with the above Deed of Trust. 14. Security interest under the Uniform Commercial Code affecting the subject property, notice of which is given by Financing Statement from Crow-Watson #1, debtors, to Connecticut General Life Insurance Company, secured party, filed July 13, 1979 in Book 1959 at Page 433. 15. Rights of tenants in possession under approved leases. 16. Lien for taxes not yet due and payable. 17. Subject to street improvement assessment No. 0593-00052-002, with an unpaid interest balance of $12,605.49. 18. Easement and right of way for pipelines and appurtenances as granted to City and County of Denver, acting by and through its Board of Water Commissioners, by Tamarac Square #1, a Co-Partnership, in the instrument recorded May 28, 1975 in Book 1060 at Page 701, as amended by instruments recorded July 11, 1975 in Book 1085 at Page 666 and September 29, 1975 in Book 1128 at Page 567. 19. Easement and right of way for utility lines, as granted to Public Service Company of Colorado by Crow-Watson #1, a Texas Limited Partnership, in the instrument recorded March 27, 1979 in Book 1877 at Page 267. EX-10.15 13 MORTGAGE WITH SECURITY AGREEMENT (DEERFIELD BEACH) 1 EXHIBIT 10.15 QUADRANT 9/25/86 MORTGAGE (WITH SECURITY AGREEMENT AND ASSIGNMENT OF RENTS AND LEASES) By this instrument (this "Mortgage"), dated as of September 26, 1986, to be effective as of September 30, 1986, the undersigned, TRAMMELL CROW REAL ESTATE INVESTORS, a Texas real estate investment trust (hereinafter referred to as "Mortgagor"), whose address is 2001 Ross Avenue, 3500 LTV Center, Dallas, Texas 75201, to secure the obligations hereinafter described, does hereby grant, bargain, sell, convey, assign and mortgage a security interest unto J. HENRY SCHRODER BANK & TRUST COMPANY, a New York banking corporation, (hereinafter referred to as "Mortgagee"), whose address is One State Street, New York, New York 10015, the trustee under that certain indenture (the "Indenture") dated as of November 15, 1985, by and between Mortgagor and Mortgagee, securing payment of certain zero coupon notes due 1997, payable to the order of the Holders, a copy of which Indenture is attached hereto as Exhibit A and incorporated herein by this reference for all purposes, the following described mortgaged property (the "Mortgaged Property"), to wit: All of the real property located in Broward County, Florida, described on the attached Exhibit B which is incorporated herein by reference (the "Land"), subject to the exceptions described on the attached Exhibit C which is incorporated herein by reference (the "Permitted Exceptions"), TOGETHER WITH all of Mortgagor's right, title and interest in and to the following, whether now owned or hereafter acquired: (a) all improvements and fixtures now or hereafter attached to or placed, erected, constructed or developed on the Land (the "Improvements"); (b) all equipment, machinery, furnishings, inventory, chattels and all other articles of personal property (the "Personal Property") now or hereafter attached to, relating to or used in or about the Improvements or the Land; (c) all water and water rights, timber, crops and mineral interests pertaining to the Land; (d) all building materials and equipment now or hereafter delivered and THIS INSTRUMENT PREPARED BY AND SHOULD BE RETURNED TO: Patrick K. Fox, ESq. Jones, Day, Reavis & Pogue 2001 ROSS Avenue 2300 LTV Center Dallas Texas 75201 2 installed or intended to be installed in or on the Land or the Improvements; (e) all plans, specifications and drawings for the Improvements; (f) all deposits (including tenants' security deposits and escrow deposits under contracts of sale), documents, contract rights, commitments, construction contracts, architectural agreements and general intangibles (including, without limitation, trademarks, trade names and symbols but expressly excluding the right to use the name "Trammell Crow" or any name associated therewith or derived therefrom); (g) all permits, licenses, franchises, certificates and other rights and privileges relating to or obtained in connection with the Land, the Improvements or the Personal Property; (h) all proceeds arising from or by virtue of the sale, lease or other disposition, encumbrance or refinancing, of the Land, the Improvements and the Personal Property; (i) all proceeds (including premium refunds) of each policy of insurance relating to the Land, the Improvements or the Personal Property; (j) all proceeds from the taking of any of the Land, the Improvements, the Personal Property or any rights appurtenant thereto by right of eminent domain or by private or other purchase in lieu thereof including change of grade of streets, curb cuts or other rights of access; (k) all streets, roads, public places, easements and rights-of-way, existing or proposed, public or private, located on or adjacent to or used in connection with the Land; (l) all of the leases, subleases, licenses or other agreements relating to the Land, the Improvements or the Personal Property, and all rents, deposits, royalties, bonuses, issues, profits, revenues, income or other benefits of the Land, the Improvements or the Personal Property, including, without limitation, cash, securities, letters of credit, guarantees or other instruments deposited pursuant to leases to secure performance by the lessees of their obligations thereunder and cash deposited in impound accounts for the payment of taxes and insurance under any deed of trust securing payment of the Indebtedness; (m) all heating, lighting, refrigeration, plumbing, ventilating, incinerating, water heating, transportation, communications, electrical and air-conditioning systems and equipment, sprinkler and fire-extinguishing systems, security systems, maintenance equipment and other fixtures or systems used in connection with the Land, the Improvements and the Personal Property; (n) all rights, hereditaments, strips, gores and appurtenances pertaining to the foregoing; and (o) all replacements, betterments, substitutions, renewals and additions to any of the above-described Mortgaged Property; and all proceeds of any of the above-described Mortgaged Property. -2- 3 TO HAVE AND TO HOLD the Mortgaged Property, together with the rights, Privileges and appurtenances thereto belonging, unto the Mortgagee and its substitutes or successors and assigns forever. And Mortgagor hereby binds itself and its administrators, personal representatives, successors and assigns to warrant and forever defend the Mortgaged Property unto the Mortgagee, its substitutes or successors and assigns, against the claim or claims of all persons claiming or to claim the same or any part thereof; that Mortgagor has full power and lawful right to convey the same in fee simple as aforesaid; that it shall be lawful for Mortgagee at all times peaceably and quietly to enter upon, hold, occupy and enjoy the Mortgaged Property and every part thereof; that the Mortgaged Property is free from all liens and encumbrances; that all property, fixtures and equipment described herein will be fully paid for and free from all liens, encumbrances, title retaining contracts and security interests when delivered and/or installed upon the Mortgaged Property; that such property, fixtures and equipment shall be deemed to be realty and a part of the freehold; that Mortgagor will make such further assurances to prove the fee simple title to all and singular the Mortgaged Property in Mortgagee and to prove the lien and priority of this Mortgage, as may be reasonable required. UNDER AND SUBJECT, nevertheless, to the lien of a certain mortgage securing that certain $1,200,000.00 note executed by Crow-Childress-Donner, Limited and payable to the order of Confederation Life Insurance Company, said mortgage being recorded in the Public Records of Broward County, Florida (hereinafter referred to as the "Prior Lien"). PROVIDED ALWAYS, and these presents are upon the express condition, that if Mortgagor or the successors or assigns of Mortgagor shall pay unto Mortgagee, its successors or assigns, the sums of money mentioned in the notes secured hereby in accordance with the terms of the Indenture, which notes have a maturity date of November 1997. AND any renewals or extensions thereof in whatever form, and the interest thereon as it shall become due, according to the true intent and meaning thereof, together with all advances hereunder, costs, charges and expenses, including a reasonable attorney's fee, which Mortgagee may incur or be put to in collecting the same by foreclosure or otherwise; -3- 4 AND shall duly, promptly and fully perform, discharge, execute, effect, complete, comply with and abide by each and every of the stipulations, agreements, conditions and covenants of the aforesaid notes, of this Mortgage, and of the Indenture; THEN this mortgage and the estate hereby created shall cease and be NULL AND VOID and this instrument shall be released by Mortgagee, at the cost and expense of Mortgagor, and in the case of failure of Mortgagee to release this Mortgage, all claims for statutory penalties and damages are hereby waived. MORTGAGOR COVENANTS AND AGREES to and with Mortgagee that until the indebtedness secured hereby is fully paid: ARTICLE I INDEBTEDNESS This Mortgage is given to secure the payment of all sums and performance of all obligations and covenants contained in this Mortgage and of the Indenture. Unless otherwise defined herein, certain capitalized terms shall have the meaning ascribed to said terms by the Indenture. The above-described obligations are hereinafter collectively called the "Indebtedness" . ARTICLE II ASSIGNMENT OF RENTS AND LEASES 2.1 Assignment of Rents, Profits, etc. Mortgagor hereby absolutely and unconditionally assigns to Mortgagee all of its right, title and interest in and to the rents, royalties, bonuses, issues, profits, revenue, income and other benefits derived from the Mortgaged Property or arising from the use or enjoyment of any portion thereof or from any lease, sublease, licenses or other agreement pertaining thereto, and any and all damages following default under such leases, and all proceeds payable under any policy of insurance covering loss of rents resulting from untenantability, together with any and all rights that Mortgagor may have against any tenant under such leases or any subtenants or occupants or users of any part of the Mortgaged Property (collectively, the "Rents"). Prior to an Event of Default (as hereinafter defined), Mortgagor shall have a license to collect and receive all Rents and to apply same in accordance with the terms and provisions of the Indenture. -4- 5 2.2 Assignment of Leases. Mortgagor hereby absolutely and unconditionally assigns to Mortgagee all of its right, title and interest in and to existing and future leases, including subleases thereunder, and any and all extensions, renewals, modifications, and replacements thereof, covering any part of the Mortgaged Property (collectively, the "Leases"). Mortgagor hereby further assigns to Mortgagee all guaranties of tenants' performances under the Leases. 2.3 Mortgagee in Possession. Mortgagee's acceptance of this assignment shall not be deemed to constitute Mortgagee a "mortgagee in possession" nor obligate Mortgagee to appear in or defend any proceeding relating to any of the Leases or to the Mortgaged Property, or to take any action hereunder, expend any money, incur any expenses, or perform any obligation or liability under the Leases, or assume any obligation for any deposits delivered to Mortgagor by any tenant and not delivered to Mortgagee, prior to entry upon and taking possession of the Mortgaged Property by Mortgagee. Mortgagee shall not be liable for any injury or damage to person or property in or about the Mortgaged Property. 2.4 Indemnification. Mortgagor hereby agrees to indemnify Mortgagee and hold Mortgagee harmless from all liability, damage or expense incurred by Mortgagee from any claims under the Leases as well as all amounts indemnified against under the Indenture. All amounts indemnified against hereunder, including reasonable attorneys' fees, if paid by Mortgagee shall be payable by Mortgagor immediately upon demand by Mortgagee and shall be secured hereby. 2.5 Riqht to Rely. After the occurrence of an Event of Default (hereinafter defined), Mortgagor hereby authorizes and directs the tenants under the Leases to pay Rents to Mortgagee upon written demand by Mortgagee, without further consent of Mortgagor, and the tenants may rely upon any written statement delivered by Mortgagee to the tenants. Any such payment to Mortgagee shall satisfy the obligations of such tenant to make payment to Mortgagor under the Leases to the extent of the payment made to Mortgagee. ARTICLE III SECURITY AGREEMENT 3.1 Security Interest. This Mortgage shall be a security agreement between Mortgagor, as the debtor, and Mortgagee, as the secured party, covering the Mortgaged Property constituting -5- 6 personal property or fixtures governed by the Uniform Commercial Code, as enacted and amended from time to time in the state in which the Land is situated (hereinafter called the "Code"), and Mortgagor grants to Mortgagee a security interest in such portion of the Mortgaged Property. In addition to Mortgagee's other rights hereunder, Mortgagee shall have all rights of a secured party under the Code. Mortgagor shall execute and deliver to Mortgagee all financing statements that may be necessary or advisable to establish and maintain the validity, perfection and priority of Mortgagee's security interest, and Mortgagor shall bear all costs thereof, including all Code searches reasonably required by Mortgagee. If Mortgagee should desire to dispose of any of the Mortgaged Property pursuant to the Code, and if the Code requires prior notice to Mortgagor of such disposition, ten (10) days written notice by Mortgagee to Mortgagor shall be deemed to be reasonable notice; provided, however, Mortgagee may dispose of such property in accordance with the foreclosure procedures hereof in lieu of proceeding under the Code. 3.2 Notice of Chances. Mortgagor shall give advance notice in writing to Mortgagee of any proposed change in Mortgagor's name, identity, or structure and shall execute and deliver to Mortgagee, prior to or concurrently with the occurrence of any such change, all additional financing statements that Mortgagee may require to establish and maintain the validity and priority of Mortgagee's security interest with respect to any of the Mortgaged Property. 3.3 Financing Statement. Some of the items of the Mortgaged Property described herein are goods that are or are to become fixtures related to the Land. To the extent permitted by law, Mortgagor and Mortgagee agree that the items set forth on the financing statements shall be treated as part of the real estate and improvements regardless of the fact that such items are set forth in the financing statement. Such items are contained in the financing statements to create a security interest in favor of Mortgagee in the event such items are determined to be personal property under the law. Information concerning the security interest created by this instrument may be obtained from Mortgagee, as secured party, at the address of Mortgagee stated above. The mailing address of Mortgagor as debtor is as stated above. -6- 7 ARTICLE IV REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF MORTGAGOR Mortgagor does hereby warrant and represent to and covenant and agree with Mortgagee as follows: 4.1 Title to Mortgaged Property and Lien of this Mortgage. Mortgagor has good and indefeasible title to the Land and the Improvements, and good and marketable title to the remainder of the Mortgaged Property, free and clear of any liens, charges, encumbrances, security interests and adverse claims whatsoever, except for the Permitted Exceptions. 4.2 Limitation of Liability. Any obligation or liability whatsoever of the Mortgagor which may arise at any time under this Mortgage, or any obligation or liability incurred by it pursuant to any other instrument, transaction or undertaking contemplated by this Mortgage, shall be satisfied, if at all, out of the Mortgagor's property only. No such obligation or liability shall be personally binding upon nor shall there be any resort for the enforcement thereof to the private property of any of its Trust Managers, shareholders, officers, employees or agents, regardless of whether such obligations or liability are in the nature of contract, tort or otherwise. 4.3 Repair. Mortgagor will cause the Mortgaged Property to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, which in the judgment of the Mortgagor may be necessary or prudent so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however that nothing in this Section 4.3 shall prevent the Mortgagor from discontinuing the operation and maintenance of any of its properties if such discontinuance is, in the judgment of the Mortgagor, desirable in the conduct of its business and not disadvantageous in any material respect to the Holders. 4.4 Insurance. (a) Mortgagor will at all times keep all the Mortgaged Property of an insurable nature and of the character usually insured by companies operating similar properties, insured in amounts customarily carried, and against loss or damage from such causes as are customarily insured against, by similar companies. -7- 8 (b) All such insurance shall be effected with insurance carriers having a claims paying rating of "AA" or better by Standard & Poor's Corporation. All policies or other contracts for such insurance on the Mortgaged Property shall provide that the proceeds of such insurance (except in the case of any particular casualty resulting in damage or destruction not exceeding $1,637,500.00 in the aggregate) shall be payable, subject to the requirements of any Prior Lien, to the Mortgagee as its interest may appear (by means of a standard mortgagee clause or other similar clause acceptable to the Mortgagee, without contribution). Each policy or other contract for such insurance, or such mortgagee clause, shall contain an agreement by the insurer that, notwithstanding any right of cancellation reserved to such insurer, such policy or contract shall not be cancelled unless and until the insurer has provided Mortgagee written notice thirty calendar days prior to cancellation. As soon as practicable after the execution of this Mortgage, and within 120 calendar days after the close of each fiscal year thereafter, and at any time upon the request of the Mortgagee, Mortgagor will deliver to the Mortgagee an officer's certificate containing a detailed list of the insurance in force upon the Mortgaged Property on a date therein specified (which date shall be within 30 calendar days of the filing of such certificate), including the names of the insurers with which the policies and other contracts of insurance of the Mortgaged Property are carried, the numbers, amounts and expiration dates of such policies and other contracts and the property and hazards covered thereby, and stating that the insurance so listed complies with this Section 4.4, together with copies of all insurance policies or certificates thereof. (c) All proceeds of any insurance of any part of the Mortgaged Property not payable to the Mortgagee or the trustee, mortgagee or other holder or beneficiary of a Prior Lien shall be applied in accordance with the Indenture. In the event that the proceeds of insurance are made available for restoration, Mortgagor shall restore the Improvements to substantially the same condition and quality of the Improvements prior to the casualty. 4.5 Taxes. Mortgagor will pay, prior to delinquency, all taxes, assessments and governmental charges or levies imposed upon it or the Mortgaged Property, and all claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like persons which, if unpaid, might result in the creation of a lien upon the Mortgaged Property; provided that items of the foregoing description need not be paid while being -8- 9 contested in good faith and by appropriate proceedings, so long as such contest shall not create a risk of forfeiture of all or any portion of the Mortgaged Property. Nothing contained herein shall constitute the consent of Mortgagee to subject the Mortgaged Property to any of the aforesaid liens. 4.6. Documentary and Other Stamps. If at any time the United States, the State of Florida or any political subdivision thereof, or any department or bureau of any of the foregoing shall require documentary, revenue or other stamps on the notes secured hereby or this Mortgage, Mortgagor on demand shall pay for them and for any interest or penalties payable thereon. 4.7 Casualty and Condemnation. All proceeds, judgments, decrees and awards for injury or damage to the Mortgaged Property, and all awards pursuant to proceedings for condemnation thereof, are hereby assigned in their entirety to Mortgagee, who shall apply the same in accordance with the Indenture. Immediately upon its obtaining knowledge of the institution or the threatened institution of any proceedings for the condemnation of the Mortgaged Property, Mortgagor shall notify Mortgagee of such fact. Mortgagor shall then, if requested by Mortgagee, file or defend its claim thereunder and prosecute same with due diligence to its final disposition and shall cause any awards or settlements to be paid over to Mortgagee for disposition pursuant to the terms of sub-section 4.4(c) hereinabove. Mortgagee shall be entitled to participate in same and to be represented therein by counsel of its own choice, and Mortgagor shall deliver, or cause to be delivered, to Mortgagee such instruments as may be requested by it from time to time to permit such participation. 4.8 Compliance with Laws. Mortgagor shall cause the Mortgaged Property and the use thereof to comply with all laws, rules, ordinances, regulations, covenants, conditions, restrictions, orders and decrees of any governmental authority or court applicable to Mortgagor or the Mortgaged Property and its use, and Mortgagor shall pay all fees or charges of any kind in connection therewith. 4.9 Operation. For so long as there is no Event of Default hereunder, Mortgagor may use and operate, alter and improve, manage, lease and maintain the Land, Improvements and Personal Property in accordance with customary and prudent management practices and in accordance with the provisions hereof and of the Indenture. -9- 10 4.10 Successors and Assigns; Use of Terms. The covenants herein contained shall bind, and the benefits and advantages hereof shall inure to, the respective heirs, executors, administrators, personal representatives, successors and assigns of the parties hereto. Whenever used, the singular number shall include the plural and the plural the singular, and the use of any gender shall be applicable to all genders. The duties, covenants, conditions, obligations and warranties of Mortgagor in this instrument shall be joint and several obligations of Mortgagor and of each Mortgagor, if more than one, and of each Mortgagor's heirs, personal representatives, successors and assigns. Each party who executes this instrument and each subsequent owner of the Mortgaged Property, or any part thereof (other than Mortgagee), covenants and agrees that it will perform, or cause to be performed, each term and covenant of this instrument as if such party were the named Mortgagor. 4.11 Severability. If any provision of this instrument is held to be illegal, invalid, or unenforceable under present or future laws effective while this instrument is in effect, the legality, validity and enforceability of the remaining provisions of this instrument shall not be affected thereby, and in lieu of each such illegal, invalid or unenforceable provision there shall be added automatically as a part of this instrument a provision that is legal, valid and enforceable and as similar in terms to such illegal, invalid or unenforceable provision as may be possible. 4.12 Unsecured Indebtedness. If any of the Indebtedness shall be unsecured, the unsecured portion of the Indebtedness shall be completely paid prior to the payment of the secured portion of such Indebtedness, and all payments made on account of the Indebtedness shall be considered to have been paid on and applied first to the complete payment of the unsecured portion of the Indebtedness. 4.13 Modification or Termination. This Mortgage may only be modified in accordance with the terms of the Indenture. 4.14 No Partnership. Nothing contained in this Mortgage is intended to create any partnership, joint venture or association between Mortgagor and Mortgagee, or in any way make Mortgagee a co-principal with Mortgagor with reference to the Mortgaged Property, and any inferences to the contrary are hereby expressly negated. -10- 11 4.15 Future Advances. It is the intent hereof to secure payment of the notes whether the full amounts thereof shall have been advanced to the Mortgagee at the date hereof or at a later date, and the Mortgagee may, at the sole option of the Mortgagee, from time to time make future advances to the Mortgagor, which advances shall be secured by this Mortgage; provided, however, that the total principal sum of such notes and such advances secured hereby and remaining unpaid, shall not at any time exceed $200,000,000.00, plus interest thereon, and any disbursements made for the payments of attorneys' fees at all trial and appellate levels, taxes, levies or insurance on the property covered by the lien of this Mortgage and other advances made for the protection of the security of the Mortgage, with interest thereon (or such other maximum amount as may from time to time be permitted by law). All such future advances shall be made within the time limit authorized by Florida law for making valid future advances with interest, and all indebtedness created by virtue of such future advances shall be and are secured hereby. All provisions of this Mortgage shall apply to any future advances made pursuant to the provision of this Paragraph. Nothing herein contained shall limit the amount secured by this Mortgage if such amount is increased by advances made by the Mortgagee as herein elsewhere provided and authorized for the protection of the security of the Mortgagee. Nothing contained herein shall be deemed an obligation on the part of the Mortgagee to make any future advances. 4.16 Headings. The Article, Paragraph and Subparagraph headings hereof are inserted for convenience of reference only and shall not alter, define, or be used in construing the text of such Articles, Paragraphs or Subparagraphs. 4.17 Governing Law. This Mortgage and the enforcement of the provisions hereof shall be governed by the laws of the State of Florida except with respect to the obligations of the Mortgagor and the rights of the Mortgagee under Paragraph 2.4, which shall be governed by the laws of the State of New York, and the laws of the United States applicable to transactions in such state. ARTICLE V EVENTS OF DEFAULT 5.1 Default of Indenture. It shall be an "Event of Default" hereunder if Mortgagor commits an Event of Default, as that term is defined by the Indenture. -11- 12 ARTICLE VI REMEDIES If an Event of Default shall occur, Mortgagee may exercise any one or more of the remedies provided in the Indenture or the following remedies, without notice: 6.1 Enforcement of Assignment of Rents and Leases. Mortgagee may: (a) terminate the license granted to Mortgagor to collect the Rents and enforce the Leases, and thereafter collect and sue for the Rents in Mortgagee's own name, give receipts and releases therefor, and after deducting all expenses of collection, including reasonable attorneys' fees, apply the net proceeds thereof to any Indebtedness in accordance with the Indenture; (b) make, modify, enforce, cancel or accept surrender of any Leases, evict tenants, adjust the Rents, maintain, decorate, refurbish, repair, clean, and make space ready for renting, and otherwise do anything Mortgagee deems advisable in connection with the Mortgaged Property; (c) apply the Rents so collected to the operation and management of the Mortgaged Property, including the payment of reasonable management, brokerage and attorneys' fees, or to the Indebtedness; and (d) require Mortgagor to transfer all security deposits and records thereof to Mortgagee. 6.2 Foreclosure. If an Event of Default shall occur, the Mortgagee may foreclose pursuant to this Mortgage. The Mortgagor, in case of an Event of Default and the continuance thereof as aforesaid, does hereby authorize and fully empower the Mortgagee to sell the Mortgaged Property at public auction, and convey the same to the purchaser, agreeably to the statute in such case made and provided. Mortgagee may sell all or any portion of the Mortgaged Property, together or in lots or parcels, and may execute and deliver to the purchase or purchasers of such property good and sufficient deeds of conveyance of fee simple title with covenants of general warranty made on behalf of Mortgagor. In no event shall Mortgagee be required to exhibit, present or display at any such sale any of the personalty described herein to be sold at such sale. Mortgagee making such sale shall receive the -12- 13 proceeds thereof and shall apply the same as follows: (a) first, he shall pay the reasonable expenses of Mortgagee (including any attorney's fees) and the costs and expenses of such sale; (b) second, he shall pay, so far as may be possible, the Indebtedness; (c) third, he shall pay the residue, if any, to the persons legally entitled thereto. Payment of the purchase price to Mortgagee shall satisfy the obligation of the purchaser at such sale therefor, and such purchaser shall not be responsible for the application thereof. The Mortgagee shall also have an option to sell the Mortgaged Property in parcels or in one unit. The sale or sales by Mortgagee of less than the whole of the Mortgaged Property shall not exhaust the power of sale herein granted, and Mortgagee is specifically empowered to make successive sale or sales under such power until the whole of the Mortgaged Property shall be sold; and if the proceeds of such sale or sales of less than the whole of the Mortgaged Property shall be less than the aggregate of the Indebtedness and the expenses thereof, this Mortgage and the lien, security interest and assignment hereof shall remain in full force and effect as to the unsold portion of the Mortgaged Property just as though no sale or sales had been made; provided, however, that Mortgagor shall never have any right to require the sale or sales of less than the whole of the Mortgaged Property, but Mortgagee shall have the right, at its sole election, to sell less than the whole of the Mortgaged Property. If default is made hereunder, the holder of the Indebtedness or any part thereof on which the payment is delinquent shall have the option to proceed with foreclosure or sale in satisfaction of such item either through judicial proceedings or as if under a full foreclosure, conducting the sale as herein provided without declaring the entire Indebtedness due, if sale is made because of default of an installment, or a part of an installment, such sale may be made subject to the unmatured part of the Indebtedness; and it is agreed that such sale, if so made, shall not in any manner affect the unmatured part of the Indebtedness, but as to such unmatured part this Mortgage shall remain in full force and effect as though no sale had been made under the provisions of this paragraph. Several sales may be made hereunder without exhausting the right of sale for any unmatured part of the Indebtedness. At any such sale (a) Mortgagor hereby agrees, in its behalf and in behalf of its heirs, executors, administrators, successors, personal representatives and assigns, that any and all recitals made in any deed of conveyance given by Mortgagee with respect to the identity of Mortgagee, the occurrence or existence of any default, the acceleration of the maturity of any of the Indebtedness, the request to sell, the notice of sale, the giving of notice to -13- 14 all debtors legally entitled thereto, the time, place, terms, and manner of sale, receipt, distribution and application of the money realized therefrom, and, without being limited by the foregoing, with respect to any other act or thing having been duly done by Mortgagee shall be taken by all courts of law and equity as prima facie evidence that the statements or recitals state facts and are without further question to be so accepted, and Mortgagor hereby ratifies and confirms every act that Mortgagee may lawfully do in the premises by virtue hereof, and (b) the purchaser may disaffirm any easement granted, or rental, lease or other contract made, in violation of any provision of this Mortgage, and may take immediate possession of the Mortgaged Property free from, and despite the terms of, such grant of easement and rental or lease contract. Mortgagee may bid and become the purchaser of all or any part of the Mortgaged Property at any trustee's or foreclosure sale hereunder, and the amount of Mortgagee's successful bid may be credited on the Indebtedness. Notwithstanding the above, Mortgagee may cause the liens of this Mortgage to be foreclosed in any other manner provided for under the laws of the State of Florida. 6.3 Tenancy at Will. In the event of a trustee's sale hereunder and if at the time of such sale Mortgagor or any other party occupies the portion of the Mortgaged Property so sold or any part thereof, such occupant, at the option of such purchaser, shall immediately become the tenant of the purchaser at such sale, which tenancy, at the option of such purchaser, shall be a tenancy at will, at a reasonable rental per day based upon the value of the portion of the Mortgaged Property so occupied, such rental to be due and payable daily to the purchaser. An action of forcible detainer shall lie if the tenant holds over after a demand in writing for possession of such Mortgaged Property. 6.4 Indemnification of Mortgagee. Except for gross negligence or willful misconduct, Mortgagee shall not be liable for any act or omission or error of judgment in connection with exercising the remedies provided herein. Mortgagee may rely on any document believed by him in good faith to be genuine. All money received by Mortgagee shall, until used or applied as herein provided, be held in trust, but need not be segregated (except to the extent required by law), and Mortgagee shall not be liable for interest thereon. Mortgagor shall indemnify Mortgagee and hold Mortgagee harmless against all liability, cost, damage or expense that Mortgagee may incur in the performance of his duties hereunder. -14- 15 6.5 Lawsuits. Mortgagee may proceed by a suit or suits in equity or at law, whether for the specific performance of any covenant or agreement herein contained or in aid of the execution of any power herein granted, or for any foreclosure hereunder or for the sale of the Mortgaged Property under the judgment or decree of any court or courts of competent jurisdiction. 6.6 Entry on Mortgaged Property. Upon occurrence of an Event of Default hereunder, Mortgagee may enter into and upon and take possession of all or any part of the Mortgaged Property, and may exclude Mortgagor, and all persons claiming under Mortgagor, and its or their agents or servants, wholly or partly therefrom; and, holding the same, Mortgagee may use, administer, manage, operate, and control the Mortgaged Property and may exercise all rights and powers of Mortgagor in the name, place and stead of Mortgagor, or otherwise, as Mortgagee shall deem best; and in the exercise of any of the foregoing rights and powers Mortgagee shall not be liable to Mortgagor for any loss or damage thereby sustained unless due solely to the willful misconduct or gross negligence of Mortgagee. Mortgagee's powers shall include the right to complete construction of any part of the Mortgaged Property and to make any repairs or alterations necessary or advisable for the successful operation of the Mortgaged Property. 6.7 Trustee Or Receiver. Mortgagee may make application to a court of competent jurisdiction, as a matter of strict right and without notice to Mortgagor or regard to the adequacy of the Mortgaged Property for the repayment of the Indebtedness, for appointment of a receiver of the Mortgaged Property, and Mortgagor does hereby irrevocably consent to such appointment. Any such receiver shall have all the usual powers and duties of receivers in similar cases, including the full power to rent, maintain and otherwise operate the Mortgaged Property upon such terms as may be approved by the court, and shall apply the Rents in accordance with the provisions hereof. 6.8 Remedies Cumulative, Concurrent and Nonexclusive. Mortgagee shall have all rights, remedies and recourses granted in this Mortgage or the Indenture or available at law or equity (including, without limitation, those granted by the Code and applicable to the Mortgaged Property, or any portion thereof) and the same (a) shall be cumulative and concurrent, (b) may be pursued separately, successively or concurrently against Mortgagor or others obligated for the Indebtedness, or any part thereof or against any one or more of them, or against the Mortgaged Property, at the sole discretion of Mortgagee, -15- 16 (c) may be exercised as often as occasion therefor shall arise, it being agreed by Mortgagor that the exercise or failure to exercise any of the same shall in no event be construed as a waiver or release thereof or of any other right, remedy or recourse, and (d) are intended to be, and shall be, nonexclusive, nor shall exercise of any one or more constitute a waiver of a right to any other right, remedy or recourse thereafter. 6.9 Compensation to Mortgagee. Mortgagor hereby agrees to pay to Mortgagee reasonable compensation for all services rendered by it hereunder and to reimburse Mortgagee upon request for all reasonable expenses, disbursements and advances incurred or made by Mortgagee in accordance with any provision hereof. This Mortgage is being delivered and recorded prior to its effective date and such delivery shall continue through the effective date and thereafter to the extent necessary to complete such delivery and the conveyance intended by this Mortgage. EXECUTED as of the date first set forth above. MORTGAGOR: {SEAL} TRAMMELL CROW REAL ESTATE INVESTORS, a Texas real estate investment trust By: /s/ DAVID F. CLOSSEY Name: David F. Clossey Trust Manager SIGNED IN THE PRESENCE OF: /s/ SUE EDWARDS Name of Witness: Sue Edwards /s/ KATHLEEN A. FURNISS Name of Witness: Kathleen A. Furniss -16- 17 STATE OF TEXAS } } COUNTY OF DALLAS } BEFORE ME, the undersigned authority, personally appeared David F. Clossey, Trust Manager of Trammell Crow Real Estate Investors, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed same as the act of such trust, for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 26th day of September, 1986. My Commission Expires: /s/ JOAN HARRIGAN NOTARY PUBLIC IN AND FOR {SEAL} THE STATE OF TEXAS JOAN HARRIGAN NOTARY PUBLIC STATE OF TEXAS COMMISSION EXPIRES 5-28-89 0489D -17- 18 EXHIBIT B All that certain real property situate, lying and being in the County of Broward, State of Florida, described as follows: TRACT 1: PARCEL "B" of INTERCENTER, according to the Plat thereof, as recorded in Plat Book 106 at Page 2, of the Public Records of Broward County, Florida. TRACT 2: PROPERTY DESCRIPTION CONTINUED: PARCEL "A" of INTERCENTER II, according to the Plat thereof, as recorded in Plat Book 114 at Page 1, of the Public Records of Broward County, Florida. LESS AND EXCEPT therefrom that portion of said Parcel "A" and said Parcel "B" described above, as recorded in Official Record Book 9812, Pages 123 and 124, of the Public Records of Broward County, Florida, being more particularly described as follows: BEGINNING at the Southwest corner of said Parcel "B"; thence North 89 degrees, 27 minutes, 22 seconds East along the South line of said Parcel "B", a distance of 251.31 feet to a point of curve; thence Easterly along said South line along the arc of a circular curve to the left, having a radius of 6729.58 feet, a central angle of 01 degrees, 31 minutes, 18 seconds, an arc distance of 178.72 feet; thence South 01 degrees, 20 minutes, 01 seconds East, a distance of 262.00 feet; thence North 88 degrees, 39 minutes, 59 seconds East, a distance of 122.46 feet, thence North 02 degrees, 27 minutes, 22 second, East a distance of 262.89 feet; thence North 01 degrees, 42 minutes, 20 seconds West, a distance of 209.77 feet to the North line of said Parcel "B"; thence South 88 degrees, 17 minutes, 40 seconds West, along the said North line, a distance of 568.50 feet to the Northwest corner of said Parcel "B"; thence South 01 degrees, 20 minutes, 01 seconds East along the West line of said Parcel "B"; a distance of 202.83 feet to the POINT OF BEGINNING. Together with an easement for Ingress and Egress in perpetuity over and across the following described parcel to wit: A 20.00 foot Ingress/Egress whose centerline is described as follows: COMMENCING at the Southwest corner of Parcel "B" of INTERCENTER, according to the Plat thereof, as recorded in Plat Book 106 at Page 2, of the Public Records of Broward County, Florida, thence North 01 degrees, 20 minutes, 01 seconds West along the West line of said Parcel "B", a distance of 165.83 feet to the POINT OF BEGINNING of this description; thence North 88 degrees, 17 minutes, 40 seconds East, a distance of 558.74 feet; thence South 01 degrees, 42 minutes, 20 seconds East, a distance of 172.43 feet; thence South 02 degrees, 27 minutes, 31 seconds West, a distance of 263.16 feet to the point of Terminus. Said lands situate, lying and being in Broward County, Florida. 19 EXHIBIT C 1. Taxes for the year 1986 and subsequent years which are not yet due and payable. 2. Terms and Conditions shown in Plat Book 106, page 2 and Plat Book 114, page 1. 3. Easement in favor of City of Deerfield Beach, as in Official Record Book 12547, page 74, for a 12 foot water line easement 4. Ordinance vacating and abandoning a 10 foot utility easement on plat, recorded in Official Record Book 12004, page 913, on Plat of Intercenter II. 5. That Agreement executed by OTR General partnership to Crow-Childress-Donner, Limited, a Texas limited partnership, dated June 21, 1985, and recorded in Official Record Book 12630, page 106. 6. An Agreement executed by Crow-Childress-Donner, Limited, a Texas limited partnership, to City of Deerfield Beach, dated May 17, 1985, and recorded in Official Record Book 12547, page 82. 7. That Mortgage and Security Agreement executed by Crow-Childress-Donner, Limited, a Texas limited partnership, to Confederation Life Insurance Company, a Mutual Company incorporated in Canada, dated as of September 30, 1986 and duly recorded in the Official Record Book of Broward County, Florida. 8. That Collateral Assignment of Rents and Leases executed by Crow-Childress-Donner, Limited, a Texas limited partnership, to Confederation Life Insurance Company, a Mutual Company incorporated in Canada, dated as of September 30, 1986, and duly recorded in the Official Record Book of Broward County, Florida. 9. That UCC-1 Financing Statement executed by Crow-Childress-Donner, Limited, a Texas limited partnership, dated as of September 30, 1986, and duly recorded in the Official Record Bookof Broward County, Florida. 5918H RECORDED IN THE OFFICIAL RECORDS BOOK OF BROWARD COUNTY, FLORIDA F.T. JOHNSON COUNTY ADMINISTRATOR EX-10.16 14 DEED OF TRUST (PLAZA SOUTHWEST) 1 EXHIBIT 10.16 PLAZA SOUTHWEST DEED OF TRUST (WITH SECURITY AGREEMENT AND ASSIGNMENT OF RENTS AND LEASES) By this instrument (this "Mortgage"), dated as of November 22, 1985, to be effective as of November 27, 1985, the undersigned, TRAMMELL CROW REAL ESTATE INVESTORS, a Texas real estate investment trust (hereinafter referred to as "Grantor"), whose address is 2001 Ross Avenue, 3500 LTV Center, Dallas, Texas 75201, to secure the obligations hereinafter described, does hereby GRANT, BARGAIN, SELL, ASSIGN and CONVEY unto GEORGE R. SIEVERS (hereinafter referred to as "Trustee"), whose address is One State Street, New York, New York 10015, acting for the benefit of J. HENRY SCHRODER BANK & TRUST COMPANY, a New York banking corporation, the trustee under that certain indenture (the "Indenture"), dated as of November 15, 1985, by and between Grantor and Trustee, securing payment of certain zero coupon notes due 1997, payable to the order of the Holders, a copy of which Indenture is attached hereto as Exhibit A and incorporated herein by this reference for all purposes, the following described mortgaged property (the "Mortgaged Property"), to wit: All of the real property located in Harris County, Texas, described on the attached Exhibit B which is incorporated herein by reference (the "Land"), subject to the exceptions described on the attached Exhibit C which is incorporated herein by reference (the "Permitted Exceptions"), TOGETHER WITH all of Grantor's right, title and interest in and to the following, whether now owned or hereafter acquired: (a) all improvements and fixtures now or hereafter attached to or placed, erected, constructed or developed on the Land (the "Improvements"); (b) all equipment, machinery, furnishings, inventory, chattels and all other articles of personal property (the "Personal Property") now or hereafter attached to, relating to or used in or about the Improvements or the Land; (c) all water and water rights, timber, crops and mineral interests pertaining to the Land; (d) all building materials and equipment now or hereafter delivered and installed or 2 intended to be installed in or on the Land or the Improvements; (e) all plans, specifications and drawings for the Improvements; (f) all deposits (including tenants' security deposits and escrow deposits under contracts of sale), documents, contract rights, commitments, construction contracts, architectural agreements and general intangibles (including, without limitation, trademarks, trade names and symbols but expressly excluding the right to use the name "Trammell Crow" or any name associated therewith or derived therefrom); (g) all permits, licenses, franchises, certificates and other rights and privileges relating to or obtained in connection with the Land, the Improvements or the Personal Property; (h) all proceeds arising from or by virtue of the sale, lease or other disposition, encumbrance or refinancing, of the Land, the Improvements and the Personal Property; (i) all proceeds (including premium refunds) of each policy of insurance relating to the Land, the Improvements or the Personal Property; (j) all proceeds from the taking of any of the Land, the Improvements, the Personal Property or any rights appurtenant thereto by right of eminent domain or by private or other purchase in lieu thereof including change of grade of streets, curb cuts or other rights of access; (k) all streets, roads, public places, easements and rights-of-way, existing or proposed, public or private, located on or adjacent to or used in connection with the Land; (l) all of the leases, subleases, licenses or other agreements relating to the Land, the Improvements or the Personal Property, and all rents, deposits, royalties, bonuses, issues, profits, revenues, income or other benefits of the Land, the Improvements or the Personal Property, including, without limitation, cash, securities, letters of credit, guarantees or other instruments deposited pursuant to leases to secure performance by the lessees of their obligations thereunder and cash deposited in impound accounts for the payment of taxes and insurance under any deed of trust securing payment of the Indebtedness; (m) all heating, lighting, refrigeration, plumbing, ventilating, incinerating, water heating, transportation, communications, electrical and air-conditioning systems and equipment, sprinkler and fire-extinguishing systems, security systems, maintenance equipment and other fixtures or systems used in connection with the Land, the Improvements and the Personal Property; (n) all rights, hereditaments, strips, gores and appurtenances pertaining to the foregoing; and (o) all replacements, betterments, substitutions, renewals and additions to any of the above-described Mortgaged Property; and all proceeds of any of the above-described Mortgaged Property. -2- 3 TO HAVE AND TO HOLD the Mortgaged Property, together with the rights, privileges and appurtenances thereto belonging, unto the Trustee and its substitutes or successors and assigns forever, and Grantor hereby binds itself and its administrators, personal representatives, successors and assigns to warrant and forever defend the Mortgaged Property unto the Trustee, its substitutes or successors and assigns, against the claim or claims of all persons claiming or to claim the same or any part thereof. ARTICLE I INDEBTEDNESS This Mortgage is given to secure the payment of all sums and performance of all obligations and covenants contained in this Mortgage and of the Indenture. Unless otherwise defined herein, certain capitalized terms shall have the meaning ascribed to said terms by the Indenture. The above-described obligations are hereinafter collectively called the "Indebtedness" ARTICLE II ASSIGNMENT OF RENTS AND LEASES 2.1 Assignment of Rents, Profits, etc. Grantor hereby absolutely and unconditionally assigns to Trustee all of its right, title and interest in and to the rents, royalties, bonuses, issues, profits, revenue, income and other benefits derived from the Mortgaged Property or arising from the use or enjoyment of any portion thereof or from any lease, sublease, licenses or other agreement pertaining thereto, and any and all damages following default under such leases, and all proceeds payable under any policy of insurance covering loss of rents resulting from untenantability, together with any and all rights that Grantor may have against any tenant under such leases or any subtenants or occupants or users of any part of the Mortgaged Property (collectively, the "Rents"). Prior to an Event of Default (as hereinafter defined), Grantor shall have a license to collect and receive all Rents and to apply same in accordance with the terms and provisions of the Indenture. -3- 4 2.2 Assignment of Leases. Grantor hereby absolutely and unconditionally assigns to Trustee all of its right, title and interest in and to existing and future leases, including subleases thereunder, and any and all extensions, renewals, modifications, and replacements thereof, covering any part of the Mortgaged property (collectively, the "Leases"). Grantor hereby further assigns to Trustee all guaranties of tenants' performances under the Leases. 2.3 Trustee in possession. Trustee's acceptance of this assignment shall not be deemed to constitute Trustee a "mortgagee in possession" nor obligate Trustee to appear in or defend any proceeding relating to any of the Leases or to the Mortgaged property, or to take any action hereunder, expend any money, incur any expenses, or perform any obligation or liability under the Leases, or assume any obligation for any deposits delivered to Grantor by any tenant and not delivered to Trustee, prior to entry upon and taking possession of the Mortgaged Property by Trustee. Trustee shall not be liable for any injury or damage to person or property in or about the Mortgaged Property. 2.4 Indemnification. Grantor hereby agrees to indemnify Trustee and hold Trustee harmless from all liability, damage or expense incurred by Trustee from any claims under the Leases as well as all amounts indemnified against under the Indenture. All amounts indemnified against hereunder, including reasonable attorneys' fees, if paid by Trustee shall be payable bit Grantor immediately upon demand by Trustee and shall be secured hereby. 2.5 Right to Rely. After the occurrence of an Event of Default (hereinafter defined), Grantor hereby authorizes and directs the tenants under the Leases to pay Rents to Trustee upon written demand by Trustee, without further consent of Grantor, and the tenants may rely upon any written statement delivered by Trustee to the tenants. Any such payment to Trustee shall satisfy the obligations of such tenant to make payment to Grantor under the Leases to the extent of the payment made to Trustee. ARTICLE III SECURITY AGREEMENT 3.1 Security Interest. This Mortgage shall be a security agreement between Grantor, as the debtor, and Trustee, as the secured party, covering the Mortgaged property constituting -4- 5 personal property or fixtures governed by the Uniform Commercial Code, as enacted and amended from time to time in the state in which the Land is situated (hereinafter called the "Code"), and Grantor grants to Trustee a security interest in such portion of the Mortgaged Property. In addition to Trustee's other rights hereunder, Trustee shall have all rights of a secured party under the Code. Grantor shall execute and deliver to Trustee all financing statements that may be necessary or advisable to establish and maintain the validity, perfection and priority of Trustee's security interest, and Grantor shall bear all costs thereof, including all Code searches reasonably required by Trustee. If Trustee should desire to dispose of any of the Mortgaged Property pursuant to the Code, and if the Code requires prior notice to Grantor of such disposition, ten (10) days written notice by Trustee to Grantor shall be deemed to be reasonable notice; provided, however, Trustee may dispose of such property in accordance with the foreclosure procedures hereof in lieu of proceeding under the Code. 3.2 Notice of Changes. Grantor shall give advance notice in writing to Trustee of any proposed change in Grantor's name, identity, or structure and shall execute and deliver to Trustee, prior to or concurrently with the occurrence of any such change, all additional financing statements that Trustee may require to establish and maintain the validity and priority of Trustee's security interest with respect to any of the Mortgaged Property. 3.3 Financing Statement. Some of the items of the Mortgaged Property described herein are goods that are or are to become fixtures related to the Land, and it is intended that, as to those goods, this instrument shall be effective as a financing statement filed as a fixture filing from the date of its filing for record in the real estate records of the county in which the Mortgaged Property is situated. Information concerning the security interest created by this instrument may be obtained from Trustee, as secured party, at the address of Trustee stated above. The mailing address of Grantor as debtor is as stated above. -5- 6 ARTICLE IV REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF GRANTOR Grantor does hereby warrant and represent to and covenant and agree with Trustee as follows: 4.1 Title to Mortgaged property and Lien of this Mortgage. Grantor has good and indefeasible title to the Land and the Improvements, and good and marketable title to the remainder of the Mortgaged Property, free and clear of any liens, charges, encumbrances, security interests and adverse claims whatsoever, except for the Permitted Exceptions. 4.2 Limitation of Liability. Any obligation or liability whatsoever of the Grantor which may arise at any time under this Mortgage, or any obligation or liability incurred by it pursuant to any other instrument, transaction or undertaking contemplated by this Mortgage, shall be satisfied, if at all, out of the Grantor's property only. No such obligation or liability shall be personally binding upon nor shall there be any resort for the enforcement thereof to the private property of any of its Trust Managers, shareholders, officers, employees or agents, regardless of whether such obligations or liability are in the nature of contract, tort or otherwise. 4.3 Repair. Grantor will cause the Mortgaged Property to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, which in the judgment of the Grantor may be necessary or prudent so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however that nothing in this Section 4.3 shall prevent the Grantor from discontinuing the operation and maintenance of any of its properties if such discontinuance is, in the judgment of the Grantor, desirable in the conduct of its business and not disadvantageous in any material respect to the Holders. 4.4 Insurance. (a) Grantor will at all times keep all the Mortgaged Property of an insurable nature and of the character usually insured by companies operating similar properties, insured in amounts customarily carried, and against loss or damage from such causes as are customarily insured against, by similar companies. -6- 7 (b) All such insurance shall be effected with insurance carriers having a claims paying rating of "AA" or better by Standard & Poor's Corporation. All policies or other contracts for such insurance on the Mortgaged Property shall provide that the proceeds of such insurance (except in the case of any particular casualty resulting in damage or destruction not exceeding $2,143,750.00 in the aggregate) shall be payable, subject to the requirements of any Prior Lien, to the Trustee as its interest may appear (by means of a standard mortgagee clause or other similar clause acceptable to the Trustee, without contribution). Each policy or other contract for such insurance, or such mortgagee clause, shall contain an agreement by the insurer that, notwithstanding any right of cancellation reserved to such insurer, such policy or contract shall not be cancelled unless and until the insurer has provided Trustee written notice thirty calendar days prior to cancellation. As soon as practicable after the execution of this Mortgage, and within 120 calendar days after the close of each fiscal year thereafter, and at any time upon the request of the Trustee, Grantor will deliver to the Trustee an officer certificate containing a detailed list of the insurance in force upon the Mortgaged Property on a date therein specified (which date shall be within 30 calendar days of the filing of such certificate), including the names of the insurers with which the policies and other contracts of insurance of the Mortgaged Property are carried, the numbers, amounts and expiration dates of such policies and other contracts and the property and hazards covered thereby, and stating that the insurance so listed complies with this Section 4.4, together with copies of all insurance policies, or certificates thereof. (c) All proceeds of any insurance of any part of the Mortgaged Property not payable to the Trustee or the trustee, mortgagee or other holder or beneficiary of a Prior Lien shall be applied in accordance with the Indenture. In the event that the proceeds of insurance are made available for restoration, Grantor shall restore the Improvements to substantially the same condition and quality of the Improvements prior to the casualty. 4.5 Taxes. Grantor will pay, prior to delinquency, all taxes, assessments and governmental charges or levies imposed upon it or the Mortgaged Property, and all claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like persons which, if unpaid, might result in the creation of a lien upon the Mortgaged Property; provided that items of the foregoing description need not be paid while being contested in good faith and by appropriate proceedings, so long as such contest shall not create a risk of forfeiture of all or -7- 8 any portion of the Mortgaged property. Nothing contained herein shall constitute the consent of Trustee to subject the Mortgaged Property to any of the aforesaid liens. 4.6 Casualty and Condemnation. All proceeds, judgments, decrees and awards for injury or damage to the Mortgaged Property, and all awards pursuant to proceedings for condemnation thereof, are hereby assigned in their entirety to Trustee, who shall apply the same in accordance with the Indenture. Immediately upon its obtaining knowledge of the institution or the threatened institution of any proceedings for the condemnation of the Mortgaged Property, Grantor shall notify Trustee of such fact. Grantor shall then, if requested by Trustee, file or defend its claim thereunder and prosecute same with due diligence to its final disposition and shall cause any awards or settlements to be paid over to Trustee for disposition pursuant to the terms of sub-section 4.4(c) hereinabove. Trustee shall be entitled to participate in same and to be represented therein by counsel of its own choice, and Grantor shall deliver, or cause to be delivered, to Trustee such instruments as may be requested by it from time to time to permit such participation. 4.7 Compliance with Laws. Grantor shall cause the Mortgaged Property and the use thereof to comply with all laws, rules, ordinances, regulations, covenants, conditions, restrictions, orders and decrees of any governmental authority or court applicable to Grantor or the Mortgaged Property and its use, and Grantor shall pay all fees or charges of any kind in connection therewith. 4.8 Operation. For so long as there is no Event of Default hereunder, Grantor may use and operate, alter and improve, manage, lease and maintain the Land, Improvements and Personal Property in accordance with customary and prudent management practices and in accordance with the provisions hereof and of the Indenture. 4.9 Successors and Assigns; Use of Terms. The covenants herein contained shall bind, and the benefits and advantages hereof shall inure to, the respective heirs, executors, administrators, personal representatives, successors and assigns of the parties hereto. Whenever used, the singular number shall include the plural and the plural the singular, and the use of any gender shall be applicable to all genders. The duties, covenants, conditions, obligations and warranties of Grantor in this instrument shall be joint and several obligations of Grantor and of each Grantor, if more than one, -8- 9 and of each Grantor's heirs, personal representatives, successors and assigns. Each party who executes this instrument and each subsequent owner of the Mortgaged Property, or any part thereof (other than Trustee), covenants and agrees that it will perform, or cause to be performed, each term and covenant of this instrument as if such party were the named Grantor. 4.10 Severability. If any provision of this instrument is held to be illegal, invalid, or unenforceable under present or future laws effective while this instrument is in effect, the legality, validity and enforceability of the remaining provisions of this instrument shall not be affected thereby, and in lieu of each such illegal, invalid or unenforceable provision there shall be added automatically as a part of this instrument a provision that is legal, valid and enforceable and as similar in terms to such illegal, invalid or unenforceable provision as may be possible. 4.11 Unsecured Indebtedness. If any of the Indebtedness shall be unsecured, the unsecured portion of the Indebtedness shall be completely paid prior to the payment of the secured portion of such Indebtedness, and all payments made on account of the Indebtedness shall be considered to have been paid on and applied first to the complete payment of the unsecured portion of the Indebtedness. 4.12 Modification or Termination. This Mortgage may only be modified in accordance with the terms of the Indenture. 4.13 No Partnership. Nothing contained in this Mortgage is intended to create any partnership, joint venture ofassociation between Grantor and Trustee, or in any way make Trustee a co-principal with Grantor with reference to the Mortgaged Property, and any inferences to the contrary are hereby expressly negated. 4.14 Headings. The Article, Paragraph and Subparagraph headings hereof are inserted for convenience of reference only and shall not alter, define, or be used in construing the text of such Articles, Paragraphs or Subparagraphs. 4.15 Governing Law. This Mortgage and the enforcement of the provisions hereof shall be'governed by the laws of the State of Texas except with respect to the obligations of the Grantor and the rights of the. Trustee under Paragraph 2.4, which shall be governed by the laws of the State of New York, and the laws of the United States applicable to transactions in such state. -9- 10 ARTICLE V EVENTS OF DEFAULT 5.1 Default of Indenture. It shall be an "Event of Default" hereunder if Grantor commits an Event of Default, as that term is defined by the Indenture. ARTICLE VI REMEDIES If an Event of Default shall occur, Trustee may exercise any one or more of the remedies provided in the Indenture or the following remedies, without notice: 6.1 Enforcement of Assignment of Rents and Leases. Trustee may: (a) terminate the license granted to Grantor to collect the Rents and enforce the Leases, and thereafter collect and sue for the Rents in Trustee's own name, give receipts and releases therefor, and after deducting all expenses of collection, including reasonable attorneys' fees, apply the net proceeds thereof to any Indebtedness in accordance with the Indenture; (b) make, modify, enforce, cancel or accept surrender of any Leases, evict tenants, adjust the Rents, maintain, decorate, refurbish, repair, clean, and make space ready for renting, and otherwise do anything Trustee deems advisable in connection with the Mortgaged Property; (c) apply the Rents so collected to the operation and management of the Mortgaged Property, including the payment of reasonable management, brokerage and attorneys' fees, or to the Indebtedness; and (d) require Grantor to transfer all security deposits and records thereof to Trustee. 6.2 Foreclosure. Trustee may sell all or part of the Mortgaged Property, at public auction, to the highest bidder, for cash, at the door of the county courthouse of the county in Texas in which such Mortgaged Property or any part thereof is situated, between the hours of 10:00 o'clock A.M. and 4:00 o'clock P.M. on the first Tuesday of any month, after giving notice of the time, place and terms of said sale and of the -10- 11 property to be sold, by filing written notice thereof at least twenty-one (21) days preceding the date of the sale at the courthouse door of the county in which the sale is to be made, and if the property to be sold is situated in more than one county one notice shall be posted at the courthouse door of each county in which the property to be sold is situated, and by filing a copy of the above-described notice in the office of the county clerk of the county in which the sale is to be made or, if the Mortgaged Property is in more than one county, by filing a copy of the notice with the county clerk of each county in which a portion of the Mortgaged Property is situated. In addition, Trustee shall, at least twenty-one (21) days preceding the date of sale, serve written notice of the proposed sale by certified mail on each debtor obligated to pay the debt secured hereby according to the records of Trustee. Service of such notice shall be completed upon deposit of the notice, enclosed in a postpaid wrapper, properly addressed to such debtor at the most recent address as shown by the records of Trustee, in a post office or official depository under the care and custody of the United States Postal Service. The affidavit of any person having knowledge of the facts to the effect that such service was completed shall be prima facie evidence of the fact of service. Any notice that is required or permitted to be given to Grantor may be addressed to Grantor at Grantor's address as stated above. Any notice that is to be given by certified mail to any other debtor may, if no address for such other debtor is shown by the records of Trustee, be addressed to such other debtor at the address of Grantor as is shown by the records of Trustee. Notwithstanding the foregoing provisions of this paragraph, notice of such sale given in accordance with the requirements of the applicable laws of the State of Texas in effect at the time of such sale shall constitute sufficient notice of such sale. Trustee may sell all or any portion of the Mortgaged Property, together or in lots or parcels, and may execute and deliver to the purchaser or purchasers of such property good and sufficient deeds of conveyance of fee simple title with covenants of general warranty made on behalf of Grantor. In no event shall Trustee be required to exhibit, present or display at any such sale any of the personalty described herein to be sold at such sale. Trustee making such sale shall receive the proceeds thereof and shall apply the same as follows: (a) first, he shall pay the reasonable expenses of Trustee (including any attorneys' fees) and the costs and expenses of such sale; (b) second, he shall pay, so far as may be possible, the Indebtedness; (c) third, he shall pay the residue, if any, to the persons legally entitled thereto. Payment of the purchase price to Trustee shall satisfy the obligation of the purchaser at such sale therefor, -11- 12 and such purchaser shall not be responsible for the application thereof. The sale or sales by Trustee of less than the whole of the Mortgaged Property shall not exhaust the power of sale herein granted, and Trustee is specifically empowered to make successive sale or sales under such power until the whole of the Mortgaged Property shall be sold; and if the proceeds of such sale or sales of less than the whole of the Mortgaged property shall be less than the aggregate of the Indebtedness and the expenses thereof, this Deed of Trust and the lien, security interest and assignment hereof shall remain in full force and effect as to the unsold portion of the Mortgaged Property just as though no sale or sales had been made; provided, however, that Grantor shall never have any right to require the sale or sales of less than the whole of the Mortgaged Property, but Trustee shall have the right, at its sole election, to request Trustee to sell less than the whole of the Mortgaged Property. If default is made hereunder, the holder of the Indebtedness or any part thereof on which the payment is delinquent shall have the option to proceed with foreclosure in satisfaction of such item either through judicial proceedings or by directing Trustee to proceed as if under a full foreclosure, conducting the sale as herein provided without declaring the entire Indebtedness due, if sale is made because of default of an installment, or a part of an installment, such sale may be made subject to the unmatured part of the Indebtedness; and it is agreed that such sale, if so made, shall not in any manner affect the unmatured part of the Indebtedness, but as to such unmatured part this Deed of Trust shall remain in full force and effect as though no sale had been made under the provisions of this paragraph. Several sales may be made hereunder without exhausting the right of sale for any unmatured part of the Indebtedness. At any such sale (a) Grantor hereby agrees, in its behalf and in behalf of its heirs, executors, administrators, successors, personal representatives and assigns, that any and all recitals made in any deed of conveyance given by Trustee with respect to the identity of Trustee, the occurrence or existence of any default, the acceleration of the maturity of any of the Indebtedness, the request to sell, the notice of sale, the giving of notice to all debtors legally entitled thereto, the time, place, terms, and manner of sale, receipt, distribution and application of the money realized therefrom, or the due and proper appointment of a substitute Trustee, and, without being limited by the foregoing, with respect to any other act or thing having been duly done by Trustee or by Trustee hereunder, shall be taken by all courts of law and equity as prima facie evidence that the statements or recitals state facts and are without further question to be so accepted, and Grantor hereby -12- 13 ratifies and confirms every act that Trustee or any substitute Trustee hereunder may lawfully do in the premises by virtue hereof, and (b) the purchaser may disaffirm any easement granted, or rental, lease or other contract made, in violation of any provision of this Deed of Trust, and may take immediate possession of the Mortgaged Property free from, and despite the terms of, such grant of easement and rental or lease contract. Trustee may bid and become the purchaser of all or any part of the Mortgaged Property at any trustee's or foreclosure sale hereunder, and the amount of Trustee's successful bid may be credited on the Indebtedness. Notwithstanding the above, Trustee may cause the liens of this Deed of Trust to be foreclosed in any other manner provided for under the laws of the State of Texas. 6.3 Tenancy at Will. In the event of a trustee's sale hereunder and if at the time of such sale Grantor or any other party occupies the portion of the Mortgaged Property so sold or any part thereof, such occupant, at the option of such purchaser, shall immediately become the tenant of the purchaser at such sale, which tenancy, at the option of such purchaser, shall be a tenancy at will, at a reasonable rental per day based upon the value of the portion of the Mortgaged Property so occupied, such rental to be due and payable daily to the purchaser. An action of forcible detainer shall lie if the tenant holds over after a demand in writing for possession of such Mortgaged Property. 6.4 Indemnification of Trustee. Except for gross negligence or willful misconduct, Trustee shall not be liable for any act or omission or error of judgment in connection with exercising the remedies provided herein. Trustee may rely on any document believed by him in good faith to be genuine. All money received by Trustee shall, until used or applied as herein provided, be held in trust, but need not be segregated (except to the extent required by law), and Trustee shall not be liable for interest thereon. Grantor shall indemnify Trustee and hold Trustee harmless against all liability, cost, damage or expense that Trustee may incur in the performance of his duties hereunder. 6.5 Lawsuits. Trustee may proceed by a suit or suits in equity or at law, whether for the specific performance of any covenant or agreement herein contained or in aid of the execution of any power herein granted, or for any foreclosure hereunder or for the sale of the Mortgaged Property under the judgment or decree of any court or courts of competent jurisdiction. -13- 14 6.6 Entry on Mortgaged property. Upon occurrence of an Event of Default hereunder, Trustee may enter into and upon and take possession of all or any part of the Mortgaged Property, and may exclude Grantor, and all persons claiming under Grantor, and its or their agents or servants, wholly or partly therefrom; and, holding the same, Trustee may use, administer, manage, operate, and control the Mortgaged Property and may exercise all rights and powers of Grantor in the name, place and stead of Grantor, or otherwise, as Trustee shall deem best; and in the exercise of any of the foregoing rights and powers Trustee shall not be liable to Grantor for any loss or damage thereby sustained unless due solely to the willful misconduct or gross negligence of Trustee. Trustee's powers shall include the right to complete construction of any part of the Mortgaged Property and to make any repairs or alterations necessary or advisable for the successful operation of the Mortgaged Property. 6.7 Trustee or Receiver. Trustee may make application to a court of competent jurisdiction, as a matter of strict right and without notice to Grantor or regard to the adequacy of the Mortgaged Property for the repayment of the Indebtedness, for appointment of a receiver of the Mortgaged Property, and Grantor does hereby irrevocably consent to such appointment. Any such receiver shall have all the usual powers and duties of receivers in similar cases, including the full power to rent, maintain and otherwise operate the Mortgaged Property upon such terms as may be approved by the court, and shall apply the Rents in accordance with the provisions hereof. 6.8 Remedies Cumulative, Concurrent and Nonexclusive. Trustee shall have all rights, remedies and recourses granted in this Mortgage or the Indenture or available at law or equity (including, without limitation, those granted by the Code and applicable to the Mortgaged Property, or any portion thereof) and the same (a) shall be cumulative and concurrent, (b) may be pursued separately, successively or concurrently against Grantor or others obligated for the Indebtedness, or any part thereof or against any one or more of them, or against the Mortgaged Property, at the sole discretion of Trustee, (c) may be exercised as often as occasion therefor shall arise, it being agreed by Grantor that the exercise or failure to exercise any of the same shall in no event be construed as a waiver or release thereof or of any other right, remedy or recourse, and (d) are intended to be, and shall be, nonexclusive, nor shall exercise of any one or more constitute a waiver of a right to any other right, remedy or recourse therafter. -14- 15 6.9 Rights and Remedies of Sureties. Grantor waives any right or remedy which Grantor may have or be able to assert pursuant to Chapter 34 of the Business and Commerce Code of the State of Texas pertaining to the rights and remedies of sureties. 6.10 Compensation to Trustee. Grantor hereby agrees to pay to Trustee reasonable compensation for all services rendered by it hereunder and to reimburse Trustee upon request for all reasonable expenses, disbursements and advances incurred or made by Trustee in accordance with any provision hereof. This Deed of Trust is being delivered and recorded prior to its effective date and such delivery shall continue through the effective date and thereafter to the extent necessary to complete such delivery and the conveyance intended by this Deed of Trust. EXECUTED as of the date first set forth above. GRANTOR: TRAMMELL CROW REAL ESTATE INVESTORS, a Texas real estate investment trust By:/s/ DAVID COSSEY Name: David Cossey Trust Manager -15- 16 STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, personally appeared David Clossey, Trust Manager of Trammell Crow Real Estate Investors, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed same as the act of such trust, for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 22nd day of Nov., 1985. My Commission Expires: /s/ LINDA L. SLAVIK NOTARY PUBLIC IN AND FOR THE STATE OF TEXAS {SEAL} LINDA L. SLAVIK Notary Public State of Texas Commission expires 3-31-89 5297r -16- 17 PLAZA SOUTHWEST EXHIBIT B TRACT I: Description of a 3.785 acres (164,875 square foot) tract of land situated in the John H. Walton Survey, Abstract No. 852, Harris County, Texas which is part of and out of Block 2 of the Sharpstown Business Park as recorded in Volume 162, Page 82, of the Harris County Map Records and being more particularly described by metes and bounds as follows (with bearings being referenced to the map or plat of said Sharpstown Business Park): BEGINNING at an "X" cut in concrete at the Southeast corner of the aforementioned Block 2 and the Southwest corner of Block 3 of said Sharpstown Business Park, said point being on the Northerly right-of-way line of Harwin Drive (variable width); THENCE, S 89 degrees 35' 54" W, along the Northerly right-of-way of said Harwin Drive a distance of 224.79 feet to a 1/2-inch iron rod found for point of curvature of a curve to the right; THENCE, NORTHWESTERLY, along the arc of said curve to the right having a radius of 30.00 feet, a central angle of 90 degrees 24' 06", a chord bearing of N 45 degrees 12' 03" W, for 42.57 feet and an arc distance of 47.33 feet to a 5/8-inch iron rod found for tangency, said corner being on the Easterly right-of-way line of Bonhomme Road (60 foot right-of-way) and the West line of said Block 2; THENCE, NORTH, along said lines, a distance of 580.63 feet to an "X" set in concrete at the beginning of a 60 foot radius cul-de-sac; THENCE, NORTHEASTERLY, along said cul-de-sac and curve to the left having a radius of 60.00 feet, a central angle of 48 degrees 52' 30", a chord bearing of N 35 degrees 33' 45" E, for 49.64 feet, and an arc distance of 51.18 feet to a 5/8-inch iron rod set for corner, said corner being the most Northerly Northeast corner of the herein described tract; THENCE, EAST, along the north line of the herein described tract, a distance of 226.13 feet to a fence post found for the Northeast corner which is located in the Easterly line of said Block 3 and the Westerly line of said Block 2; THENCE, SOUTH, along said lines and the Easterly line of the herein described tract a distance of 649.44 feet to the POINT OF BEGINNING and containing 3.785 acres of land. 18 PLAZA SOUTHWEST Exhibit B, Con't. Page Two TRACT II: Description of a 2.993 acre (130,393 square foot) tract of land situated in the John H. Walton Survey, Abstract 852, Harris County, Texas which is part of and out of Block 4 of the Sharpstown Business Park as recorded in Volume 162, Page 82, of the Harris County Map Records and being more particularly described by metes and bounds as follows (with bearings being referenced to the map or plat of said Sharpstown Business Park): BEGINNING at a 5/8-inch iron rod set for the Northeast corner of the aforementioned Block 4 and the Northwest corner of Block 5 of said Sharpstown Business Park, said point being on the Southerly line of a Houston Lighting & Power Company Fee Strip as recorded in Volume 1216, Page 67 of the Harris County Deed Records; THENCE, SOUTH, along the Easterly line of said Block 4 and the herein described tract and the Westerly line of Block 5, a distance of 530.00 feet to a 5/8-inch iron rod set for the Southeasterly corner of the herein described tract; THENCE, WEST, a distance of 255.00 feet to a 5/8-inch iron rod set for the Southwesterly corner of the herein described tract, said point being in the Easterly right-of-way line of Bintliff Drive (60-foot right-of-way); THENCE, NORTH, along the Easterly line of said Bintliff Drive, a distance of 394.46 feet to a 5/8-inch iron rod found for corner at the beginning of a 60-foot radius cul-de-sac; THENCE, NORTHWESTERLY, along said cul-de-sac and curve to the left having a radius of 60.00 feet, a central angle of 154 degrees 40' 21", a chord bearing of N 17 degrees 20' 41" W, for 117.08 feet and an arc distance of 161.99 feet to a 1/2 inch iron rod found for the Northwest corner of aforementioned Block 4 and of the herein described tract which is located on the Southerly line of the aforementioned Houston Lighting & Power Company Fee Strip; THENCE, N 85 degrees 18' 39" E, along the Southerly line of said Houston Lighting & Power Company Fee Strip, a distance of 290.88 feet to the POINT OF BEGINNING and containing 2.993 acres of land. 19 PLAZA SOUTHWEST Exhibit B, Con't. Page Three TRACT III: Description of a 3.495 acres (152,234 square foot) tract of land situated in the John H. Walton Survey, Abstract 852, Harris County, Texas which is part of and out of Block 3 of Sharpstown Business Park as recorded in Volume 162, Page 82 of the Harris County Map Records and being more particularly described by metes and bounds as follows (with bearings being referenced to the map or plat of said Sharpstown Business Park): BEGINNING at an "X" cut in concrete at the Southwest corner of the aforementioned Block 3 and the Southeast corner of Block 2 of said Sharpstown Business Park, said point being on the Northerly right-of-way line of Harwin Drive (variable width); THENCE, NORTH, along the West line of said Block 3 and the East line of said Block 2, a distance of 649.44 feet to a fence post found for the Northwest corner of this tract; THENCE, EAST, along the North line of the herein described tract, a distance of 235.00 feet to a 5/8-inch iron rod set for the Northeast corner which is located in the East line of said Block 3 and the West line of Bintliff Drive (60-foot right-of-way); THENCE, SOUTH, along the East line of said Block 3 and the herein described tract and the West right-of-way line of said Bintliff Drive, a distance of 618.00 feet to a 1/2-inch iron rod found for the point of curvature of a curve to the right; THENCE, SOUTHWESTERLY, continuing along said line and the arc of a curve to the right having a radius of 30.00 feet, a central angle of 89 degrees 35' 54", a chord bearing of S 44 degrees 47' 57" W, for 42.28 feet and an arc distance of 46.91 feet to a 5/8-inch iron rod set for corner, said corner being in the Northerly right-of-way line of aforementioned Harwin Drive and the South line of said Block 3; THENCE, S 89 degrees 35' 54" W, along said South line of Block 3 and the Northerly line of said Harwin Drive, a distance of 205.22 feet to the POINT OF BEGINNING and containing 3.495 acres of land. 20 GF No. 85251 EXHIBIT C 1. Restrictions as set forth on the map or plat recorded in Volume 162, Page 82 of the Map Records of Harris County, Texas, and in those instruments recorded in Volume 3948, Page 499, Volume 5718, Page 278 and Volume 6578, Page 168 of the Deed Records of Harris County, Texas, and filed for record under Harris County Clerk's File No. E808652. 2. Rights of parties in possession as to unrecorded leases, as to possession only. 3. An easement 5 feet wide along the East property line for the use of public utilities, as set forth on plat recorded in Volume 162, Page 82 of the Map Records of Harris County, Texas. (As to Tracts I and II) 4. An aerial easement 5 feet in width from a plane 20 feet above the ground upward for the use of public utilities, as set forth on plat recorded in Volume 162, Page 82 of the Map Records of Harris County, Texas. (As to Tracts I, II and III) 5. Minimum building set back lines as set forth on the map or plat recorded in Volume 162, Page 82 of the Map Records of Harris County, Texas. (As to Tracts I, II and III) 6. Permission to Build Over Easements executed by City of Houston, filed for record under Harris County Clerk's File No. E144704, permitting encroachment into the utility easements, as set forth on the map or plat recorded in Volume 162, Page 82 of the Map Records of Harris County, Texas. (As to Tracts I and III) 7. Consent to Encroachment dated April 23, 1974, executed by Houston Lighting & Power Company, filed for record under Harris County Clerk's File No. E157998, permitting encroachment into the utility easements, as set forth on the map or plat recorded in Volume 162, Page 82 of the Map Records of Harris County, Texas. (As to Tracts I and III) 8. An easement 10 feet wide for water main purposes, located along the North property line, as reflected on plat recorded in Volume 162, Page 82 of the Map Records of Harris County, Texas. (As to Tract II) 21 9. An easement 5 feet wide along the West property line for the use of public utilities, as set forth on plat recorded in Volume 162, Page 82 of the Map Records of Harris County, Texas. (As to Tract III) 10. Consent to Encroachment dated April 18, 1974, executed by Southwestern Bell Telephone Company, filed for record under Harris County Clerk's File No. E135043, permitting encroachment into the utility easements, as set forth on the map or plat recorded in Volume 162, Page 82 of the Map Records of Harris County, Texas. (As to Tract III) 11. The following matters disclosed by those surveys dated October 31, 1985, prepared by Robert J. Prejean, Registered Public Surveyor No. 1820, of Prejean & Company, Inc., Houston, Texas, Job Nos. 14-124, 14-124-1 and 14-124-2. (a) Encroachment of two signs into the building set back lines located along the South and West property lines. (As to Tract I) (b) Encroachment of concrete pavement and curb into the Bonhomme Road cul-de-sac. (As to Tract I) (c) Encroachment of concrete esplanade and paving into the 5 foot utility easement set forth on the plat. (As to Tract I) (d) Overhead power line located along the North property line. (As to Tracts II and III) (e) Asphalt and concrete paving encroaching into the 10 foot water main easement, and the 5 foot utility easement set forth on the plat. (As to Tract II) (f) Encroachment of two signs into the building set back lines located along the East and South property lines. (As to Tract III) (g) Encroachment of parking spaces into the parking set back lines along the West property line. (As to Tract I) (h) Power poles and overhead wires. (As to Tracts I, II and III) (i) Gas meters located near the East property line. (As to Tract II) (j) Encroachment of concrete paving into the building lines along the Bintliff Drive cul-de-sac. (As to Tract II) (k) Gas meter located near the West property line. (As to Tract III) EX-10.17 15 DEED OF TRUST (COMMERCE PARK NORTH) 1 EXHIBIT 10.17 Commerce Park DEED OF TRUST (WITH SECURITY AGREEMENT AND ASSIGNMENT OF RENTS AND LEASES) By this instrument (this "Mortgage"), dated as of November 22, 1985, to be effective as of November 27, 1985, the undersigned, TRAMMELL CROW REAL ESTATE INVESTORS, a Texas real estate investment trust (hereinafter referred to as "Grantor"), whose address is 2001 Ross Avenue, 3500 LTV Center, Dallas, Texas 75201, to secure the obligations hereinafter described, does hereby GRANT, BARGAIN, SELL, ASSIGN and CONVEY unto GEORGE R. SIEVERS (hereinafter referred to as "Trustee"), whose address is One State Street, New York, New York 10015, acting for the benefit of J. HENRY SCHRODER BANK & TRUST COMPANY, a New York banking corporation, the trustee under that certain indenture (the "Indenture"), dated as of November 15, 1985, by and between Grantor and Trustee, securing payment of certain zero coupon notes due 1997, payable to the order of the Holders, a copy of which Indenture is attached hereto as Exhibit A and incorporated herein by this reference for all purposes, the following described mortgaged property (the "Mortgaged Property"), to wit: All of the real property located in Harris County, Texas, described on the attached Exhibit B which is incorporated herein by reference (the "Land"), subject to the exceptions described on the attached Exhibit C which is incorporated herein by reference (the "Permitted Exceptions"), TOGETHER WITH all of Grantor's right, title and interest in and to the following, whether now owned or hereafter acquired: (a) all improvements and fixtures now or hereafter attached to or placed, erected, constructed or developed on the Land (the "Improvements"); (b) all equipment, machinery, furnishings, inventory, chattels and all other articles of personal property (the "Personal Property") now or hereafter attached to, relating to or used in or about the Improvements or the Land; (c) all water and water rights, timber, crops and mineral interests pertaining to the Land; (d) all building materials and equipment now or hereafter delivered and installed or 2 intended to be installed in or on the Land or the Improvements; (e) all plans, specifications and drawings for the Improvements; (f) all deposits (including tenants' security deposits and escrow deposits under contracts of sale), documents, contract rights, commitments, construction contracts, architectural agreements and general intangibles (including, without limitation, trademarks, trade names and symbols but expressly excluding the right to use the name "Trammell Crow" or any name associated therewith or derived therefrom); (g) all permits, licenses, franchises, certificates and other rights and privileges relating to or obtained in connection with the Land, the Improvements or the Personal Property; (h) all proceeds arising from or by virtue of the sale, lease or other disposition, encumbrance or refinancing, of the Land, the Improvements and the Personal Property; (i) all proceeds (including premium refunds) of each policy of insurance relating to the Land, the Improvements or the Personal Property; (j) all proceeds from the taking of any of the Land, the Improvements, the Personal Property or any rights appurtenant thereto by right of eminent domain or by private or other purchase in lieu thereof including change of grade of streets, curb cuts or other rights of access; (k) all streets, roads, public places, easements and rights-of-way, existing or proposed, public or private, Located on or adjacent to or used in connection with the Land; (l) all of the leases, subleases, licenses or other agreements relating to the Land, the Improvements or the Personal Property, and all rents, deposits, royalties, bonuses, issues, profits, revenues, income or other benefits of the Land, the Improvements or the Personal Property, including, without limitation, cash, securities, letters of credit, guarantees or other instruments deposited pursuant to leases to secure performance by the lessees of their obligations thereunder and cash deposited in impound accounts for the payment of taxes and insurance under any deed of trust securing payment of the Indebtedness; (m) all heating, lighting, refrigeration, plumbing, ventilating, incinerating, water heating, transportation, communications, electrical and air-conditioning systems and equipment, sprinkler and fire-extinguishing systems, security systems, maintenance equipment and other fixtures or systems used in connection with the Land, the Improvements and the Personal Property; (n) all rights, hereditaments, strips, gores and appurtenances pertaining to the foregoing; and (o) all replacements, betterments, substitutions, renewals and additions to any of the above-described Mortgaged Property; and all proceeds of any of the above-described Mortgaged Property. -2- 3 TO HAVE AND TO HOLD the Mortgaged Property, together with the rights, privileges and appurtenances thereto belonging, unto the Trustee and its substitutes or successors and assigns forever, and Grantor hereby binds itself and its administrators, personal representatives, successors and assigns to warrant and forever defend the Mortgaged Property unto the Trustee, its substitutes or successors and assigns, against the claim or claims of all persons claiming or to claim the same or any part thereof. ARTICLE I INDEBTEDNESS This Mortgage is given to secure the payment of all sums and performance of all obligations and covenants contained in this Mortgage and of the Indenture. Unless otherwise defined herein, certain capitalized terms shall have the meaning ascribed to said terms by the Indenture. The above-described obligations are hereinafter collectively called the "Indebtedness". ARTICLE II ASSIGNMENT OF RENTS AND LEASES 2.1 Assignment of Rents, Profits, etc. Grantor hereby absolutely and unconditionally assigns to Trustee all of its right, title and interest in and to the rents, royalties, bonuses, issues, profits, revenue, income and other benefits derived from the Mortgaged Property or arising from the use or enjoyment of any portion thereof or from any lease, sublease, licenses or other agreement pertaining thereto, and any and all damages following default under such leases, and all proceeds payable under any policy of insurance covering loss of rents resulting from untenantability, together with any and all rights that Grantor may have against any tenant under such leases or any subtenants or occupants or users of any part of the Mortgaged Property (collectively, the "Rents"). Prior to an Event of Default (as hereinafter defined), Grantor shall have a license to collect and receive all Rents and to apply same in accordance with the terms and provisions of the Indenture. -3- 4 2.2 Assignment of Leases. Grantor hereby absolutely and unconditionally assigns to Trustee all of its right, title and interest in and to existing and future leases, including subleases thereunder, and any and all extensions, renewals, modifications, and replacements thereof, covering any part of the Mortgaged Property (collectively, the "Leases"). Grantor hereby further assigns to Trustee all guaranties of tenants' performances under the Leases. 2.3 Trustee in Possession. Trustee's acceptance of this assignment shall not be deemed to constitute Trustee a "mortgagee in possession" nor obligate Trustee to appear in or defend any proceeding relating to any of the Leases or to the Mortgaged Property, or to take any action hereunder, expend any money, incur any expenses, or perform any obligation or liability under the Leases, or assume any obligation for any deposits delivered to Grantor by any tenant and not delivered to Trustee, prior to entry upon and taking possession of the Mortgaged Property by Trustee. Trustee shall not be liable for any injury or damage to person or property in or about the Mortgaged Property. 2.4 Indemnification. Grantor hereby agrees to indemnify Trustee and hold Trustee harmless from all liability, damage or expense incurred by Trustee from any claims under the Leases as well as all amounts indemnified against under the Indenture. All amounts indemnified against hereunder, including reasonable attorneys' fees, if paid by Trustee shall be payable by Grantor immediately upon demand by Trustee and shall be secured hereby. 2.5 Right to Rely. After the occurrence of an Event of Default (hereinafter defined), Grantor hereby authorizes and directs the tenants under the Leases to pay Rents to Trustee upon written demand by Trustee, without further consent of Grantor, and the tenants may rely upon any written statement delivered by Trustee to the tenants. Any such payment to Trustee shall satisfy the obligations of such tenant to make payment to Grantor under the Leases to the extent of the payment made to Trustee. ARTICLE III SECURITY AGREEMENT 3.1 Security Interest. This Mortgage shall be a security agreement between Grantor, as the debtor, and Trustee, as the secured party, covering the Mortgaged Property constituting -4- 5 personal property or fixtures governed by the Uniform Commercial Code, as enacted and amended from time to time in the state in which the Land is situated (hereinafter called the "Code"), and Grantor grants to Trustee a security interest in such portion of the Mortgaged Property. In addition to Trustee's other rights hereunder, Trustee shall have all rights of a secured party under the Code. Grantor shall execute and deliver to Trustee all financing statements that may be necessary or advisable to establish and maintain the validity, perfection and priority of Trustee's security interest, and Grantor shall bear all costs thereof, including all Code searches reasonably required by Trustee. If Trustee should desire to dispose of any of the Mortgaged Property pursuant to the Code, and if the Code requires prior notice to Grantor of such disposition, ten (10) days written notice by Trustee to Grantor shall be deemed to be reasonable notice; provided, however, Trustee may dispose of such property in accordance with the foreclosure procedures hereof in lieu of proceeding under the Code. 3.2 Notice of Changes. Grantor shall give advance notice in writing to Trustee of any proposed change in Grantor's name, identity, or structure and shall execute and deliver to Trustee, prior to or concurrently with the occurrence of any such change, all additional financing statements that Trustee may require to establish and maintain the validity and priority of Trustee's security interest with respect to any of the Mortgaged Property. 3.3 Financing Statement. Some of the items of the Mortgaged Property described herein are goods that are or are to become fixtures related to the Land, and it is intended that, as to those goods, this instrument shall be effective as a financing statement filed as a fixture filing from the date of its filing for record in the real estate records of the county in which the Mortgaged Property is situated. Information concerning the security interest created by this instrument may be obtained from Trustee, as secured party, at the address of Trustee stated above. The mailing address of Grantor as debtor is as stated above. -5- 6 ARTICLE IV REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF GRANTOR Grantor does hereby warrant and represent to and covenant and agree with Trustee as follows: 4.1 Title to Mortgaged Property and Lien of this Mortgage. Grantor has good and indefeasible title to the Land and the Improvements, and good and marketable title to the remainder of the Mortgaged Property, free and clear of any liens, charges, encumbrances, security interests and adverse claims whatsoever, except for the Permitted Exceptions. 4.2 Limitation of Liability. Any obligation or liability whatsoever of the Grantor which may arise at any time under this Mortgage, or any obligation or liability incurred by it pursuant to any other instrument, transaction or undertaking contemplated by this Mortgage, shall be satisfied, if at all, out of the Grantor's property only. No such obligation or liability shall be personally binding upon nor shall there be any resort for the enforcement thereof to the private property of any of its Trust Managers, shareholders, officers, employees or agents, regardless of whether such obligations or liability are in the, nature of contract, tort or otherwise. 4.3 Repair. Grantor will cause the Mortgaged Property to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, which in the judgment of the Grantor may be necessary or prudent so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however that nothing in this Section 4.3 shall prevent the Grantor from discontinuing the operation and maintenance of any of its properties if such discontinuance is, in the judgment of the Grantor, desirable in the conduct of its business and not disadvantageous in any material respect to the Holders. 4.4 Insurance. (a) Grantor will at all times keep all the Mortgaged Property of an insurable nature and of the character usually insured by companies operating similar properties, insured in amounts customarily carried, and against loss or damage from such causes as are customarily insured against, by similar companies. -6- 7 (b) All such insurance shall be effected with insurance carriers having a claims paying rating of "AA" or better by Standard & Poor's Corporation. All policies or other contracts for such insurance on the Mortgaged Property shall provide that the proceeds of such insurance (except in the case of any particular casualty resulting in damage or destruction not exceeding $1,775,000 in the aggregate) shall be payable, subject to the requirements of any Prior Lien, to the Trustee as its interest may appear (by means of a standard mortgagee clause or other similar clause acceptable to the Trustee, without contribution). Each policy or other contract for such insurance, or such mortgagee clause, shall contain an agreement by the insurer that, notwithstanding any right of cancellation reserved to such insurer, such policy or contract shall not be cancelled unless and until the insurer has provided Trustee written notice thirty calendar days prior to cancellation. As soon as practicable after the execution of this Mortgage, and within 120 calendar days after the close of each fiscal year thereafter, and at any time upon the request of the Trustee, Grantor will deliver to the Trustee an officer certificate containing a detailed list of the insurance in force upon the Mortgaged Property on a date therein specified (which date shall be within 30 calendar days of the filing of such certificate), including the names of the insurers with which the policies and other contracts of insurance of the Mortgaged Property are carried, the numbers, amounts and expiration dates of such policies and other contracts and the property and hazards covered thereby, and stating that the insurance so listed complies with this Section 4.4, together with copies of all insurance policies or certificates thereof. (c) All proceeds of any insurance of any part of the Mortgaged Property not payable to the Trustee or the trustee, mortgagee or other holder or beneficiary of a Prior Lien shall be applied in accordance with the Indenture. In the event that the proceeds of insurance are made available for restoration, Grantor shall restore the Improvements to substantially the same condition and quality of the Improvements prior to the casualty. 4.5 Taxes. Grantor will pay, prior to delinquency, all taxes, assessments and governmental charges or levies imposed upon it or the Mortgaged Property, and all claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like persons which, if unpaid, might result in the creation of a lien upon the Mortgaged Property; provided that items of the foregoing description need not be paid while being contested in good faith and by appropriate proceedings, so long as such contest shall not create a risk of forfeiture of all or -7- 8 any portion of the Mortgaged Property. Nothing contained herein shall constitute the consent of Trustee to subject the Mortgaged Property to any of the aforesaid liens. 4.6 Casualty and Condemnation. All proceeds, judgments, decrees and awards for injury or damage to the Mortgaged Property, and all awards pursuant to proceedings for condemnation thereof, are hereby assigned in their entirety to Trustee, who shall apply the same in accordance with the Indenture. Immediately upon its obtaining knowledge of the institution or the threatened institution of any proceedings for the condemnation of the Mortgaged Property, Grantor shall notify Trustee of such fact. Grantor shall then, if requested by Trustee, file or defend its claim thereunder and prosecute same with due diligence to its final disposition and shall cause any awards or settlements to be paid over to Trustee for disposition pursuant to the terms of sub-section 4.4(c) hereinabove. Trustee shall be entitled to participate in same and to be represented therein by counsel of its own choice, and Grantor shall deliver, or cause to be delivered, to Trustee such instruments as may be requested by it from time to time to permit such participation. 4.7 Compliance with Laws. Grantor shall cause the Mortgaged Property and the use thereof to comply with all laws, rules, ordinances, regulations, covenants, conditions, restrictions, orders and decrees of any governmental authority or court applicable to Grantor or the Mortgaged Property and its use, and Grantor shall pay all fees or charges of any kind in connection therewith. 4.8 Operation. For so long as there is no Event of Default hereunder, Grantor may use and operate, alter and improve, manage, lease and maintain the Land, Improvements and Personal Property in accordance with customary and prudent management practices and in accordance with the provisions hereof and of the Indenture. 4.9 Successors and Assigns; Use of Terms. The covenants herein contained shall bind, and the benefits and advantages hereof shall inure to, the respective heirs, executors, administrators, personal representatives, successors and assigns of the parties hereto. Whenever used, the singular number shall include the plural and the plural the singular, and the use of any gender shall be applicable to all genders. The duties, covenants, conditions, obligations and warranties of Grantor in this instrument shall be joint and several obligations of Grantor and of each Grantor, if more than one, and of each Grantor's heirs, personal representatives, -8- 9 successors and assigns. Each party who executes this instrument and each subsequent owner of the Mortgaged Property, or any part thereof (other than Trustee), covenants and agrees that it will perform, or cause to be performed, each term and covenant of this instrument as if such party were the named Grantor. 4.10 Severability. If any provision of this instrument is held to be illegal, invalid, or unenforceable under present or future laws effective while this instrument is in effect, the legality, validity and enforceability of the remaining provisions of this instrument shall not be affected thereby, and in lieu of each such illegal, invalid or unenforceable provision there shall be added automatically as a part of this instrument a provision that is legal, valid and enforceable and as similar in terms to such illegal, invalid or unenforceable provision as may be possible. 4.11 Unsecured Indebtedness. If any of the Indebtedness shall be unsecured, the unsecured portion of the Indebtedness shall be completely paid prior to the payment of the secured portion of such Indebtedness, and all payments made on account of the Indebtedness shall be considered to have been paid on and applied first to the complete payment of the unsecured portion of the Indebtedness. 4.12 Modification or Termination. This Mortgage may only be modified in accordance with the terms of the Indenture. 4.13 No Partnership. Nothing contained in this Mortgage is intended to create any partnership, joint venture or association between Grantor and Trustee, or in any way make Trustee a co-principal with Grantor with reference to the Mortgaged Property, and any inferences to the contrary are hereby expressly negated. 4.14 Headings. The Article, Paragraph and Subparagraph headings hereof are inserted for convenience of reference only and shall not alter, define, or be used in construing the text of such Articles, Paragraphs or Subparagraphs. 4.15 Governing Law. This Mortgage and the enforcement of the provisionshereof shall be governed by the laws of the State of Texas except with respect to the obligations of the Grantor and the rights of the Trustee under Paragraph 2.4, which shall be governed by the laws of the State of New York, and the laws of the United States applicable to transactions in such'state. -9- 10 ARTICLE V EVENTS OF DEFAULT 5.1 Default of Indenture. It shall be an "Event of Default" hereunder if Grantor commits an Event of Default, as that term is defined by the Indenture. ARTICLE VI REMEDIES If an Event of Default shall occur, Trustee may exercise any one or more of the remedies provided in the Indenture or the following remedies, without notice: 6.1 Enforcement of Assignment of Rents and Leases. Trustee may: (a) terminate the license granted to Grantor to collect the Rents and enforce the Leases, and thereafter collect and sue for the Rents in Trustee's own name, give receipts and releases therefor, and after deducting all expenses of collection, including reasonable attorneys' fees, apply the net proceeds thereof to any Indebtedness in accordance with the Indenture; (b) make, modify, enforce, cancel or accept surrender of any Leases, evict tenants, adjust the Rents, maintain, decorate, refurbish, repair, clean, and make space ready for renting, and otherwise do anything Trustee deems advisable in connection with the Mortgaged Property; (c) apply the Rents so collected to the operation and management of the Mortgaged Property, including the payment of reasonable management, brokerage and attorneys' fees, or to the Indebtedness; and (d) require Grantor to transfer all security deposits and records thereof to Trustee. 6.2 Foreclosure. Trustee may sell all or part of the Mortgaged Property, at public auction, to the highest bidder, for cash, at the door of the county courthouse of the county in Texas in which such Mortgaged Property or any part thereof is situated, between the hours of 10:00 o'clock A.M. and 4:00 o'clock P.M. on the first Tuesday of any month, after giving -10- 11 notice of the time, place and terms of said sale and of the property to be sold, by filing written notice thereof at least twenty-one (21) days preceding the date of the sale at the courthouse door of the county in which the sale is to be made, and if the property to be sold is situated in more than one county one notice shall be posted at the courthouse door of each county in which the property to be sold is situated, and by filing a copy of the above-described notice in the office of the county clerk of the county in which the sale is to be made or, if the Mortgaged Property is in more than one county, by filing a copy of the notice with the county clerk of each county in which a portion of the Mortgaged Property is situated. In addition, Trustee shall, at least twenty-one (21) days preceding the date of sale, serve written notice of the proposed sale by certified mail on each debtor obligated to pay the debt secured hereby according to the records of Trustee. Service of such notice shall be completed upon deposit of the notice, enclosed in a postpaid wrapper, properly addressed to such debtor at the most recent address as shown by the records of Trustee, in a post office or official depository under the care and custody of the United States Postal Service. The affidavit of any person having knowledge of the facts to the effect that such service was completed shall be prima facie evidence of the fact of service. Any notice that is required or permitted to be given to Grantor may be addressed to Grantor at Grantor's address as stated above. Any notice that is to be given by certified mail to any other debtor may, if no address for such other debtor is shown by the records of Trustee, be addressed to such other debtor at the address of Grantor as is shown by the records of Trustee. Notwithstanding the foregoing provisions of this paragraph, notice of such sale given in accordance with the requirements of the applicable laws of the State of Texas in effect at the time of such sale shall constitute sufficient notice of such sale. Trustee may sell all or any portion of the Mortgaged Property, together or in lots or parcels, and may execute and deliver to the purchaser or purchasers of such property good and sufficient deeds of conveyance of fee simple title with covenants of general warranty made on behalf of Grantor. In no event shall Trustee be required to exhibit, present or display at any such sale any of the personalty described herein to be sold at such sale. Trustee making such sale shall receive the proceeds thereof and shall apply the same as follows: (a) first, he shall pay the reasonable expenses of Trustee (including any attorneys' fees) and the costs and expenses of such sale; (b) second, he shall pay, so far as may be possible, the Indebtedness; (c) third, he shall pay the residue, if any, to the persons legally entitled thereto. Payment of the purchase price to Trustee shall -11- 12 satisfy the obligation of the purchaser at such sale therefor, and such purchaser shall not be responsible for the application thereof. The sale or sales by Trustee of less than the whole of the Mortgaged Property shall not exhaust the power of sale herein granted, and Trustee is specifically empowered to make successive sale or sales under such power until the whole of the Mortgaged Property shall be sold; and if the proceeds of such sale or sales of less than the whole of the Mortgaged Property shall be less than the aggregate of the Indebtedness and the expenses thereof, this Deed of Trust and the lien, security interest and assignment hereof shall remain in full force and effect as to the unsold portion of the Mortgaged Property just as though no sale or sales had been made; provided, however, that Grantor shall never have any right to require the sale or sales of less than the whole of the Mortgaged Property, but Trustee shall have the right, at its sole election, to request Trustee to sell less than the whole of the Mortgaged Property. If default is made hereunder, the holder of the Indebtedness or any part thereof on which the payment is delinquent shall have the option to proceed with foreclosure in satisfaction of such item either through judicial proceedings or by directing Trustee to proceed as if under a full foreclosure, conducting the sale as herein provided without declaring the entire Indebtedness due, if sale is made because of default of an installment, or a part of an installment, such sale may be made subject to the unmatured part of the Indebtedness; and it is agreed that such sale, if so made, shall not in any manner affect the unmatured part of the Indebtedness, but as to such unmatured part this Deed of Trust shall remain in full force and effect as though no sale had been made under the provisions of this paragraph. Several sales may be made hereunder without exhausting the right of sale for any unmatured part of the Indebtedness. At any such sale (a) Grantor hereby agrees, in its behalf and in behalf of its heirs, executors, administrators, successors, personal representatives and assigns, that any and all recitals made in any deed of conveyance given by Trustee with respect to the identity of Trustee, the occurrence or existence of any default, the acceleration of the maturity of any of the Indebtedness, the request to sell, the notice of sale, the giving of notice to all debtors legally entitled thereto, the time, place, terms, and manner of sale, receipt, distribution and application of the money realized therefrom, or the due and proper appointment of a substitute Trustee, and, without being limited by the foregoing, with respect to any other act or thing having been duly done by Trustee or by Trustee hereunder, shall be taken by all courts of law and equity as prima facie evidence that the statements or recitals state facts and are -12- 13 without further question to be so accepted, and Grantor hereby ratifies and confirms every act that Trustee or any substitute Trustee hereunder may lawfully do in the premises by virtue hereof, and (b) the purchaser may disaffirm any easement granted, or rental, lease or other contract made, in violation of any provision of this Deed of Trust, and may take immediate possession of the Mortgaged Property free from, and despite the terms of, such grant of easement and rental or lease contract. Trustee may bid and become the purchaser of all or any part of the Mortgaged Property at any trustee's or foreclosure sale hereunder, and the amount of Trustee's successful bid may be credited on the Indebtedness. Notwithstanding the above, Trustee may cause the liens of this Deed of Trust to be foreclosed in any other manner provided for under the laws of the State of Texas. 6.3 Tenancy at Will. In the event of a trustee's sale hereunder and if at the time of such sale Grantor or any other party occupies the portion of the Mortgaged Property so sold or any part thereof, such occupant, at the option of such purchaser, shall immediately become the tenant of the purchaser at such sale, which tenancy, at the option of such purchaser, shall be a tenancy at will, at a reasonable rental per day based upon the value of the portion of the Mortgaged Property so occupied, such rental to be due and payable daily to the purchaser. An action of forcible detainer shall lie if the tenant holds over after a demand in writing for possession of such Mortgaged Property. 6.4 Indemnification of Trustee. Except for gross negligence or willful misconduct, Trustee shall not be liable for any act or omission or error of judgment in connection with exercising the remedies provided herein. Trustee may rely any document believed by him in good faith to be genuine. All money received by Trustee shall, until used or applied as herein provided, be held in trust, but need not be segregated (except to the extent required by law), and Trustee shall not be liable for interest thereon. Grantor shall indemnify Trustee and hold Trustee harmless against all liability, cost, damage or expense that Trustee may incur in the performance of his duties hereunder. 6.5 Lawsuits. Trustee may proceed by a suit or suits in equity or at law, whether for the specific performance of any covenant or agreement herein contained or in aid of the execution of any power herein granted, or for any foreclosure hereunder or for the sale of the Mortgaged Property under the judgment or decree of any court or courts of competent jurisdiction. -13- 14 6.6 Entry on Mortgaged Property. Upon occurrence of an Event of Default hereunder, Trustee may enter into and upon and take possession of all or any part of the Mortgaged Property, and may exclude Grantor, and all persons claiming under Grantor, and its or their agents or servants, wholly or partly therefrom; and, holding the same, Trustee may use, administer, manage, operate, and control the Mortgaged Property and may exercise all rights and powers of Grantor in the name, place and stead of Grantor, or otherwise, as Trustee shall deem best; and in the exercise of any of the foregoing rights and powers Trustee shall not be liable to Grantor for any loss or damage thereby sustained unless due solely to the willful misconduct or gross negligence of Trustee. Trustee's powers shall include the right to complete construction of any part of the Mortgaged Property and to make any repairs or alterations necessary or advisable for the successful operation of the Mortgaged Property. 6.7 Trustee or Receiver. Trustee may make application to a court of competent jurisdiction, as a matter of strict right and without notice to Grantor or regard to the adequacy of the Mortgaged Property for the repayment of the Indebtedness, for appointment of a receiver of the Mortgaged Property, and Grantor does hereby irrevocably consent to such appointment. Any such receiver shall have all the usual powers and duties of receivers in similar cases, including the full power to rent, maintain and otherwise operate the Mortgaged Property upon such terms as may be approved by the court, and shall apply the Rents in accordance with the provisions hereof. 6.8 Remedies Cumulative, Concurrent and Nonexclusive. Trustee shall have all rights, remedies and recourses granted in this Mortgage or the Indenture or available at law or equity (including, without limitation, those granted by the Code and applicable to the Mortgaged Property, or any portion thereof) and the same (a) shall be cumulative and concurrent, (b) may be pursued separately, successively or concurrently against Grantor or others obligated for the Indebtedness, or any part thereof or against any one or more of them, or against the Mortgaged Property, at the sole discretion of Trustee, (c) may be exercised as often as occasion therefor shall arise, it being agreed by Grantor that the exercise or failure to exercise any of the same shall in no event be construed as a waiver or release thereof or of any other right, remedy or recourse, and (d) are intended to be, and shall be, nonexclusive, nor shall exercise of any one or more constitute a waiver of a right to any other right, remedy or recourse thereafter. -14- 15 6.9 Rights and Remedies of Sureties. Grantor waives any right or remedy which Grantor may have or be able to assert pursuant to Chapter 34 of the Business and Commerce Code of the State of Texas pertaining to the rights and remedies of sureties. 6.10 Compensation to Trustee. Grantor hereby agrees to pay to Trustee reasonable compensation for all services rendered by it hereunder and to reimburse Trustee upon request for all reasonable expenses, disbursements and advances incurred or made by Trustee in accordance with any provisions hereof. This Deed of Trust is being delivered and recorded prior to its effective date and such delivery shall continue through the effective date and thereafter to the extent necessary to complete such delivery and the conveyance intended by this Deed of Trust. EXECUTED as of the date first set forth above. GRANTOR: TRAMMELL CROW REAL ESTATE INVESTORS, a Texas real estate investment trust By: /s/ DAVID CLOSSEY Name: David Clossey Trust Manager -15- 16 STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, personally appeared David Clossey, Trust Manager of Trammell Crow Real Estate Investors, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed same as the act of such trust, for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 22nd day of November, 1985. My Commission Expires: /s/ LINDA L. SLAVIK NOTARY PUBLIC IN AND FOR THE STATE OF TEXAS {SEAL} LINDA L. SLAVIK NOTARY PUBLIC STATE OF TEXAS Commission expires 3-31-19 -16- 17 COMMERCE PARK EXHIBIT B BEING 5.5243 acres (240,639 square feet) of land situated in the C. Richey Survey, Abstract 1021 and the Wm. Hobby Survey, Abstract 1599, Harris County, Texas being out of and a part of Restricted Reserve B "Commerce Park North Business Center", a recorded subdivision as filed for record in Volume 310, Page 100 of the Map Records of Harris County, Texas and being more particularly described by metes and bounds as follows: BEGINNING at a found 5/8" iron rod located at the southwest corner of Restricted Reserve B, "Commerce Park North Business Center" and being the southwest corner of the herein described tract of land. Said point also being located on the north line of a State of Texas 60 foot wide tract of land as filed for record in Volume 3594, Page 665 of the Deed Records of Harris County, Texas; THENCE N 07 Degrees 56' 42" W, along the west line of Restricted Reserve B, "Commerce Park North Business Center" a distance of 330.00 feet to a set 5/8" iron rod and the northwest corner of the herein described tract of land; THENCE N 82 Degrees 03' 18" E, leaving said west line of Restricted Reserve B "Commerce Park North Business Center", a distance of 708.27 feet to a set 5/8 iron rod, the northeast corner of the herein described tract of land, a point on the east line of said Restricted Reserve B and a point on the west line of Blue Ash Drive (60' right-of-way) as recorded by the plat of Commerce Park North Business Center; THENCE S 27 Degrees 05' 37" W, along the east line of said Restricted Reserve B and the west line of Blue Ash Drive, a distance of 19.14 feet to a found 5/8" iron rod and the point of curvature of a curve to the left; THENCE continuing along the east line of said Restricted Reserve B and the west line of Blue Ash Drive in a southerly direction along said curve to the left having a radius of 330.00 feet, subtending a central angle of 26 Degrees 30' 00" and having an arc length of 152.63 feet to a found 5/8" iron rod and the point of tangency of said curve; THENCE S 00 Degrees 35' 37" W, continuing along the east line of said Restricted Reserve B and the west line of Blue Ash Drive, a distance of 190.53 feet to a set 5/8" iron rod and the point of curvature of a curve to the right; THENCE continuing along the east line of said Restricted Reserve B and the west line of Blue Ash Drive in a southerly direction along said curve to the right having a radius of 270.00 feet, subtending a central angle of 02 25' 54" and having an arc length of 11.46 feet to a found 5/8" iron rod and the point of tangency of said curve; THENCE S 03 Degrees 01' 31" W, continuing along the east line of said Restricted Reserve B and the west line of Blue Ash Drive, a distance of 50.05 feet to a found 5/8" iron rod and the point of curvature of a curve to the left; 18 COMMERCE PARK Exhibit B, Con't. Page Two THENCE continuing along the east line of said Restricted Reserve B and the west line of Blue Ash Drive in a southerly direction along said curve to the left having a radius of 330.00 feet, subtending a central angle of 02 Degrees 25' 38" and having an arc length of 13.98 feet to a found 5/8" iron rod, the southeast corner of the herein described tract of land, and a point on the north line of a State of Texas 60 foot wide fee strip as filed for record in Volume 3494, Page 609 of the Deed Records of Harris County, Texas; THENCE N 89 Degrees 31' 00" W, along the south line of Restricted Reserve B and the north line of said State of Texas 60' wide fee strip, passing the northeast corner of the previously mentioned State of Texas 60 foot wide tract of land, a distance of 605.55 feet to the POINT OF BEGINNING and containing 5.5243 acres (240,639 square feet) of land, more or less. 19 COMMERCE PARK EXHIBIT "C" 1. Restrictions as set forth in the map or plat recorded in Volume 310, Page 100 of the Map Records of Harris County, Texas, and as set forth in that instrument filed for record under Harris County Clerk's File No. H297574. 2. Rights of Parties in possession as to unrecorded leases as to possession only. 3. Minimum building and parking set back lines as set forth on the map or plat recorded in Volume 310, Page 100 of the Map Records of Harris County, Texas, and as set forth in that instrument filed for record under Harris County Clerk's File No. H297574. 4. Landscape Areas and Green Areas as set forth in that instrument filed for record under Harris County Clerk's File No. H297574. 5. Annual Community Services and Improvements Charge payable to Commerce Park North II Owner's Association as set forth in that instrument filed for record under Harris County Clerk's File No. H297574; additionally secured by a Vendor's Lien as set forth therein. This lien having been subordinated therein to all valid purchase money and construction liens. 6. An aerial easement 5 feet in width from a plane 20 feet above the ground upward for the use of public utilities, as set forth on plat recorded in Volume 310, Page 100 of the Map Records of Harris County, Texas. 7. An easement 10 feet wide for sanitary sewer purposes located along the West property line, as set forth on the map or plat recorded in Volume 310, Page 100 of the Map Records of Harris County, Texas. 8. An easement for drainage purposes extending a distance of fifteen feet on each side of the center line of all natural drainage courses, as reflected by the plat recorded in Volume 310, Page 100 of the Map Records of Harris County, Texas. 9. Joint Use Access Easement dated June 14, 1983, filed for record under Harris County Clerk's File No. H995884, affected by that Correction Agreement Joint Use Access Easement dated April 3, 1984, but effective June 14, 1983, filed for record under Harris County Clerk's File No. J447972. 10. Unobstructed easement 10 feet wide together with unobstructed aerial easements 10 feet wide from a plane 16 feet above the ground upward, as granted to Houston Lighting & Power Company, by that instrument dated September 1, 1983, filed for record under Harris County Clerk's File No. J209336, the exact location of said easements being shown on the exhibit attached thereto. 20 11. Mineral Lease dated December 22, 1939, from May Richey Strack, et al, Lessor, to Earl C. Hankamer, Lessee, recorded in Volume 354, Page 82 of the Contract Records of Harris County, Texas. Affected by that Partial Release of Surface Rights dated October 10, 1973, from HNG Oil Company, filed for record under Harris County Clerk's File No. E001001. 12. Unit Agreement for Bammel Gas Unit, dated January 1, 1966, recorded in Volume 1925, Page 283 of the Contract Records of Harris County, Texas. 13. The above property lies within the area designated and zoned by the City of Houston as the "Jetero Airport Site" (Houston Intercontinental Airport) and is subject to the restrictions and regulations imposed by Ordinance of the City of Houston, a certified copy of which is recorded in Volume 4184, Page 518 of the Deed Records of Harris County, Texas, and as amended by Ordinances, certified copies of which are recorded in Volume 4897, Page 67 and Volume 5448, Page 421 of the Deed Records of Harris County, Texas. 14. An easement 20 feet wide for storm sewer purposes located along the South property line, as set forth on the map or plat recorded in Volume 310, Page 100 of the Map Records of Harris County, Texas. 15. An easement 10 feet wide for storm sewer purposes located along the East property line, as set forth on the map or plat recorded in Volume 310, Page 100 of the Map Records of Harris County, Texas. 16. An easement 10 feet wide for sanitary sewer purposes located near the Southeast corner of the subject property, as set forth on the map or plat recorded in Volume 310, Page 100 of the Map Records of Harris County, Texas. 17. An easement for underground facilities as granted to Southwestern Bell Telephone Company, by that instrument dated October 3, 1983, filed for record under Harris County Clerk's File No. J223967. 18. Mineral Lease dated March 18, 1940, from L.E. Spears, et al, to H.M. Harrell, recorded in Volume 356, Page 489 of the Contract Records of Harris County, Texas. Affected by that Partial Release of Surface Rights dated October 10, 1973, from HNG Oil Company, filed for record under Harris County Clerk's File No. D974702. 19. An undivided 1/2 of all mines and all oil, gas and minerals in, on and under, same being 1/4 of all minerals, reserved by Leon E. Spears in that instrument recorded in Volume 1365, Page 651 of the Deed Records of Harris County, Texas, and in that correction instrument recorded in Volume 5804, Page 605 of the Deed Records of Harris County, Texas. 21 20. An undivided 1/2 of all oil, gas and minerals reserved by Howard R. Sampley, Trustee, in that instrument recorded in Volume 7175, Page 533 of the Deed Records of Harris County, Texas. 21. The following matters disclosed by that Survey dated October, 1985, prepared by Gerald E. Munger, Jr., Registered Public Surveyor No. 3438, of Fowler & Munger Consulting Engineers, Houston, Texas, Job No. 01830077: (a) Storm sewer lines located over and across the subject property; (b) Encroachment of parking spaces into the 20 foot storm sewer easements located along the South property line; and (c) Sanitary sewer easements located over and across the subject property. (d) Encroachment by building over that 20 foot building line along the East side of the subject property. (e) Encroachment by building into that 10 foot easement granted to Houston Lighting and Power Company by instrument filed for record under Harris County Clerk's File No. J209336. EX-10.18 16 DEED OF TRUST (WESTCHASE PARK) 1 EXHIBIT 10.18 WESTCHASE DEED OF TRUST (WITH SECURITY AGREEMENT AND ASSIGNMENT OF RENTS AND LEASES) By this instrument (this "Mortgage"), dated as of November 22, 1985, to be effective as of November 27, 1985, the undersigned, TRAMMELL CROW REAL ESTATE INVESTORS, a Texas real estate investment trust (hereinafter referred to as "Grantor"), whose address is 2001 Ross Avenue, 3500 LTV Center, Dallas, Texas 75201, to secure the obligations hereinafter described, does hereby GRANT, BARGAIN, SELL, ASSIGN and CONVEY unto GEORGE R. SIEVERS (hereinafter referred to as "Trustee"), whose address is One State Street, New York, New York 10015, acting for the benefit of J. HENRY SCHRODER BANK & TRUST COMPANY, a New York banking corporation, the trustee under that certain indenture (the "Indenture"), dated as of November 15, 1985, by and between Grantor and Trustee, securing payment of certain zero coupon notes due 1997, payable to the order of the Holders, a copy of which Indenture is attached hereto as Exhibit A and incorporated herein by this reference for all purposes, the following described mortgaged property (the "Mortgaged Property"), to wit: All of the real property located in Harris County, Texas, described on the attached Exhibit B which is incorporated herein by reference (the "Land"), subject to the exceptions described on the attached Exhibit C which is incorporated herein by reference (the "Permitted Exceptions"), TOGETHER WITH all of Grantor's right, title and interest in and to the following, whether now owned or hereafter acquired: (a) all improvements and fixtures now or hereafter attached to or placed, erected, constructed or developed on the Land (the "Improvements"); (b) all equipment, machinery, furnishings, inventory, chattels and all other articles of personal property (the "Personal Property") now or hereafter attached to, relating to or used in or about the Improvements or the Land; (c) all water and water rights, timber, crops and mineral interests pertaining to the Land; (d) all building materials and equipment now or hereafter delivered and installed or intended to be installed in or on the Land or the Improvements; (e) all plans, specifications and drawings for the Improvements; (f) all deposits (including tenants' security deposits and escrow deposits under contracts of sale), 2 documents, contract rights, commitments, construction contracts, architectural agreements and general intangibles (including, without limitation, trademarks, trade names and symbols but expressly excluding the right to use the name "Trammell Crow" or any name associated therewith or derived therefrom); (g) all permits, licenses, franchises, certificates and other rights and privileges relating to or obtained in connection with the Land, the Improvements or the Personal Property; (h) all proceeds arising from or by virtue of the sale, lease or other disposition, encumbrance or refinancing, of the Land, the Improvements and the Personal Property; (i) all proceeds (including premium refunds) of each policy of insurance relating to the Land, the Improvements or the Personal Property; (j) all proceeds from the taking of any of the Land, the Improvements, the Personal Property or any rights appurtenant thereto by right of eminent domain or by private or other purchase in lieu thereof including change of grade of streets, curb cuts or other rights of access; (k) all streets, roads, public places, easements and rights-of-way, existing or proposed, public or private, located on or adjacent to or used in connection with the Land; (l) all of the leases, subleases, licenses or other agreements relating to the Land, the Improvements or the Personal Property, and all rents, deposits, royalties, bonuses, issues, profits, revenues, income or other benefits of the Land, the Improvements or the Personal Property, including, without limitation, cash, securities, letters of credit, guarantees or other instruments deposited pursuant to leases to secure performance by the lessees of their obligations thereunder and cash deposited in impound accounts for the payment of taxes and insurance under any deed of trust securing payment of the Indebtedness; (m) all heating, lighting, refrigeration, plumbing, ventilating, incinerating, water heating, transportation, communications, electrical and air-conditioning systems and equipment, sprinkler and fire-extinguishing systems, security systems, maintenance equipment and other fixtures or systems used in connection with the Land, the Improvements and the Personal Property; (n) all rights, hereditaments, strips, gores and appurtenances pertaining to the foregoing; and (o) all replacements, betterments, substitutions, renewals and additions to any of the above-described Mortgaged Property; and all proceeds of any of the above-described Mortgaged Property. TO HAVE AND TO HOLD the Mortgaged Property, together with the rights, privileges and appurtenances thereto belonging, unto the Trustee and its substitutes or successors and assigns forever, and Grantor hereby binds itself and its administrators, personal representatives, successors and assigns to warrant and forever defend the Mortgaged Property -2- 3 unto the Trustee, its substitutes or successors and assigns, against the claim or claims of all persons claiming or to claim the same or any part thereof. ARTICLE I INDEBTEDNESS This Mortgage is given to secure the payment of all sums and performance of all obligations and covenants contained in this Mortgage and of the Indenture. Unless otherwise defined herein, certain capitalized terms shall have the meaning ascribed to said terms by the Indenture. The above-described obligations are hereinafter collectively called the "Indebtedness". ARTICLE II ASSIGNMENT OF RENTS AND LEASES 2.1 Assignment of Rents, Profits, etc. Grantor hereby absolutely and unconditionally assigns to Trustee all of its right, title and interest in and to the rents, royalties, bonuses, issues, profits, revenue, income and other benefits derived from the Mortgaged Property or arising from the use or enjoyment of any portion thereof or from any lease, sublease, licenses or other agreement pertaining thereto, and any and all damages following default under such leases, and all proceeds payable under any policy of insurance covering loss of rents resulting from untenantability, together with any and all rights that Grantor may have against any tenant under such leases or any subtenants or occupants or users of any part of the Mortgaged Property (collectively, the "Rents"). Prior to an Event of Default (as hereinafter defined), Grantor shall have a license to collect and receive all Rents and to apply same in accordance with the terms and provisions of the Indenture. 2.2 Assignment of Leases. Grantor hereby absolutely and unconditionally assigns to Trustee all of its right, title and interest in and to existing and future leases, including subleases thereunder, and any and all extensions, renewals, modifications, and replacements thereof, covering any part of the Mortgaged Property (collectively, the "Leases"). Grantor hereby further assigns to Trustee all guaranties of tenants' performances under the Leases. -3- 4 2.3 Trustee in Possession. Trustee's acceptance of this assignment shall not be deemed to constitute Trustee a "mortgagee in possession" nor obligate Trustee to appear in or defend any proceeding relating to any of the Leases or to the Mortgaged Property, or to take any action hereunder, expend any money, incur any expenses, or perform any obligation or liability under the Leases, or assume any obligation for any deposits delivered to Grantor by any tenant and not delivered to Trustee, prior to entry upon and taking possession of the Mortgaged Property by Trustee. Trustee shall not be liable for any injury or damage to person or property in or about the Mortgaged Property. 2.4 Indemnification. Grantor hereby agrees to indemnify Trustee and hold Trustee harmless from all liability, damage or expense incurred by Trustee from any claims under the Leases as well as all amounts indemnified against under the Indenture. All amounts indemnified against hereunder, including reasonable attorneys' fees, if paid by Trustee shall be payable by Grantor immediately upon demand by Trustee and shall be secured hereby. 2.5 Right to Rely. After the occurrence of an Event of Default (hereinafter defined), Grantor hereby authorizes and directs the tenants under the Leases to pay Rents to Trustee upon written demand by Trustee, without further consent of Grantor, and the tenants may rely upon any written statement delivered by Trustee to the tenants. Any such payment to Trustee shall satisfy the obligations of such tenant to make payment to Grantor under the Leases to the extent of the payment made to Trustee. ARTICLE III SECURITY AGREEMENT 3.1 Security Interest. This Mortgage shall be a security agreement between Grantor, as the debtor, and Trustee, as the secured party, covering the Mortgaged Property constituting personal property or fixtures governed by the Uniform Commercial Code, as enacted and amended from time to time in the state in which the Land is situated (hereinafter called the "Code"), and Grantor grants to Trustee a security interest in such portion of the Mortgaged Property. In addition to Trustee's other rights hereunder, Trustee shall have all rights of a secured party under the Code. Grantor shall execute and deliver to Trustee all financing statements that may be necessary or advisable to establish and maintain the validity, perfection and priority of Trustee's security interest, and -4- 5 Grantor shall bear all costs thereof, including all Code searches reasonably required by Trustee. If Trustee should desire to dispose of any of the Mortgaged Property pursuant to the Code, and if the Code requires prior notice to Grantor of such disposition, ten (10) days written notice by Trustee to Grantor shall be deemed to be reasonable notice; provided, however, Trustee may dispose of such property in accordance with the foreclosure procedures hereof in lieu of proceeding under the Code. 3.2 Notice of Changes. Grantor shall give advance notice in writing to Trustee of any proposed change in Grantor's name, identity, or structure and shall execute and deliver to Trustee, prior to or concurrently with the occurrence of any such change, all additional financing statements that Trustee may require to establish and maintain the validity and priority of Trustee's security interest with respect to any of the Mortgaged Property. 3.3 Financing Statement. Some of the items of the Mortgaged Property described herein are goods that are or are to become fixtures related to the Land, and it is intended that, as to those goods, this instrument shall be effective as a financing statement filed as a fixture filing from the date of its filing for record in the real estate records of the county in which the Mortgaged Property is situated. Information concerning the security interest created by this instrument may be obtained from Trustee, as secured party, at the address of Trustee stated above. The mailing address of Grantor as debtor is as stated above. ARTICLE IV REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF GRANTOR Grantor does hereby warrant and represent to and covenant and agree with Trustee as follows: 4.1 Title to Mortgaged Property and Lien of this Mortgage. Grantor has good and indefeasible title to the Land and the Improvements, and good and marketable title to the remainder of the Mortgaged Property, free and clear of any liens, charges, encumbrances, security interests and adverse claims whatsoever, except for the Permitted Exceptions. 4.2 Limitation of Liability. Any obligation or liability whatsoever of the Grantor which may arise at any time under -5- 6 this Mortgage, or any obligation or liability incurred by it pursuant to any other instrument, transaction or undertaking contemplated by this Mortgage, shall be satisfied, if at all, out of the Grantor's property only. No such obligation or liability shall be personally binding upon nor shall there be any resort for the enforcement thereof to the private property of any of its Trust Managers, shareholders, officers, employees or agents, regardless of whether such obligations or liability are in the nature of contract, tort or otherwise. 4.3 Repair. Grantor will cause the Mortgaged Property to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, which in the judgment of the Grantor may be necessary or prudent so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however that nothing in this Section 4.3 shall prevent the Grantor from discontinuing the operation and maintenance of any of its properties if such discontinuance is, in the judgment of the Grantor, desirable in the conduct of its business and not disadvantageous in any material respect to the Holders. 4.4 Insurance. (a) Grantor will at all times keep all the Mortgaged Property of an insurable nature and of the character usually insured by companies operating similar properties, insured in amounts customarily carried, and against loss or damage from such causes as are customarily insured against, by similar companies. (b) All such insurance shall be effected with insurance carriers having a claims paying rating of "AA" or better by Standard & Poor's Corporation. All policies or other contracts for such insurance on the Mortgaged Property shall provide that the proceeds of such insurance (except in the case of any particular casualty resulting in damage or destruction not exceeding $1,100,000.00 in the aggregate) shall be payable, subject to the requirements of any Prior Lien, to the Trustee as its interest may appear (by means of a standard mortgagee clause or other similar clause acceptable to the Trustee, without contribution). Each policy or other contract for such insurance, or such mortgagee clause, shall contain an agreement by the insurer that, notwithstanding any right of cancellation reserved to such insurer, such policy or contract shall not be cancelled unless and until the insurer has provided Trustee written notice thirty calendar days prior to cancellation. As -6- 7 soon as practicable after the execution of this Mortgage, and within 120 calendar days after the close of each fiscal year thereafter, and at any time upon the request of the Trustee, Grantor will deliver to the Trustee an officer certificate containing a detailed list of the insurance in force upon the Mortgaged Property on a date therein specified (which date shall be within 30 calendar days of the filing of such certificate), including the names of the insurers with which the policies and other contracts of insurance of the Mortgaged Property are carried, the numbers, amounts and expiration dates of such policies and other contracts and the property and hazards covered thereby, and stating that the insurance so listed complies with this Section 4.4, together with copies of all insurance policies or certificates thereof. (c) All proceeds of any insurance of any part of the Mortgaged Property not payable to the Trustee or the trustee, mortgagee or other holder or beneficiary of a Prior Lien shall be applied in accordance with the Indenture. In the event that the proceeds of insurance are made available for restoration, Grantor shall restore the Improvements to substantially the same condition and quality of the Improvements prior to the casualty. 4.5 Taxes. Grantor will pay, prior to delinquency, all taxes, assessments and governmental charges or levies imposed upon it or the Mortgaged Property, and all claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like persons which, if unpaid, might result in the creation of a lien upon the Mortgaged Property; provided that items of the foregoing description need not be paid while being contested in good faith and by appropriate proceedings, so long as such contest shall not create a risk of forfeiture of all or any portion of the Mortgaged Property. Nothing contained herein shall constitute the consent of Trustee to subject the Mortgaged Property to any of the aforesaid liens. 4.6 Casualty and Condemnation. All proceeds, judgments, decrees and awards for injury or damage to the Mortgaged Property, and all awards pursuant to proceedings for condemnation thereof, are hereby assigned in their entirety to Trustee, who shall apply the same in accordance with the Indenture. Immediately upon its obtaining knowledge of the institution or the threatened institution of any proceedings for the condemnation of the Mortgaged Property, Grantor shall notify Trustee of such fact. Grantor shall then, if requested by Trustee, file or defend its claim thereunder and prosecute same with due diligence to its final disposition and shall cause any awards or settlements to be paid over to Trustee for disposition pursuant to the terms of sub-section 4.4(c) -7- 8 hereinabove. Trustee shall be entitled to participate in same and to be represented therein by counsel of its own choice, and Grantor shall deliver, or cause to be delivered, to Trustee such instruments as may be requested by it from time to time to permit such participation. 4.7 Compliance with Laws. Grantor shall cause the Mortgaged Property and the use thereof to comply with all laws, rules, ordinances, regulations, covenants, conditions, restrictions, orders and decrees of any governmental authority or court applicable to Grantor or the Mortgaged Property and its use, and Grantor shall pay all fees or charges of any kind in connection therewith. 4.8 Operation. For so long as there is no Event of Default hereunder, Grantor may use and operate, alter and improve, manage, lease and maintain the Land, Improvements and Personal Property in accordance with customary and prudent management practices and in accordance with the provisions hereof and of the Indenture. 4.9 Successors and Assigns; Use of Terms. The covenants herein contained shall bind, and the benefits and advantages hereof shall inure to, the respective heirs, executors, administrators, personal representatives, successors and assigns of the parties hereto. Whenever used, the singular number shall include the plural and the plural the singular, and the use of any gender shall be applicable to all genders. The duties, covenants, conditions, obligations and warranties of Grantor in this instrument shall be joint and several obligations of Grantor and of each Grantor, if more than one, and of each Grantor's heirs, personal representatives, successors and assigns. Each party who executes this instrument and each subsequent owner of the Mortgaged Property, or any part thereof (other than Trustee), covenants and agrees that it will perform, or cause to be performed, each term and covenant of this instrument as if such party were the named Grantor. 4.10 Severability. If any provision of this instrument is held to be illegal, invalid, or unenforceable under present or future laws effective while this instrument is in effect, the legality, validity and enforceability of the remaining provisions of this instrument shall not be affected thereby, and in lieu of each such illegal, invalid or unenforceable provision there shall be added automatically as a part of this instrument a provision that is legal, valid and enforceable and as similar in terms to such illegal, invalid or unenforceable provision as may be possible. -8- 9 4.11 Unsecured Indebtedness. If any of the Indebtedness shall be unsecured, the unsecured portion of the Indebtedness shall be completely paid prior to the payment of the secured portion of such Indebtedness, and all payments made on account of the Indebtedness shall be considered to have been paid on and applied first to the complete payment of the unsecured portion of the Indebtedness. 4.12 Modification or Termination. This Mortgage may only be modified in accordance with the terms of the Indenture. 4.13 No Partnership. Nothing contained in this Mortgage is intended to create any partnership, joint venture or association between Grantor and Trustee, or in any way make Trustee a co-principal with Grantor with reference to the Mortgaged Property, and any inferences to the contrary are hereby expressly negated. 4.14 Headings. The Article, Paragraph and Subparagraph headings hereof are inserted for convenience of reference only and shall not alter, define, or be used in construing the text of such Articles, Paragraphs or Subparagraphs. 4.15 Governing Law. This Mortgage and the enforcement of the provisions hereof shall be governed by the laws of the State of Texas except with respect to the obligations of the Grantor and the rights of the Trustee under Paragraph 2.4, which shall be governed by the laws of the State of New York, and the laws of the United States applicable to transactions in such state. ARTICLE V EVENTS OF DEFAULT 5.1 Default of Indenture. It shall be an "Event of Default" hereunder if Grantor commits an Event of Default, as that term is defined by the Indenture. ARTICLE VI REMEDIES If an Event of Default shall occur, Trustee may exercise any one or more of the remedies provided in the Indenture or the following remedies, without notice: -9- 10 6.1 Enforcement of Assignment of Rents and Leases. Trustee may: (a) terminate the license granted to Grantor to collect the Rents and enforce the Leases, and thereafter collect and sue for the Rents in Trustee's own name, give receipts and releases therefor, and after deducting all expenses of collection, including reasonable attorneys' fees, apply the net proceeds thereof to any Indebtedness in accordance with the Indenture; (b) make, modify, enforce, cancel or accept surrender of any Leases, evict tenants, adjust the Rents, maintain, decorate, refurbish, repair, clean, and make space ready for renting, and otherwise do anything Trustee deems advisable in connection with the Mortgaged Property; (c) apply the Rents so collected to the operation and management of the Mortgaged Property, including the payment of reasonable management, brokerage and attorneys' fees, or to the Indebtedness; and (d) require Grantor to transfer all security deposits and records thereof to Trustee. 6.2 Foreclosure. Trustee may sell all or part of the Mortgaged Property, at public auction, to the highest bidder, for cash, at the door of the county courthouse of the county in Texas in which such Mortgaged Property or any part thereof is situated, between the hours of 10:00 o'clock A.M. and 4:00 o'clock P.M. on the first Tuesday of any month, after giving notice of the time, place and terms of said sale and of the property to be sold, by filing written notice thereof at least twenty-one (21) days preceding the date of the sale at the courthouse door of the county in which the sale is to be made, and if the property to be sold is situated in more than one county one notice shall be posted at the courthouse door of each county in which the property to be sold is situated, and by filing a copy of the above-described notice in the office of the county clerk of the county in which the sale is to be made or, if the Mortgaged Property is in more than one county, by filing a copy of the notice with the county clerk of each county in which a portion of the Mortgaged Property is situated. In addition, Trustee shall, at least twenty-one (21) days preceding the date of sale, serve written notice of the proposed sale by certified mail on each debtor obligated to pay the debt secured hereby according to the records of Trustee. Service of such notice shall be completed upon deposit of the -10- 11 notice, enclosed in a postpaid wrapper, properly addressed to such debtor at the most recent address as shown by the records of Trustee, in a post office or official depository under the care and custody of the United States Postal Service. The affidavit of any person having knowledge of the facts to the effect that such service was completed shall be prima facie evidence of the fact of service. Any notice that is required or permitted to be given to Grantor may be addressed to Grantor at Grantor's address as stated above. Any notice that is to be given by certified mail to any other debtor may, if no address for such other debtor is shown by the records of Trustee, be addressed to such other debtor at the address of Grantor as is shown by the records of Trustee. Notwithstanding the foregoing provisions of this paragraph, notice of such sale given in accordance with the requirements of the applicable laws of the State of Texas in effect at the time of such sale shall constitute sufficient notice of such sale. Trustee may sell all or any portion of the Mortgaged Property, together or in lots or parcels, and may execute and deliver to the purchaser or purchasers of such property good and sufficient deeds of conveyance of fee simple title with covenants of general warranty made on behalf of Grantor. In no event shall Trustee be required to exhibit, present or display at any such sale any of the personalty described herein to be sold at such sale. Trustee making such sale shall receive the proceeds thereof and shall apply the same as follows: (a) first, he shall pay the reasonable expenses of Trustee (including any attorneys' fees) and the costs and expenses of such sale; (b) second, he shall pay, so far as may be possible, the Indebtedness; (c) third, he shall pay the residue, if any, to the persons legally entitled thereto. Payment of the purchase price to Trustee shall satisfy the obligation of the purchaser at such sale therefor, and such purchaser shall not be responsible for the application thereof. The sale or sales by Trustee of less than the whole of the Mortgaged Property shall not exhaust the power of sale herein granted, and Trustee is specifically empowered to make successive sale or sales under such power until the whole of the Mortgaged Property shall be sold; and if the proceeds of such sale or sales of less than the whole of the Mortgaged Property shall be less than the aggregate of the Indebtedness and the expenses thereof, this Deed of Trust and the lien, security interest and assignment hereof shall remain in full force and effect as to the unsold portion of the Mortgaged Property just as though no sale or sales had been made; provided, however, that Grantor shall never have any right to require the sale or sales of less than the whole of the Mortgaged Property, but Trustee shall have the right, at its sole election, to request Trustee to sell less than the whole -11- 12 of the Mortgaged Property. If default is made hereunder, the holder of the Indebtedness or any part thereof on which the payment is delinquent shall have the option to proceed with foreclosure in satisfaction of such item either through judicial proceedings or by directing Trustee to proceed as if under a full foreclosure, conducting the sale as herein provided without declaring the entire Indebtedness due, if sale is made because of default of an installment, or a part of an installment, such sale may be made subject to the unmatured part of the Indebtedness; and it is agreed that such sale, if so made, shall not in any manner affect the unmatured part of the Indebtedness, but as to such unmatured part this Deed of Trust shall remain in full force and effect as though no sale had been made under the provisions of this paragraph. Several sales may be made hereunder without exhausting the right of sale for any unmatured part of the Indebtedness. At any such sale (a) Grantor hereby agrees, in its behalf and in behalf of its heirs, executors, administrators, successors, personal representatives and assigns, that any and all recitals made in any deed of conveyance given by Trustee with respect to the identity of Trustee, the occurrence or existence of any default, the acceleration of the maturity of any of the Indebtedness, the request to sell, the notice of sale, the giving of notice to all debtors legally entitled thereto, the time, place, terms, and manner of sale, receipt, distribution and application of the money realized therefrom, or the due and proper appointment of a substitute Trustee, and, without being limited by the foregoing, with respect to any other act or thing having been duly done by Trustee or by Trustee hereunder, shall be taken by all courts of law and equity as prima facie evidence that the statements or recitals state facts and are without further question to be so accepted, and Grantor hereby ratifies and confirms every act that Trustee or any substitute Trustee hereunder may lawfully do in the premises by virtue hereof, and (b) the purchaser may disaffirm any easement granted, or rental, lease or other contract made, in violation of any provision of this Deed of Trust, and may take immediate possession of the Mortgaged Property free from, and despite the terms of, such grant of easement and rental or lease contract. Trustee may bid and become the purchaser of all or any part of the Mortgaged Property at any trustee's or foreclosure sale hereunder, and the amount of Trustee's successful bid may be credited on the Indebtedness. Notwithstanding the above, Trustee may cause the liens of this Deed of Trust to be foreclosed in any other manner provided for under the laws of the State of Texas. -12- 13 6.3 Tenancy at Will. In the event of a trustee's sale hereunder and if at the time of such sale Grantor or any other party occupies the portion of the Mortgaged Property so sold or any part thereof, such occupant, at the option of such purchaser, shall immediately become the tenant of the purchaser at such sale, which tenancy, at the option of such purchaser, shall be a tenancy at will, at a reasonable rental per day based upon the value of the portion of the Mortgaged Property so occupied, such rental to be due and payable daily to the purchaser. An action of forcible detainer shall lie if the tenant holds over after a demand in writing for possession of such Mortgaged Property. 6.4 Indemnification of Trustee. Except for gross negligence or willful misconduct, Trustee shall not be liable for any act or omission or error of judgment in connection with exercising the remedies provided herein. Trustee may rely on any document believed by him in good faith to be genuine. All money received by Trustee shall, until used or applied as herein provided, be held in trust, but need not be segregated (except to the extent required by law), and Trustee shall not be liable for interest thereon. Grantor shall indemnify Trustee and hold Trustee harmless against all liability, cost, damage or expense that Trustee may incur in the performance of his duties hereunder. 6.5 Lawsuits. Trustee may proceed by a suit or suits in equity or at law, whether for the specific performance of any covenant or agreement herein contained or in aid of the execution of any power herein granted, or for any foreclosure hereunder or for the sale of the Mortgaged Property under the judgment or decree of any court or courts of competent jurisdiction. 6.6 Entry on Mortgaged Property. Upon occurrence of an Event of Default hereunder, Trustee may enter into and upon and take possession of all or any part of the Mortgaged Property, and may exclude Grantor, and all persons claiming under Grantor, and its or their agents or servants, wholly or partly therefrom; and, holding the same, Trustee may use, administer, manage, operate, and control the Mortgaged Property and may exercise all rights and powers of Grantor in the name, place and stead of Grantor, or otherwise, as Trustee shall deem best, and in the exercise of any of the foregoing rights and powers Trustee shall not be liable to Grantor for any loss or damage thereby sustained unless due solely to the willful misconduct or gross negligence of Trustee. Trustee's powers shall include the right to complete construction of any part of the Mortgaged -13- 14 Property and to make any repairs or alterations necessary or advisable for the successful operation of the Mortgaged Property. 6.7 Trustee or Receiver. Trustee may make application to a court of competent jurisdiction, as a matter of strict right and without notice to Grantor or regard to the adequacy of the Mortgaged Property for the repayment of the Indebtedness, for appointment of a receiver of the Mortgaged Property, and Grantor does hereby irrevocably consent to such appointment. Any such receiver shall have all the usual powers and duties of receivers in similar cases, including the full power to rent, maintain and otherwise operate the Mortgaged Property upon such terms as may be approved by the court, and shall apply the Rents in accordance with the provisions hereof. 6.8 Remedies Cumulative, Concurrent and Nonexclusive. Trustee shall have all rights, remedies and recourses granted in this Mortgage or the Indenture or available at law or equity (including, without limitation, those granted by the Code and applicable to the Mortgaged Property, or any portion thereof) and the same (a) shall be cumulative and concurrent, (b) may be pursued separately, successively or concurrently against Grantor or others obligated for the Indebtedness, or any part thereof or against any one or more of them, or against the Mortgaged Property, at the sole discretion of Trustee, (c) may be exercised as often as occasion therefor shall arise, it being agreed by Grantor that the exercise or failure to exercise any of the same shall in no event be construed as a waiver or release thereof or of any other right, remedy or recourse, and (d) are intended to be, and shall be, nonexclusive, nor shall exercise of any one or more constitute a waiver of a right to any other right, remedy or recourse thereafter. 6.9 Rights and Remedies of Sureties. Grantor waives any right or remedy which Grantor may have or be able to assert pursuant to Chapter 34 of the Business and Commerce Code of the State of Texas pertaining to the rights and remedies of sureties. 6.10 Compensation to Trustee. Grantor hereby agrees to pay to Trustee reasonable compensation for all services rendered by it hereunder and to reimburse Trustee upon request for all reasonable expenses, disbursements and advances incurred or made by Trustee in accordance with any provision hereof. -14- 15 This Deed of Trust is being delivered and recorded prior to its effective date and such delivery shall continue through the effective date and thereafter to the extent necessary to complete such delivery and the conveyance intended by this Deed of Trust. EXECUTED as of the date first set forth above. GRANTOR: TRAMMELL CROW REAL ESTATE INVESTORS, a Texas real estate investment trust By:/s/ DAVID CLOSSEY Name: David Clossey Trust Manager 5295r -15- 16 STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, personally appeared David Clossey, Trust Manager of Trammell Crow Real Estate Investors, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed same as the act of such trust, for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 22nd day of Nov., 1985. My Commission Expires: /s/ LINDA L. SLAVIK NOTARY PUBLIC IN AND FOR {SEAL} LINDA L. SLAVIK THE STATE OF TEXAS Notary PubLic State of Texas Commission expires 3-31-89 5295r -16- 17 WESTCHASE EXHIBIT B All that certain 4.202 acres of land out of Block 3, of Unrestricted Reserve "C", of Westchase Subdivision, Section 12, according to the plat thereof filed at Volume 265, Page 74, Harris County Map Records and being more particularly described by metes and bounds as follows: COMMENCING at the northeast corner of that certain called "Parcel A" described in a deed dated 12/10/1979 from Westchase Two to Crow & Associates, Inc., filed in the Official Public Records of Real Property of Harris County, Texas, at Clerk's File No. G357121, Film Code No. 146-87-1190; Thence S 02 degrees 44' 51" E - 314.50' to a 5/8" iron rod marking the POINT OF BEGINNING of the herein described parcel; THENCE S 02 degrees 44' 51" E - 406.82', along the west right-of-way line of Rogerdale Road (60' wide), to a 5/8" iron rod for corner; THENCE S 87 degrees 15' 09" W - 431.88', along the south line of that certain called "Parcel B" described in deed dated 12/10/1979 from Westchase Two to Crow & Associates, Inc. filed in the Official Public Records of Real Property of Harris County, Texas at Clerk's File No. G357121, Film Code No. 146-87-1190, to a 5/8" iron rod for angle point; THENCE N 79 degrees 21' 27" W - 18.62' to a 5/8" iron rod for corner; THENCE N 02 degrees 44' 51" W - 402.51', along the west line of said "Parcel A and B", to 5/8" iron rod for corner; THENCE N 87 degrees 15' 09" E - 449.98' to the POINT OF BEGINNING and containing 4.202 acres of land, more or less. 18 GF 85249 Exhibit C 1. Restrictions as set forth in Volume 265, Page 74 of the Map Records of Harris County, Texas, under Harris County Clerk's File No. G357121. 2. Rights of parties in possession as to unrecorded leases, as to possession only. 3. A 10 foot building line along the Easterly property line, as reflected by the recorded plat thereof recorded in Volume 265, Page 74 of the Map Records of Harris County, Texas. 4. 65 feet of a 130 foot wide Harris County Flood Control District drainage easement, along the Southerly property line, as reflected by instrument recorded under Harris County Clerk's File No. D809352, and the recorded plat thereof recorded in Volume 265, Page 74 of the Map Records of Harris County, Texas. 5. An aerial easement 5 feet in width from a plane 20 feet above the ground upward for the use of public utilities, as set forth on plat recorded in Volume 265, Page 74 of the Map Records of Harris County, Texas. 6. An easement for drainage purposes extending a distance of fifteen feet on each side of the center line of all natural drainage courses, as reflected by the recorded plat. 7. An unobstructed easement 10 feet wide along the Westerly and Southerly property lines, together with an unobstructed aerial easement beginning at a height of 15 feet above the ground, and continuing outward to a height of 19 feet, 2 inches, as reflected by instrument recorded under Harris County Clerk's File No. G357121, same granted to Houston Lighting & Power Company, by instrument recorded under Harris County Clerk's File No. G513893. 8. 30.5 foot landscape set back line along the front property line, as reflected by instrument recorded under Harris County Clerk's File No. G357121. 9. 15 foot building set back line, along the Westerly and Northerly property lines, as reflected by instrument recorded under Harris County Clerk's File No. G357121. 10. 20 foot building set back line, along the Southerly property line, as reflected by instrument recorded under Harris County Clerk's File No. G357121. 11. 1/8th royalty interest in all oil, gas and other minerals in and under the herein described property reserved in instrument recorded in Volume 2103, 19 12. 1/8th royalty interest in all oil, gas and other minerals in and under the herein described property reserved in instrument recorded in Volume 2103, Page 213 of the Deed Records of Harris County, Texas. 13. 1/4th royalty interest in all oil, gas and other minerals in and under the herein described property reserved in instrument recorded in Volume 2103, Page 219 of the Deed Records of Harris County, Texas. 14. Access and Parking Easement dated November 30, 1982, executed by and between Crow-Simmons-Decker, Ltd. #6 and Crow & Associates, Inc., recorded under Harris County Clerk's File No. H898782. 15. Lien for care and cleaning of subject property payable to Westchase Two Community Association, Inc., and/or Westchase Two, a Texas limited partnership, as set forth in instrument recorded under Harris County Clerk's File No. G357121, subordinated therein to any Mortgage, Vendor's Lien or Deed of Trust. 16. Maintenance Charge payable to Westchase Two Community Association, Inc., as set forth in instrument recorded under Harris County Clerk's File Nos. F748372 and G357121; subordinated therein to all liens securing amounts due or to become due under any Mortgage, Vendor's Lien or Deed of Trust, affecting subject property subject to any charge which has been filed for record prior to the date of filing of an affidavit setting out such maintenance charge. 17. The following items disclosed by that Improvement Survey dated October 31, 1985, prepared by Robert J. Prejean, Registered Public Surveyor No. 1820, of Prejean & Company, Inc., Houston, Texas, Job No. 14-88-1A: (a) Encroachment of parking spaces into aerial easements located along the West and South property lines; (b) Storm sewers located over and across the subject property; (c) Sanitary sewers located along and near the West property line; (d) A sign located near the Northeast corner of the subject property; and (e) Water lines located along and near the East property line; and EX-10.19 17 DEED OF TRUST (HUNTINGTON DRIVE CENTER) 1 EXHIBIT 10.19 WHEN RECORDED MAIL TO: Jones, Day, Reavis & Pogue 2300 LTV Center HUNTINGTON 2901 Ross Avenue Dallas, Texas 75201 ATTN: Patrick Fox DEED OF TRUST (WITH SECURITY AGREEMENT AND ASSIGNMENT OF RENTS AND LEASES) By this instrument (this "Mortgage"), dated as of November 22, 1985, to be effective as of November 27, 1985, the undersigned, TRAMMELL CROW REAL ESTATE INVESTORS, a Texas real estate investment trust (hereinafter referred to as "Grantor"), whose address is 2001 Ross Avenue, 3500 LTV Center, Dallas, Texas 75201, to secure the obligations hereinafter described, does hereby GRANT, BARGAIN, SELL, ASSIGN and CONVEY unto CHICAGO TITLE INSURANCE COMPANY (hereinafter referred to as "Trustee"), in trust, with power of sale and right of entry and possession as provided below for the benefit and security of J. HENRY SCHRODER BANK & TRUST COMPANY, a New York banking corporation (hereinafter referred to as "Beneficiary"), the trustee under that certain indenture (the "Indenture"), dated as of November 15, 1985, by and between Grantor and Trustee, securing payment of certain zero coupon notes due 1997, payable to the order of the Holders, a copy of which Indenture is attached hereto as Exhibit A and incorporated herein by this reference for all purposes, whose address is One State Street, New York, New York 10015, the following described mortgaged property (the "Mortgaged Property"), to wit: All of the real property located in Los Angeles County, California, described on the attached Exhibit B which is incorporated herein by reference (the "Land"), subject to the exceptions described on the attached Exhibit C which is incorporated herein by reference (the "Permitted Exceptions"), TOGETHER WITH all of Grantor's right, title and interest in and to the following, whether now owned or hereafter acquired: (a) all improvements and fixtures now or hereafter attached to or placed, erected, constructed or developed on the Land (the "Improvements"); (b) all equipment, machinery, furnishings, inventory, chattels and all other articles of personal property (the "Personal Property") now or hereafter attached to, relating to or used in or about the Improvements or the Land; (c) all water and water rights, timber, crops and mineral interests pertaining to the Land; (d) all building materials and equipment now or hereafter delivered and installed or intended to be installed in or on the Land or the Improvements; (e) all plans, specifications and drawings for the Improvements; (f) all deposits (including tenants' security 2 deposits and escrow deposits under contracts of sale), documents, contract rights, commitments, construction contracts, architectural agreements and general intangibles (including, without limitation, trademarks, trade names and symbols but expressly excluding the right to use the name "Trammell Crow" or any name associated therewith or derived therefrom); (g) all permits, licenses, franchises, certificates and other rights and privileges relating to or obtained in connection with the Land, the Improvements or the Personal Property; (h) all proceeds arising from or by virtue of the sale, lease or other disposition, encumbrance or refinancing, of the Land, the Improvements and the Personal Property; (i) all proceeds (including premium refunds) of each policy of insurance relating to the Land, the Improvements or the Personal Property; (j) all proceeds from the taking of any of the Land, the Improvements, the Personal Property or any rights appurtenant thereto by right of eminent domain or by private or other purchase in lieu thereof including change of grade of streets, curb cuts or other rights of access; (k) all streets, roads, public places, easements and rights-of-way, existing or proposed, public or private, located on or adjacent to or used in connection with the Land; (l) all of the leases, subleases, licenses or other agreements relating to the Land, the Improvements or the Personal Property, and all rents, deposits, royalties, bonuses, issues, profits, revenues, income or other benefits of the Land, the Improvements or the Personal Property, including, without limitation, cash, securities, letters of credit, guarantees or other instruments deposited pursuant to leases to secure performance by the lessees of their obligations thereunder and cash deposited in impound accounts for the payment of taxes and insurance under any deed of trust securing payment of the Indebtedness; (m) all heating, lighting, refrigeration, plumbing, ventilating, incinerating, water heating, transportation, communications, electrical and air-conditioning systems and equipment, sprinkler and fire-extinguishing systems, security systems, maintenance equipment and other fixtures or systems used in connection with the Land, the Improvements and the Personal Property; (n) all rights, hereditaments, strips, gores and appurtenances pertaining to the foregoing; and (o) all replacements, betterments, substitutions, renewals and additions to any of the above-described Mortgaged Property; and all proceeds of any of the above-described Mortgaged Property. TO HAVE AND TO HOLD the Mortgaged Property, together with the rights, privileges and appurtenances thereto belonging, unto the Trustee and its substitutes or successors and assigns forever, and Grantor hereby binds itself and its administrators, personal representatives, successors and -2- 3 assigns to warrant and forever defend the Mortgaged Property unto the Trustee, its substitutes or successors and assigns, against the claim or claims of all persons claiming or to claim the same or any part thereof. ARTICLE I INDEBTEDNESS This Mortgage is given to secure the payment of all sums and performance of all obligations and covenants contained in this Mortgage and of the Indenture. Unless otherwise defined herein, certain capitalized terms shall have the meaning ascribed to said terms by the Indenture. The above-described obligations are hereinafter collectively called the "Indebtedness". ARTICLE II ASSIGNMENT OF RENTS AND LEASES 2.1 Assignment of Rents, Profits, etc. Grantor hereby absolutely and unconditionally assigns to Beneficiary all of its right, title and interest in and to the rents, royalties, bonuses, issues, profits, revenue, income and other benefits derived from the Mortgaged Property or arising from the use or enjoyment of any portion thereof or from any lease, sublease, licenses or other agreement pertaining thereto, and any and all damages following default under such leases, and all proceeds payable under any policy of insurance covering loss of rents resulting from untenantability, together with any and all rights that Grantor may have against any tenant under such leases or any subtenants or occupants or users of any part of the Mortgaged Property (collectively, the "Rents"). Prior to an Event of Default (as hereinafter defined), Grantor shall have a license to collect and receive all Rents and to apply same in accordance with the terms and provisions of the Indenture. 2.2 Assignment of Leases. Grantor hereby absolutely and unconditionally assigns to Beneficiary all of its right, title and interest in and to existing and future leases, including subleases thereunder, and any and all extensions, renewals, modifications, and replacements thereof, covering any part of the Mortgaged Property (collectively, the "Leases"). Grantor hereby further assigns to Beneficiary all guaranties of tenants' performances under the Leases. -3- 4 2.3 Trustee in Possession. Beneficiary's acceptance of this assignment shall not be deemed to constitute Beneficiary a "mortgagee in possession" nor obligate Beneficiary to appear in or defend any proceeding relating to any of the Leases or to the Mortgaged Property, or to take any action hereunder, expend any money, incur any expenses, or perform any obligation or liability under the Leases, or assume any obligation for any deposits delivered to Grantor by any tenant and not delivered to Beneficiary, prior to entry upon and taking possession of the Mortgaged Property by Beneficiary. Beneficiary shall not be liable for any injury or damage to person or property in or about the Mortgaged Property. 2.4 Indemnification. Grantor hereby agrees to indemnify Beneficiary and hold Beneficiary harmless from all liability, damage or expense incurred by Beneficiary from any claims under the Leases as well as all amounts indemnified against under the Indenture. All amounts indemnified against hereunder, including reasonable attorneys' fees, if paid by Beneficiary shall be payable by Grantor immediately upon demand by Beneficiary and shall be secured hereby. 2.5 Right to Rely. After the occurrence of an Event of Default (hereinafter defined), Grantor hereby authorizes and directs the tenants under the Leases to pay Rents to Beneficiary upon written demand by Beneficiary, without further consent of Grantor, and the tenants may rely upon any written statement delivered by Beneficiary to the tenants. Any such payment to Beneficiary shall satisfy the obligations of such tenant to make payment to Grantor under the Leases to the extent of the payment made to Beneficiary. ARTICLE III SECURITY AGREEMENT 3.1 Security Interest. This Mortgage shall be a security agreement between Grantor, as the debtor, and Beneficiary, as the secured party, covering the Mortgaged Property constituting personal property or fixtures governed by the Uniform Commercial Code, as enacted and amended from time to time in the state in which the Land is situated (hereinafter called the "Code"), and Grantor grants to Beneficiary a security interest in such portion of the Mortgaged Property. In addition to Beneficiary's other rights hereunder, Beneficiary shall have all rights of a secured party under the Code. Grantor shall execute and deliver to Beneficiary all financing statements that may be necessary or advisable to establish and maintain -4- 5 the validity, perfection and priority of Beneficiary's security interest, and Grantor shall bear all costs thereof, including all Code searches reasonably required by Beneficiary. If Beneficiary should desire to dispose of any of the Mortgaged Property pursuant to the Code, and if the Code requires prior notice to Grantor of such disposition, ten (10) days written notice by Beneficiary to Grantor shall be deemed to be reasonable notice; provided, however, Beneficiary may dispose of such property in accordance with the foreclosure procedures hereof in lieu of proceeding under the Code. 3.2 Notice of Changes. Grantor shall give advance notice in writing to Beneficiary of any proposed change in Grantor's name, identity, or structure and shall execute and deliver to Beneficiary, prior to or concurrently with the occurrence of any such change, all additional financing statements that Beneficiary may require to establish and maintain the validity and priority of Beneficiary's security interest with respect to any of the Mortgaged Property. 3.3 Financing Statement. Some of the items of the Mortgaged Property described herein are goods that are or are to become fixtures related to the Land, and it is intended that, as to those goods, this instrument shall be effective as a financing statement filed as a fixture filing from the date of its filing for record in the real estate records of the county in which the Mortgaged Property is situated. Information concerning the security interest created by this instrument may be obtained from Beneficiary, as secured party, at the address of Beneficiary stated above. The mailing address of Grantor as debtor is as stated above. ARTICLE IV REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF GRANTOR Grantor does hereby warrant and represent to and covenant and agree with Beneficiary as follows: 4.1 Title to Mortgaged Property and Lien of this Mortgage. Grantor has good and marketable title to the Land and the Improvements, and good and marketable title to the remainder of the Mortgaged Property, free and clear of any liens, charges, encumbrances, security interests and adverse claims whatsoever, except for the Permitted Exceptions. -5- 6 4.2 Limitation of Liability. Any obligation or liability whatsoever of the Grantor which may arise at any time under this Mortgage, or any obligation or liability incurred by it pursuant to any other instrument, transaction or undertaking contemplated by this Mortgage, shall be satisfied, if at all, out of the Grantor's property only. No such obligation or liability shall be personally binding upon nor shall there be any resort for the enforcement thereof to the private property of any of its Trust Managers, shareholders, officers, employees or agents, regardless of whether such obligations or liability are in the nature of contract, tort or otherwise. 4.3 Repair. Grantor will cause the Mortgaged Property to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, which in the judgment of the Grantor may be necessary or prudent so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however that nothing in this Sect'ion 4.3 shall prevent the Grantor from discontinuing the operation and maintenance of any of its properties if such discontinuance is, in the judgment of the Grantor, desirable in the conduct of its business and not disadvantageous in any material respect to the Holders. 4.4 Insurance. (a) Grantor will at all times keep all the Mortgaged Property of an insurable nature and of the character usually insured by companies operating similar properties, insured in amounts customarily carried, and against loss or damage from such causes as are customarily insured against, by similar companies. (b) All such insurance shall be effected with insurance carriers having a claims paying rating of "AA" or better by Standard & Poor's Corporation. All policies or other contracts for such insurance on the Mortgaged Property shall provide that the proceeds of such insurance (except in the case of any particular casualty resulting in damage or destruction not exceeding $2,000,000.00 in the aggregate) shall be payable, subject to the requirements of any Prior Lien, to the Beneficiary as its interest may appear (by means of a standard mortgagee clause or other similar clause acceptable to the Beneficiary, without contribution). Each policy or other contract for such insurance, or such mortgagee clause, shall contain an agreement by the insurer that, notwithstanding any right of cancellation reserved to such insurer, such policy or -6- 7 contract shall not be cancelled unless and until the insurer has provided Beneficiary written notice thirty calendar days prior to cancellation. As soon as practicable after the execution of this Mortgage, and within 120 calendar days after the close of each fiscal year thereafter, and at any time upon the request of the Beneficiary, Grantor will deliver to the Beneficiary an officer's certificate containing a-detailed list of the insurance in force upon the Mortgaged Property on a date therein specified (which date shall be within 30 calendar days of the filing of such certificate), including the names of the insurers with which the policies and other contracts of insurance of the Mortgaged Property are carried, the numbers, amounts and expiration dates of such policies and other contracts and the property and hazards covered thereby, and stating that the insurance so listed complies with this Section 4.4, together with copies of all insurance policies or certificates thereof. (c) All proceeds of any insurance of any part of the Mortgaged Property not payable to the Beneficiary or the trustee, mortgagee or other holder or beneficiary of a Prior Lien shall be applied in accordance with the Indenture. In the event that the proceeds of insurance are made available for restoration, Grantor shall restore the Improvements to substantially the same condition and quality of the Improvements prior to the casualty. 4.5 Taxes. Grantor will pay, prior to delinquency, all taxes, assessments and governmental charges or levies imposed upon it or the Mortgaged Property, and all claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like persons which, if unpaid, might result in the creation of a lien upon the Mortgaged Property; provided that items of the foregoing description need not be paid while being contested in good faith and by appropriate proceedings, so long as such contest shall not create a risk of forfeiture of all or any portion of the Mortgaged Property. Nothing contained herein shall constitute the consent of Beneficiary to subject the Mortgaged Property to any of the aforesaid liens. 4.6 Casualty and Condemnation. All proceeds, judgments, decrees and awards for injury or damage to the Mortgaged Property, and all awards pursuant to proceedings for condemnation thereof, are hereby assigned in their entirety to Beneficiary, who shall apply the same in accordance with the Indenture. Immediately upon its obtaining knowledge of the institution or the threatened institution of any proceedings for the condemnation of the Mortgaged Property, Grantor shall notify Beneficiary of such fact. Grantor shall then, if -7- 8 requested by Beneficiary, file or defend its claim thereunder and prosecute same with due diligence to its final disposition and shall cause any awards or settlements to be paid over to Beneficiary for disposition pursuant to the terms of sub-section 4.4(c) hereinabove. Beneficiary shall be entitled to participate in same and to be represented therein by counsel of its own choice, and Grantor shall deliver, or cause to be delivered, to Beneficiary such instruments as may be requested by it from time to time to permit such participation. 4.7 Compliance with Laws. Grantor shall cause the Mortgaged Property and the use thereof to comply with all laws, rules, ordinances, regulations, covenants, conditions, restrictions, orders and decrees of any governmental authority or court applicable to Grantor or the Mortgaged Property and its use, and Grantor shall pay all fees or charges of any kind in connection therewith. 4.8 Operation. For so long as there is no Event of Default hereunder, Grantor may use and operate, alter and improve, manage, lease and maintain the Land, Improvements and Personal Property in accordance with customary and prudent management practices and in accordance with the provisions hereof and of the Indenture. 4.9 Successors and Assigns; Use of Terms. The covenants herein centained shall bind, and the benefits and advantages hereof shall inure to, the respective heirs, executors, administrators, personal representatives, successors and assigns of the parties hereto. Whenever used, the singular number shall include the plural and the plural the singular, and the use of any gender shall be applicable to all genders. The duties, covenants, conditions, obligations and warranties of Grantor in this instrument shall be joint and several obligations of Grantor and of each Grantor, if more than one, and of each Grantor's heirs, personal representatives, successors and assigns. Each party who executes this instrument and each subsequent owner of the Mortgaged Property, or any part thereof (other than Beneficiary), covenants and agrees that it will perform, or cause to be performed, each term and covenant of this instrument as if such party were the named Grantor. 4.10 Severability. If any provision of this instrument is held to be illegal, invalid, or unenforceable under present or future laws effective while this instrument is in effect, the legality, validity and enforceability of the remaining provisios of this instrument shall not be affected thereby, and in lieu of each such illegal, invalid or unenforceable -8- 9 provision there shall be added automatically as a part of this instrument a provision that is legal, valid and enforceable and as similar in terms to such illegal, invalid or unenforceable provision as may be possible. 4.11 Unsecured Indebtedness. If any of the Indebtedness shall be unsecured, the unsecured portion of the Indebtedness shall be completely paid prior to the payment of the secured portion of such Indebtedness, and all payments made on account of the Indebtedness shall be considered to have been paid on and applied first to the complete payment of the unsecured portion of the Indebtedness. 4.12 Modification or Termination. This Mortgage may only be modified in accordance with the terms of the Indenture. 4.13 No Partnership. Nothing contained in this Mortgage is intended to create any partnership, joint venture or association between Grantor and Beneficiary, or in any way make Beneficiary a co-principal with Grantor with reference to the Mortgaged Property, and any inferences to the contrary are hereby expressly negated. 4.14 Headings. The Article, Paragraph and Subparagraph headings hereof are inserted for convenience of reference only and shall not alter, define, or be used in construing the text of such Articles, Paragraphs or Subparagraphs. 4.15 Governing Law. This Mortgage and the enforcement of the provisions hereof shall be governed by the laws of the State of California except with respect to the obligations of the Grantor and the rights of the Trustee under Paragraph 2.4, which shall be governed by the laws of the State of New York, and the laws of the United States applicable to transactions in such state. ARTICLE V EVENTS OF DEFAULT 5.1 Default of Indenture. It shall be an "Event of Default" hereunder if Grantor commits an Event of Default, as that term is defined by the Indenture. -9- 10 ARTICLE VI REMEDIES If an Event of Default shall occur, Beneficiary may exercise any one or more of the remedies provided in the Indenture or the following remedies, without notice: 6.1 Enforcement of Assignment of Rents and Leases. Beneficiary may: (a) terminate the license granted to Grantor to collect the Rents and enforce the Leases, and thereafter collect and sue for the Rents in Beneficiary's own name, give receipts and releases therefor, and after deducting all expenses of collection, including reasonable attorneys' fees, apply the net proceeds thereof to any Indebtedness in accordance with the Indenture; (b) make, modify, enforce, cancel or accept surrender of any Leases, evict tenants, adjust the Rents, maintain, decorate, refurbish, repair, clean, and make space ready for renting, and otherwise do anything Beneficiary deems advisable in connection with the Mortgaged Property; (c) apply the Rents so collected to the operation and management of the Mortgaged Property, including the payment of reasonable management, brokerage and attorneys' fees, or to the Indebtedness; and (d) require Grantor to transfer all security deposits and records thereof to Beneficiary. 6.2 Other Enforcement Actions. Upon the occurrence of an Event of Default: (a) Action to Foreclose. Beneficiary may commence and prosecute an action to foreclose this Deed of Trust as a mortgage. (b) Foreclosure Under Power of Sale. Beneficiary may deliver to Trustee a written declaration of default and demand for sale, and a written notice of default and election to cause Grantor's interest in the Mortgaged Property to be sold, which notice Trustee or Beneficiary shall cause to be duly filed for record in the Official Records of the County in which the Mortgaged Property is located. Should Beneficiary elect to foreclose by exercise of the power of sale herein contained, Beneficiary shall -10- 11 notify Trustee and shall deposit with Trustee this Deed of Trust and such receipts and evidence of expenditures made and secured hereby as Trustee may require. Upon receipt of such notice from Beneficiary, Trustee shall cause to be recorded, published and delivered to Grantor such Notice of Default and Election to Sell as may then be required by law and by this Deed of Trust. Trustee shall, without demand on Grantor, after lapse of such time as may then be required by law and after recordation of such notice of Default and after Notice of Sale having been given as required by law, sell the Mortgaged Property at the time and place of sale fixed by it in said Notice of Sale, either as a whole, or in separate lots or parcels as Trustee shall deem expedient, and in such order as it may determine, at public auction to the highest bidder for cash in lawful money of the United States payable at the time of sale. Trustee shall deliver to such purchaser or purchasers thereof its good and sufficient deed or deeds conveying the property so sold, but without any covenant or warranty, express or implied. The recitals in such deed of any matters or facts shall be presumptive proof of the truthfulness thereof. Any person, including, without limitation, Grantor, Trustee or Beneficiary, may purchase at such sale. After deducting all costs, fees and expenses of Trustee and of this Deed of Trust, including costs of evidence of title and attorneys' fees of Trustee or Beneficiary in connection with the sale, Trustee shall apply the proceeds of sale to payment of: FIRST: Payment of the costs and expenses of the sale, including but not limited to Trustee's fees, legal fees and disbursements, title charges and transfer taxes, and payment of all expenses, liabilities and advances of the Trustee. SECOND: Payment of all sums expended by the Beneficiary under the terms of this Deed of Trust and not yet repaid. THIRD: Payment of the indebtedness and obligations of the Grantor secured by this Deed of Trust in any order that the Beneficiary chooses. FOURTH: The remainder, if any, to the person or persons legally entitled to it. Trustee may postpone the sale of all or any portion of the Mortgaged Property by public announcement at the time and place of such sale, and from time to time thereafter may postpone such sale by public announcement at the time fixed by the preceding postponement or subsequently noticed sale, and without further notice make such sale at the time fixed by the last postponement, or may, in its discretion, give a new notice of sale. Trustee may postpone the sale of all or any portion of the Mortgaged Property by public announcement at the time and place of such sale, and from -11- 12 time to time thereafter may postpone such sale by public announcement at the time fixed by the preceding postponement or subsequently noticed sale, and without further notice make such sale at the time fixed by the last postponement, or may, in its discretion, give a new notice of sale. Beneficiary, from time to time before any Trustee's sale as provided above, any rescind any Notice of Default and Election to Sell or Notice of Sale by executing and delivering to Trustee a written notice of such rescission, which such notice, when recorded, shall also constitute a cancellation of any prior declaration of default and demand for sale. The exercise by Beneficiary of such right of rescission shall not constitute a wavier of any breach or default then existing or subsequently occurring, or impair the right of Beneficiary to execute and deliver to Trustee, as above provided, other declarations or notices of default and demand for sale of the Mortgaged Property to satisfy the obligations hereof, nor otherwise affect any provision, covenant or condition of the Deed of Trust or any of the rights, obligations or remedies of Trustee or Beneficiary hereunder. No such sale shall terminate or otherwise affect the lien of this Deed of Trust on any part of the Mortgaged Property not sold until all of the indebtedness has been fully paid. In the event Beneficiary elects to dispose of the Mortgaged Property through more than one sale, Grantor agrees to pay the costs and expenses of each such sale and of any judicial proceedings wherein the same may be made, including reasonable compensation to Trustee and Beneficiary, their agents and counsel, and to pay all expenses, liabilities and advances made or incurred by Trustee with such sale or sales. (c) Sale of Personal Property. Beneficiary shall have the right to cause any of the Personal Property to be sold at any one or more public or private sales as permitted by applicable law, and Beneficiary shall further have all other rights and remedies, whether at law, in equity, or by statute, as are available to secured creditors under applicable law. Any such disposition may be conducted by an employee or agent of Beneficiary or Trustee. Any person, including both Trustee and Beneficiary, shall be eligible to purchase any part or all of such property at any such disposition unless prohibited by law from doing so. All expenses of retaking, holding, preparing for sale, selling or the like shall be borne by Grantor and shall include, without limiting the generality of the foregoing, Beneficiary's and Trustee's attorneys' -12- 13 fees and legal expenses. Grantor, upon demand of Beneficiary, shall assemble such personal property and make it available to Beneficiary at such place as shall be required by Beneficiary in its sole discretion. Beneficiary shall give Grantor at least five (5) days prior written notice of the time and place of any public sale or other disposition of such property or-of the time of or after which any private sale or any other intended disposition is to be made. 6.3 Tenancy at Will. In the event of a trustee's sale hereunder and if at the time of such sale Grantor or any other party occupies the portion of the Mortgaged Property so sold or any part thereof, such occupant, at the option of such purchaser, shall immediately become the tenant of the purchaser at such sale, which tenancy, at the option of such purchaser, shall be a tenancy at will, at a reasonable rental per day based upon the value of the portion of the Mortgaged Property so occupied, such rental to be due and payable daily to the purchaser. An action of forcible detainer shall lie if the tenant holds over after a demand in writing for possession of such Mortgaged Property. 6.4 Indemnification of Trustee. Except for gross negligence or willful misconduct, Trustee shall not be liable for any act or omission or error of judgment in connection with exercising the remedies provided herein. Trustee may rely on any document believed by him in good faith to be genuine. All money received by Trustee shall, until used or applied as herein provided, be held in trust, but need not be segregated (except to the extent required by law), and Trustee shall not be liable for interest thereon. Grantor shall indemnify Trustee and hold Trustee harmless against all liability, cost, damage or expense that Trustee may incur in the performance of his duties hereunder. 6.5 Lawsuits. Trustee may proceed by a suit or suits in equity or at law, whether for the specific performance of any covenant or agreement herein contained or in aid of the execution of any power herein granted, or for any foreclosure hereunder or for the sale of the Mortgaged Property under the judgment or decree of any court or courts of competent jurisdiction. 6.6 Entry on Mortgaged Property. Upon occurrence of an Event of Default hereunder, Beneficiary may enter into and upon and take possession of all or any part of the Mortgaged Property, and may exclude Grantor, and all persons claiming -13- 14 under Grantor, and its or their agents or servants, wholly or partly therefrom; and, holding the same, Beneficiary may use, administer, manage, operate, and control the Mortgaged Property and may exercise all rights and powers of Grantor in the name, place and stead of Grantor, or otherwise, as Beneficiary shall deem best; and in the exercise of any of the foregoing rights and powers Beneficiary shall not be liable to Grantor for any loss or damage thereby sustained unless due solely to the willful misconduct or gross negligence of Beneficiary. Beneficiary's powers shall include the right to complete construction of any part of the Mortgaged Property and to make any repairs or alterations necessary or advisable for the successful operation of the Mortgaged Property. 6.7 Trustee or Receiver. Beneficiary may make application to a court of competent Jurisdiction, as a matter of strict right and without notice to Grantor or regard to the adequacy of the Mortgaged Property for the repayment of the Indebtedness, for appointment of a receiver of the Mortgaged Property, and Grantor does hereby irrevocably consent to such appointment. Any such receiver shall have all the usual powers and duties of receivers in similar cases, including the full power to rent, maintain and otherwise operate the Mortgaged Property upon such terms as may be approved by the court, and shall apply the Rents in accordance with the provisions hereof. 6.8 Remedies Cumulative, Concurrent and Nonexclusive. Beneficiary shall have all rights, remedies and recourses granted in this Mortgage or the Indenture or available at law or equity (including, without limitation, those granted by the Code and applicable to the Mortgaged Property, or any portion thereof) and the same (a) shall be cumulative and concurrent, (b) may be pursued separately, successively or concurrently against Grantor or others obligated for the Indebtedness, or any part thereof or against any one or more of them, or against the Mortgaged Property, at the sole discretion of Beneficiary, (c) may be exercised as often as occasion therefor shall arise, it being agreed by Grantor that the exercise or failure to exercise any of the same shall in no event be construed as a waiver or release thereof or of any other right, remedy or recourse, and (d) are intended to be, and shall be, nonexclusive, nor shall exercise of any one or more constitute a waiver of a right to any other right, remedy or recourse therafter. 6.9 Rights and Remedies of Sureties. Grantor waives any right or remedy which Grantor may have or be able to assert pursuant to Title 13 of Part 4 of Division Third of the Civil Code of the State of California pertaining to the rights and remedies of sureties. -14- 15 6.10 Substitute Trustee. Beneficiary may, from time to time, by a written instrument executed and acknowledged by Beneficiary and recorded in the county or counties where the Mortgaged Property is located, and by otherwise complying with the provisions of California Civil Code Section 2934a, or any successor section, substitute successor or successors for the Trustee named herein or acting hereunder. This Deed of Trust is being delivered and recorded prior to its effective date and such delivery shall continue through the effective date and thereafter to the extent necessary to complete such delivery and the conveyance intended by this Deed of Trust. EXECUTED as of the date first set forth above. GRANTOR: TRAMMELL CROW REAL ESTATE INVESTORS, a Texas real estate investment trust By: /s/ DAVID F. CLOSSEY Name: David F. Clossey Title: Trust Manager 5481r -15- 16 STATE OF TEXAS ) ) COUNTY OF DALLAS ) On this 22nd day of November, in the year 1985, before me, the undersigned, a Notary public in and for said State, personally appeared David F. Clossey, personally known to me or proved to me on the basis of satisfactory evidence to be the person who executed the within instrument as Trust Manager, on behalf of Trammell Crow Real Estate Investors, the trust herein named, and acknowledged to me that such trust executed the within instrument pursuant to its by-laws or to a resolution of its trust managers. WITNESS my hand and official seal. /s/ JANELLE M. GARRETT Notary Public {SEAL} My Commission expires: 10-6-89 5481r -16- 17 HUNTINGTON DRIVE EXHIBIT B PARCELS 1 AND 2 OF PARCEL MAP 15739, IN THE CITY OF MONROVIA, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 165 PAGES 31 AND 32 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. 18 HUNTINGTON DRIVE EXHIBIT C PERMITTED EXCEPTIONS 1. SECOND INSTALLMENT OF GENERAL AND SPECIAL COUNTY AND CITY TAXES FOR THE FISCAL YEAR 1985-1986. 2. "THE LIEN OF SUPPLEMENTAL TAXES, IF ANY, ASSESSED PURSUANT TO CHAPTER 498, STATUTES OF 1983, STATE OF CALIFORNIA AS AMENDED." 3. COVENANTS, CONDITIONS AND RESTRICTIONS BUT DELETING RESTRICTIONS, IF ANY, BASED ON RACE, COLOR, RELIGION, SEX OR NATIONAL ORIGIN, CONTAINED IN AN INSTRUMENT RECORDED SEPTEMBER 27, 1983 AS INSTRUMENT NO. 83-1138648 4. AN EASEMENT FOR PUBLIC UTILITIES AND INCIDENTAL PURPOSES AS PROVIDED IN THE DEED RECORDED AUGUST 24, 1984 AS INSTRUMENT NO. 84-1024139 AFFECTS AS FOLLOWS THE SOUTHERLY 12.00 FEET OF THE WESTERLY 245.00 FEET OF PARCEL 1 OF PARCEL MAP 15739, AS RECORDED IN BOOK 165 OF PARCEL MAPS, PAGES 31 AND 32, IN THE OFFICE OF THE COUNTY RECORDER OF SAID LOS ANGELES COUNTY. 5. AN EASEMENT FOR PUBLIC UTILITIES AND INCIDENTAL PURPOSES AS PROVIDED IN THE DEED RECORDED SEPTEMBER 05, 1984 AS INSTRUMENT NO. 84-1067246 AFFECTS AS FOLLOWS A STRIP OF LAND, 12 FEET IN WIDTH, LYING WITHIN BLOCK "A" OF THE SUBDIVISION OF BRADBURY'S ADDITION TO MONROVIA, AS PER MAP RECORDED IN BOOK 52 PAGE 19 OF MISCELLANEOUS RECORDS, IN THE OFFICE OF THE RECORDER OF SAID COUNTY, AND WITHIN LOT "E", BLOCK 1 OF BRADBURY'S ADDITION TO THE TOWN OF MONROVIA, AND VACATED ALLEY ADJOINING SAID LOT "E", AS PER RECORDED IN BOOK 14 PAGES 75 AND 76 OF SAID MISCELLANEOUS RECORDS, AND TAYMOND AVENUE, NOW VACATED, AS SHOWN ON THE LAST-MENTIONED MAP; THE CENTERLINE OF SAID STRIP IS DESCRIBED AS FOLLOWS: BEGINNING AT A POINT ON THE NORTHERLY LINE OF CYPRESS AVENUE, AS NOW ESTABLISHED, DISTANT 338 FEET EASTERLY THEREON FROM THE EASTERLY LINE OF MYRTLE AVENUE, AS NOW ESTABLISHED; THENCE NORTH 1 DEGREES 26 MINUTES 30 SECONDS WEST, 6 FEET TO THE TRUE POINT OF BEGINNING; THENCE WESTERLY, PARALLEL WITH THE NORTHERLY LINE OF CYPRESS AVENUE, A DISTANCE OF 186 FEET; THENCE NORTHWESTERLY TO A POINT WHICH IS 71 FEET EASTERLY, MEASURED AT RIGHT ANGLES, FROM SAID EASTERLY LINE OF MYRTLE AVENUE, AND 58 FEET NORTHERLY, MEASURED AT RIGHT ANGLES, FROM SAID NORTHERLY LINE OF CYPRESS AVENUE. 6. RIGHTS OF PARTIES IN POSSESSION OF SAID LAND BY REASON OF UNRECORDED LEASES, BUT ONLY AS TENANTS UNDER SUCH LEASES. EX-10.20 18 MORTGAGE WITH SECURITY AGREEMENT (N-WEST BUS.PARK) 1 EXHIBIT 10.20 NORTHWEST 3/13/86 MORTGAGE (WITH SECURITY AGREEMENT AND ASSIGNMENT OF RENTS AND LEASES) By this instrument (this "Mortgage"), dated as of March 11, 1986, to be effective as of March 17, 1986, the undersigned, TRAMMELL CROW REAL ESTATE INVESTORS, a Texas real estate investment trust (hereinafter referred to as "Mortgagor"), whose address is 2001 Ross Avenue, 3500 LTV Center, Dallas, Texas 75201, to secure the obligations hereinafter described, does hereby mortgage and grant a security interest unto GEORGE R. SIEVERS, TRUSTEE for J. HENRY SCHRODER BANK & TRUST COMPANY, a New York banking corporation, (hereinafter referred to as "Mortgagee"), whose address is One State Street, New York, New York 10015, the trustee under that certain indenture (the "Indenture") dated as of November 15, 1985, by and between Mortgagor and Mortgagee, securing payment of certain zero coupon notes due 1997, payable to the order of the Holders, a copy of which Indenture is attached hereto as Exhibit A and incorporated herein by this reference for all purposes, the following described mortgaged property (the "Mortgaged Property"), to wit: All of the real property located in Waukesha County, Wisconsin, described on the attached Exhibit B which is incorporated herein by reference (the "Land"), subject to the exceptions described on the attached Exhibit C which is incorporated herein by reference (the "Permitted Exceptions"), TOGETHER WITH all of Mortgagor's right, title and interest in and to the following, whether now owned or hereafter acquired: (a) all improvements and fixtures now or hereafter attached to or placed, erected, constructed or developed on the Land (the "Improvements"); (b) all equipment, machinery, furnishings, inventory, chattels and all other articles of personal property (the "Personal Property") now or hereafter attached to, relating to or used in or about the Improvements or the Land; (c) all water and water rights, timber, crops and mineral interests pertaining to the Land; (d) all building materials and equipment now or hereafter delivered and installed or intended to be installed in or on the Land or the Improvements; (e) all plans, specifications and drawings for the Improvements; (f) all deposits (including tenants' security deposits and escrow deposits under contracts of sale), documents, contract rights, commitments, construction contracts, architectural agreements and general intangibles 2 (including, without limitation, trademarks, trade names and symbols but expressly excluding the right to use the name "Trammell Crow" or any name associated therewith or derived therefrom); (g) all permits, licenses, franchises, certificates and other rights and privileges relating to or obtained in connection with the Land, the Improvements or the Personal Property; (h) all proceeds arising from or by virtue of the sale, lease or other disposition, encumbrance or refinancing, of the Land, the Improvements and the Personal Property; (i) all proceeds (including premium refunds) of each policy of insurance relating to the Land, the Improvements or the Personal Property; (j) all proceeds from the taking of any of the Land, the Improvements, the Personal Property or any rights appurtenant thereto by right of eminent domain or by private or other purchase in lieu thereof including change of grade of streets, curb cuts or other rights of access; (k) all streets, roads, public places, easements and rights-of-way, existing or proposed, public or private, located on or adjacent to or used in connection with the Land; (l) all of the leases, subleases, licenses or other agreements relating to the Land, the Improvements or the Personal Property, and all rents, deposits, royalties, bonuses, issues, profits, revenues, income or other benefits of the Land, the Improvements or the Personal Property, including, without limitation, cash, securities, letters of credit, guarantees or other instruments deposited pursuant to leases to secure performance by the lessees of their obligations thereunder and cash deposited in impound accounts for the payment of taxes and insurance under any deed of trust securing payment of the Indebtedness; (m) all heating, lighting, refrigeration, plumbing, ventilating, incinerating, water heating, transportation, communications, electrical and air-conditioning systems and equipment, sprinkler and fire-extinguishing systems, security systems, maintenance equipment and other fixtures or systems used in connection with the Land, the Improvements and the Personal Property; (n) all rights, hereditaments, strips, gores and appurtenances pertaining to the foregoing; and (o) all replacements, betterments, substitutions, renewals and additions to any of the above-described Mortgaged Property; and all proceeds of any of the above-described Mortgaged Property. TO HAVE AND TO HOLD the Mortgaged Property, together with the rights, privileges and appurtenances thereto belonging, unto the Mortgagee and its substitutes or successors and assigns forever, and Mortgagor hereby binds itself and its administrators, personal representatives, successors and assigns to warrant and forever defend the Mortgaged Property unto the Mortgagee, its substitutes or successors and assigns, -2- 3 against the claim or claims of all persons claiming or to claim the same or any part thereof. ARTICLE I INDEBTEDNESS This Mortgage is given to secure the payment of all sums and performance of all obligations and covenants contained in this Mortgage and of the Indenture. Unless otherwise defined herein, certain capitalized terms shall have the meaning ascribed to said terms by the Indenture. The above-described obligations are hereinafter collectively called the "Indebtedness". ARTICLE II ASSIGNMENT OF RENTS AND LEASES 2.1 Assignment of Rents, Profits, etc. Mortgagor hereby absolutely and unconditionally assigns to Mortgagee all of its right, title and interest in and to the rents, royalties, bonuses, issues, profits, revenue, income and other benefits derived from the Mortgaged Property or arising from the use or enjoyment of any portion thereof or from any lease, sublease, licenses or other agreement pertaining thereto, and any and all damages following default under such leases, and all proceeds payable under any policy of insurance covering loss of rents resulting from untenantability, together with any and all rights that Mortgagor may have against any tenant under such leases or any subtenants or occupants or users of any part of the Mortgaged Property (collectively, the "Rents"). Prior to an Event of Default (as hereinafter defined), Mortgagor shall have a license to collect and receive all Rents and to apply same in accordance with the terms and provisions of the Indenture. 2.2 Assignment of Leases. Mortgagor hereby absolutely and unconditionally assigns to Mortgagee all of its right, title and interest in and to existing and future leases, including subleases thereunder, and any and all extensions, renewals, modifications, and replacements thereof, covering any part of the Mortgaged Property (collectively, the "Leases"). Mortgagor hereby further assigns to Mortgagee all guaranties of tenants' performances under the Leases. -3- 4 2.3 Mortgagee in Possession. Mortgagee's acceptance of this assignment shall not be deemed to constitute Mortgagee a "mortgagee in possession" nor obligate Mortgagee to appear in or defend any proceeding relating to any of the Leases or to the Mortgaged Property, or to take any action hereunder, expend any money, incur any expenses, or perform any obligation or liability under the Leases, or assume any obligation for any deposits delivered to Mortgagor by any tenant and not delivered to Mortgagee, prior to entry upon and taking possession of the Mortgaged Property by Mortgagee. Mortgagee shall not be liable for any injury or damage to person or property in or about the Mortgaged Property. 2.4 Indemnification. Mortgagor hereby agrees to indemnify Mortgagee and hold Mortgagee harmless from all liability, damage or expense incurred by Mortgagee from any claims under the Leases as well as all amounts indemnified against under the Indenture. All amounts indemnified against hereunder, including reasonable attorneys' fees, if paid by Mortgagee shall be payable by Mortgagor immediately upon demand by Mortgagee and shall be secured hereby. 2.5 Right to Rely. After the occurrence of an Event of Default (hereinafter defined), Mortgagor hereby authorizes and directs the tenants under the Leases to pay Rents to Mortgagee upon written demand by Mortgagee, without further consent of Mortgagor, and the tenants may rely upon any written statement delivered by Mortgagee to the tenants. Any such payment to Mortgagee shall satisfy the obligations of such tenant to make payment to Mortgagor under the Leases to the extent of the payment made to Mortgagee. ARTICLE III SECURITY AGREEMENT 3.1 Security Interest. This Mortgage shall be a security agreement between Mortgagor, as the debtor, and Mortgagee, as the secured party, covering the Mortgaged Property constituting personal property or fixtures governed by the Uniform Commercial Code, as enacted and amended from time to time in the state in which the Land is situated (hereinafter called the "Code"), and Mortgagor grants to Mortgagee a security interest in such portion of the Mortgaged Property. In addition to Mortgagee's other rights hereunder, Mortgagee shall have all rights of a secured party under the Code. Mortgagor shall execute and deliver to Mortgagee all financing statements that -4- 5 may be necessary or advisable to establish and maintain the validity, perfection and priority of Mortgagee's security interest, and Mortgagor shall bear all costs thereof, including all Code searches reasonably required by Mortgagee. If Mortgagee should desire to dispose of any of the Mortgaged Property pursuant to the Code, and if the Code requires prior notice to Mortgagor of such disposition, ten (10) days written notice by Mortgagee to Mortgagor shall be deemed to be reasonable notice; provided, however, Mortgagee may dispose of such property in accordance with the foreclosure procedures hereof in lieu of proceeding under the Code. 3.2 Notice of Changes. Mortgagor shall give advance notice in writing to Mortgagee of any proposed change in Mortgagor's name, identity, or structure and shall execute and deliver to Mortgagee, prior to or concurrently with the occurrence of any such change, all additional financing statements that Mortgagee may require to establish and maintain the validity and priority of Mortgagee's security interest with respect to any of the Mortgaged Property. 3.3 Financing Statement. Some of the items of the Mortgaged Property described herein are goods that are or are to become fixtures related to the Land, and it is intended that, as to those goods, this instrument shall be effective as a financing statement filed as a fixture filing from the date of its filing for record in the real estate records of the county in which the Mortgaged Property is situated. Information concerning the security interest created by this instrument may be obtained from Mortgagee, as secured party, at the address of Mortgagee stated above. The mailing address of Mortgagor as debtor is as stated above. ARTICLE IV REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF MORTGAGOR Mortgagor does hereby warrant and represent to and covenant and agree with Mortgagee as follows: 4.1 Title to Mortgaged Property and Lien of this Mortgage. Mortgagor has good and indefeasible title to the Land and the Improvements, and good and marketable title to the remainder of the Mortgaged Property, free and clear of any liens, charges, encumbrances, security interests and adverse claims whatsoever, except for the Permitted Exceptions. -5- 6 4.2 Limitation of Liability. Any obligation or liability whatsoever of the Mortgagor which may arise at any time under this Mortgage, or any obligation or liability incurred by it pursuant to any other instrument, transaction or undertaking contemplated by this Mortgage, shall be satisfied, if at all, out of the Mortgagor's property only. No such obligation or liability shall be personally binding upon nor shall there be any resort for the enforcement thereof to the private property of any of its Trust Managers, shareholders, officers, employees or agents, regardless of whether such obligations or liability are in the nature of contract, tort or otherwise. 4.3 Repair. Mortgagor will cause the Mortgaged Property to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, which in the judgment of the Mortgagor may be necessary or prudent so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however that nothing in this Section 4.3 shall prevent the Mortgagor from discontinuing the operation and maintenance of any of its properties if such discontinuance is, in the judgment of the Mortgagor, desirable in the conduct of its business and not disadvantageous in any material respect to the Holders. 4.4 Insurance. (a) Mortgagor will at all times keep all the Mortgaged Property of an insurable nature and of the character usually insured by companies operating similar properties, insured in amounts customarily carried, and against loss or damage from such causes as are customarily insured against, by similar companies. (b) All such insurance shall be effected with insurance carriers having a claims paying rating of "AA" or better by Standard & Poor's Corporation. All policies or other contracts for such insurance on the Mortgaged Property shall provide that the proceeds of such insurance (except in the case of any particular casualty resulting in damage or destruction not exceeding $1,878,000.00 in the aggregate) shall be payable, subject to the requirements of any Prior Lien, to the Mortgagee as its interest may appear (by means of a standard mortgagee clause or other similar clause acceptable to the Mortgagee, without contribution). Each policy or other contract for such insurance, or such mortgagee clause, shall contain an agreement by the insurer that, notwithstanding any right of cancellation -6- 7 reserved to such insurer, such policy or contract shall not be cancelled unless and until the insurer has provided Mortgagee written notice thirty calendar days prior to cancellation. As soon as practicable after the execution of this Mortgage, and within 120 calendar days after the close of each fiscal year thereafter, and at any time upon the request of the Mortgagee, Mortgagor will deliver to the Mortgagee an officer's certificate containing a detailed list of the insurance in force upon the Mortgaged Property on a date therein specified (which date shall be within 30 calendar days of the filing of such certificate), including the names of the insurers with which the policies and other contracts of insurance of the Mortgaged Property are carried, the numbers, amounts and expiration dates of such policies and other contracts and the property and hazards covered thereby, and stating that the insurance so listed complies with this Section 4.4, together with copies of all insurance policies or certificates thereof. (c) All proceeds of any insurance of any part of the Mortgaged Property not payable to the Mortgagee or the trustee, mortgagee or other holder or beneficiary of a Prior Lien shall be applied in accordance with the Indenture. In the event that the proceeds of insurance are made available for restoration, Mortgagor shall restore the Improvements to substantially the same condition and quality of the Improvements prior to the casualty. 4.5 Taxes. Mortgagor will pay, prior to delinquency, all taxes, assessments and governmental charges or levies imposed upon it or the Mortgaged Property, and all claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like persons which, if unpaid, might result in the creation of a lien upon the Mortgaged Property; provided that items of the foregoing description need not be paid while being contested in good faith and by appropriate proceedings, so long as such contest shall not create a risk of forfeiture of all or any portion of the Mortgaged Property. Nothing contained herein shall constitute the consent of Mortgagee to subject the Mortgaged Property to any of the aforesaid liens. 4.6 Casualty and Condemnation. All proceeds, judgments, decrees and awards for injury or damage to the Mortgaged Property, and all awards pursuant to proceedings for condemnation thereof, are hereby assigned in their entirety to Mortgagee, who shall apply the same in accordance with the Indenture. Immediately upon its obtaining knowledge of the institution or the threatened institution of any proceedings for the condemnation of the Mortgaged Property, Mortgagor shall -7- 8 notify Mortgagee of such fact. Mortgagor shall then, if requested by Mortgagee, file or defend its claim thereunder and prosecute same with due diligence to its final disposition and shall cause any awards or settlements to be paid over to Mortgagee for disposition pursuant to the terms of sub-section 4.4(c) hereinabove. Mortgagee shall be entitled to participate in same and to be represented therein by counsel of its own choice, and Mortgagor shall deliver, or cause to be delivered, to Mortgagee such instruments as may be requested by it from time to time to permit such participation. 4.7 Compliance with Laws. Mortgagor shall cause the Mortgaged Property and the use thereof to comply with all laws, rules, ordinances, regulations, covenants, conditions, restrictions, orders and decrees of any governmental authority or court applicable to Mortgagor or the Mortgaged Property and its use, and Mortgagor shall pay all fees or charges of any kind in connection therewith. 4.8 Operation. For so long as there is no Event of Default hereunder, Mortgagor may use and operate, alter and improve, manage, lease and maintain the Land, Improvements and Personal Property in accordance with customary and prudent management practices and in accordance with the provisions hereof and of the Indenture. 4.9 Successors and Assigns; Use of Terms. The covenants herein contained shall bind, and the benefits and advantages hereof shall inure to, the respective heirs, executors, administrators, personal representatives, successors and assigns of the parties hereto. Whenever used, the singular number shall include the plural and the plural the singular, and the use of any gender shall be applicable to all genders. The duties, covenants, conditions, obligations and warranties of Mortgagor in this instrument shall be joint and several obligations of Mortgagor and of each Mortgagor, if more than one, and of each Mortgagor's heirs, personal representatives, successors and assigns. Each party who executes this instrument and each subsequent owner of the Mortgaged Property, or any part thereof (other than Mortgagee), covenants and agrees that it will perform, or cause to be performed, each term and covenant of this instrument as if such party were the named Mortgagor. 4.10 Severability. If any provision of this instrument is held to be illegal, invalid, or unenforceable under present or future laws effective while this instrument is in effect, the legality, validity and enforceability of the remaining -8- 9 provisions of this instrument shall not be affected thereby, and in lieu of each such illegal, invalid or unenforceable provision there shall be added automatically as a part of this instrument a provision that is legal, valid and enforceable and as similar in terms to such illegal, invalid or unenforceable provision as may be possible. 4.11 Unsecured Indebtedness. If any of the Indebtedness shall be unsecured, the unsecured portion of the Indebtedness shall be completely paid prior to the payment of the secured portion of such Indebtedness, and all payments made on account of the Indebtedness shall be considered to have been paid on and applied first to the complete payment of the unsecured portion of the Indebtedness. 4.12 Modification or Termination. This Mortgage may only be modified in accordance with the terms of the Indenture. 4.13 No Partnership. Nothing contained in this Mortgage is intended to create any partnership, joint venture or association between Mortgagor and Mortgagee, or in any way make Mortgagee a co-principal with Mortgagor with reference to the Mortgaged Property, and any inferences to the contrary are hereby expressly negated. 4.14 Headings. The Article, Paragraph and Subparagraph headings hereof are inserted for convenience of reference only and shall not alter, define, or be used in construing the text of such Articles, Paragraphs or Subparagraphs. 4.15 Governing Law. This Mortgage and the enforcement of the provisions hereof shall be governed by the laws of the State of Wisconsin except with respect to the obligations of the Mortgagor and the rights of the Mortgagee under Paragraph 2.4, which shall be governed by the laws of the State of New York, and the laws of the United States applicable to transactions in such state. ARTICLE V EVENTS OF DEFAULT 5.1 Default of Indenture. It shall be an "Event of Default" hereunder if Mortgagor commits an Event of Default, as that term is defined by the Indenture. -9- 10 ARTICLE VI REMEDIES If an Event of Default shall occur, Mortgagee may exercise any one or more of the remedies provided in the Indenture or the following remedies, without notice: 6.1 Enforcement of Assignment of Rents and Leases. Mortgagee may: (a) terminate the license granted to Mortgagor to collect the Rents and enforce the Leases, and thereafter collect and sue for the Rents in Mortgagee's own name, give receipts and releases therefor, and after deducting all expenses of collection, including reasonable attorneys' fees, apply the net proceeds thereof to any Indebtedness in accordance with the Indenture; (b) make, modify, enforce, cancel or accept surrender any Leases, evict tenants, adjust the Rents, maintain, decorate, refurbish, repair, clean, and make space ready for renting, and otherwise do anything Mortgagee deems advisable in connection with the Mortgaged Property; (c) apply the Rents so collected to the operation and management of the Mortgaged Property, including the payment of reasonable management, brokerage and attorneys' fees, or to the Indebtedness; and (d) require Mortgagor to transfer all security deposits and records thereof to Mortgagee. 6.2 Foreclosure. If an Event of Default shall occur, the Mortgagee may foreclose pursuant to this Mortgage. The Mortgagor, in case of an Event of Default and the continuance thereof as aforesaid, does hereby authorize and fully empower the Mortgagee to sell the Mortgaged Property at public auction, and convey the same to the purchaser, agreeably to the statute in such case made and provided. Mortgagee may sell all or any portion of the Mortgaged Property, together or in lots or parcels, and may execute and deliver to the purchase or purchasers of such property good and sufficient deeds of conveyance of fee simple title with covenants of general warranty made on behalf of Mortgagor. In no event shall Mortgagee be required to exhibit, present or display at any such sale any of the personalty described herein to be sold at such sale. Mortgagee making such sale shall receive the -10- 11 proceeds thereof and shall apply the same as follows: (a) first, he shall pay the reasonable expenses of Mortgagee (including any attorneys's fees) and the costs and expenses of such sale; (b) second, he shall pay, so far as may be possible, the Indebtedness; (c) third, he shall pay the residue, if any, to the persons legally entitled thereto. Payment of the purchase price to Mortgagee shall satisfy the obligation of the purchaser at such sale therefor, and such purchaser shall not be responsible for the application thereof. The Mortgagee shall also have an option to sell the Mortgaged Property in parcels or in one unit. The sale or sales by Mortgagee of less than the whole of the Mortgaged Property shall not exhaust the power of sale herein granted, and Mortgagee is specifically empowered to make successive sale or sales under such power until the whole of the Mortgaged Property shall be sold; and if the proceeds of such sale or sales of less than the whole of the Mortgaged Property shall be less than the aggregate of the Indebtedness and the expenses thereof, this Mortgage and the lien, security interest and assignment hereof shall remain in full force and effect as to the unsold portion of the Mortgaged Property just as though no sale or sales had been made; provided, however, that Mortgagor shall never have any right to require the sale or sales of less than the whole of the Mortgaged Property, but Mortgagee shall have the right, at its sole election, to sell less than the whole of the Mortgaged Property. If default is made hereunder, the holder of the Indebtedness or any part thereof on which the payment is delinquent shall have the option to proceed with foreclosure or sale in satisfaction of such item either through judicial proceedings or as if under a full foreclosure, conducting the sale as herein provided without declaring the entire Indebtedness due, if sale is made because of default of an installment, or a part of an installment, such sale may be made subject to the unmatured part of the Indebtedness; and it is agreed that such sale, if so made, shall not in any manner affect the unmatured part of the Indebtedness, but as to such unmatured part this Mortgage shall remain in full force and effect as though no sale had been made under the provisions of this paragraph. Several sales may be made hereunder without exhausting the right of sale for any unmatured part of the Indebtedness. At any such sale (a) Mortgagor hereby agrees, in its behalf and in behalf of its heirs, executors, administrators, successors, personal representatives and assigns, that any and all recitals made in any deed of conveyance given by Mortgagee with respect to the identity of Mortgagee, the occurrence or existence of any default, the acceleration of the maturity of any of the Indebtedness, the -11- 12 request to sell, the notice of sale, the giving of notice to all debtors legally entitled thereto, the time, place, terms, and manner of sale, receipt, distribution and application of the money realized therefrom, and, without being limited by the foregoing, with respect to any other act or thing having been duly done by Mortgagee shall be taken by all courts of law and equity as prima facie evidence that the statements or recitals state facts and are without further question to be so accepted, and Mortgagor hereby ratifies and confirms every act that Mortgagee may lawfully do in the premises by virtue hereof, and (b) the purchaser may disaffirm any easement granted, or rental, lease or other contract made, in violation of any provision of this Mortgage, and may take immediate possession of the Mortgaged Property free from, and despite the terms of, such grant of easement and rental or lease contract. Mortgagee may bid and become the purchaser of all or any part of the Mortgaged Property at any trustee's or foreclosure sale hereunder, and the amount of Mortgagee's successful bid may be credited on the Indebtedness. Notwithstanding the above, Mortgagee may cause the liens of this Mortgage to be foreclosed in any other manner provided for under the laws of the State of Wisconsin. 6.3 Tenancy at Will. In the event of a trustee's sale hereunder and if at the time of such sale Mortgagor or any other party occupies the portion of the Mortgaged Property so sold or any part thereof, such occupant, at the option of such purchaser, shall immediately become the tenant of the purchaser at such sale, which tenancy, at the option of such purchaser, shall be a tenancy at will, at a reasonable rental per day based upon the value of the portion of the Mortgaged Property so occupied, such rental to be due and payable daily to the purchaser. An action of forcible detainer shall lie if the tenant holds over after a demand in writing for possession of such Mortgaged Property. 6.4 Indemnification of Mortgagee. Except for gross negligence or willful misconduct, Mortgagee shall not be liable for any act or omission or error of judgment in connection with exercising the remedies provided herein. Mortgagee may rely on any document believed by him in good faith to be genuine. All money received by Mortgagee shall, until used or applied as herein provided, be held in trust, but need not be segregated (except to the extent required by law), and Mortgagee shall not be liable for interest thereon. Mortgagor shall indemnify Mortgagee and hold Mortgagee harmless against all liability, cost, damage or expense that Mortgagee may incur in the performance of his duties hereunder. -12- 13 6.5 Lawsuits. Mortgagee may proceed by a suit or suits in equity or at law, whether for the specific performance of any covenant or agreement herein contained or in aid of the execution of any power herein granted, or for any foreclosure hereunder or for the sale of the Mortgaged Property under the judgment or decree of any court or courts of competent jurisdiction. 6.6 Entry on Mortgaged Property. Upon occurrence of an Event of Default hereunder, Mortgagee may enter into and upon and take possession of all or any part of the Mortgaged Property, and may exclude Mortgagor, and all persons claiming under Mortgagor, and its or their agents or servants, wholly or partly therefrom; and, holding the same, Mortgagee may use, administer, manage, operate, and control the Mortgaged Property and may exercise all rights and powers of Mortgagor in the name, place and stead of Mortgagor, or otherwise, as Mortgagee shall deem best; and in the exercise of any of the foregoing rights and powers Mortgagee shall not be liable to Mortgagor for any loss or damage thereby sustained unless due solely to the willful misconduct or gross negligence of Mortgagee. Mortgagee's powers shall include the right to complete construction of any part of the Mortgaged Property and to make any repairs or alterations necessary or advisable for the successful operation of the Mortgaged Property. 6.7 Trustee or Receiver. Mortgagee may make application to a court of competent jurisdiction, as a matter of strict right and without notice to Mortgagor or regard to the adequacy of the Mortgaged Property for the repayment of the Indebtedness, for appointment of a receiver of the Mortgaged Property, and Mortgagor does hereby irrevocably consent to such appointment. Any such receiver shall have all the usual powers and duties of receivers in similar cases, including the full power to rent, maintain and otherwise operate the Mortgaged Property upon such terms as may be approved by the court, and shall apply the Rents in accordance with the provisions hereof. 6.8 Remedies Cumulative, Concurrent and Nonexclusive. Mortgagee shall have all rights, remedies and recourses granted in this Mortgage or the Indenture or available at law or equity (including, without limitation, those granted by the Code and applicable to the Mortgaged Property, or any portion thereof) -13- 14 and the same (a) shall be cumulative and concurrent, (b) may be pursued separately, successively or concurrently against Mortgagor or others obligated for the Indebtedness, or any part thereof or against any one or more of them, or against the Mortgaged Property, at the sole discretion of Mortgagee, (c) may be exercised as often as occasion therefor shall arise, it being agreed by Mortgagor that the exercise or failure to exercise any of the same shall in no event be construed as a waiver or release thereof or of any other right, remedy or recourse, and (d) are intended to be, and shall be, nonexclusive, nor shall exercise of any one or more constitute a waiver of a right to any other right, remedy or recourse thereafter. 6.9 Compensation to Mortgagee. Mortgagor hereby agrees to pay to Mortgagee reasonable compensation for all services rendered by it hereunder and to reimburse Mortgagee upon request for all reasonable expenses, disbursements and advances incurred or made by Mortgagee in accordance with any provision hereof. This Mortgage is being delivered and recorded prior to its effective date and such delivery shall continue through the effective date and thereafter to the extent necessary to complete such delivery and the conveyance intended by this Mortgage. EXECUTED as of the date first set forth above. MORTGAGOR: TRAMMELL CROW REAL ESTATE INVESTORS, a Texas real estate investment trust By: /s/ DAVID CLOSSEY Name: David F. Clossey Trust Manager 15 STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, personally appeared David F. Clossey, Trust Manager of Trammell Crow Real Estate Investors, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed same as the act of such trust, for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 11 day of March, 1986. My Commission Expires: /s/ SUE EDWARDS NOTARY PUBLIC IN AND FOR Sue Edwards THE STATE OF TEXAS {SEAL} Notary Pubiic State of Texas Commission Expires 9-17-88 This instrument was drafted by: David D. Vineyard, Esq. Jones, Day, Reavis & Pogue 2300 LTV Center 2001 Ross Avenue Dallas, Texas 75201 6768r 16 EXHIBIT B Property Description Parcel 1: Lot 1 of Certified Survey Map No. 4361, being a division of Lot 2 of Certified Survey Map No. 4034, located in the Northwest 1/4 of Section 36, Town 8 North, Range 20 East, Village of Menomonee Falls, Waukesha County, Wisconsin, as recorded on July 18, 1983 in the office of the Register of Deeds for Waukesha County in Volume 34 pages 281, 282 and 283 as Document No. 1221469. Parcel 2: Lot 1 of Certified Survey Map No. 4570, being a division of Lot 2 of Certified Survey Map No. 4361, located in the Northwest 1/4 of Section 36, Town 8 North, Range 20 East, Village of Menomonee Falls, Waukesha County, Wisconsin, recorded July 23, 1984 in the office of the Waukesha County Register of Deeds in Volume 36 of Certified Survey Maps, pages 280 and 281 as Document No. 1265448. Parcel 3: Lot 1 of Certified Survey Map No. 4571, being a division of Lot 1 of Certified Survey Map No. 4034, located in the Northwest 1/4 of Section 36, Town 8 North, Range 20 East, Village of Menomonee Falls, Waukesha County, Wisconsin, as recorded on July 23, 1984 in the office of the Register of Deeds for Waukesha County in Volume 36, pages 282, 283 and 284 as Document No. 1265449. 7294r 17 EXHIBIT "C" Permitted Exceptions 1. Covenants, conditions and restrictions set forth in Warranty Deed executed by The Globe Rendering Company to W.J. Lazynski and Charles W. Aring, Jr., Grantees of the Village of Menomonee Falls, dated July 29, 1965 and recorded August 2, 1965 in Volume 1021 of Deeds, page 493, as Document No. 641952 (affects Parcels 1, 2 and 3). 2. Easement recorded in Reel 534, Image 401, as Document No. 1207857, affecting the Westerly 20 feet of the property, and as shown on CSM #4361 (affects Parcels 1 and 2). 3. Easement recorded in Reel 534, Image 404, as Document No. 1207858, affecting the Westerly 20 feet of the property, and as shown on CSM #4361 (affects Parcels 1 and 2). 4. Easement recorded in Reel 582, Image 1151, as Document No. 1240627 (affects Parcels 1 and 2). 5. Restrictions on Certified Survey Maps Nos. 3838, 4034, 4361 and 4570 as follows: "All electric telephone and communication distribution lines and laterals including CATV cables constructed after the recording of this certified survey map shall be placed underground" (affects Parcel 2). 6. Easement recorded in Reel 649, Image 456, as Document No. 1282292 (affects Parcel 2). 7. Easement recorded in Reel 664, Image 1024, as Document No. 1291294 (affects Parcel 2). 8. Restriction on Certified Survey Map No. 4571 as follows: "All electric telephone and communication distribution lines and laterals including CATV cables constructed after the recording of this certified survey map shall be placed underground" (affects Parcel 3). 9. Easement recorded in Reel 736, Image 226, as Document No. 1332687 (affects Parcel 3). 10. Mortgage from Falls Industrial Park Limited Partnership to Village of Menomonee Falls, Wisconsin dated February 1, 1984, filed for record in the office of the Register of Deeds for Waukesha County, Wisconsin as Document No. 1247457 and recorded on February 27, 1984 in Reel 594, Image 98, securing payment of a note in the amount of $1,450,000.00, which Mortgage has been assigned within such Mortgage from the Village of Menomonee Falls, Wisconsin to First Wisconsin Trust Company, Milwaukee, Wisconsin, as trustee under a Trust Indenture and Revenue Agreement of even date therewith (affects Parcel 1 only). 7295r EX-10.21 19 AMENDED & RESTATED MORTGAGE (CAHILL & BURNSVILLE) 1 EXHIBIT 10.21 EDINA & BURNSVILLE AMENDED AND RESTATED MORTGAGE (WITH SECURITY AGREEMENT AND ASSIGNMENT OF RENTS AND LEASES) R E C I T A L S: WHEREAS, TRAMMELL CROW REAL ESTATE INVESTORS, a Texas real estate investment trust (hereinafter referred to as "Grantor"), entered into that certain mortgage (the "Mortgage") dated as of January 14, 1986, to be effective January 16, 1986, evidencing a mortgage interest in certain real property in Hennepin County, Minnesota, to J. HENRY SCHRODER BANK & TRUST COMPANY, TRUSTEE, a New York banking corporation (hereinafter referred to as "Mortgagee"), said Mortgage being recorded in the Office of the County Recorder of Hennepin County, Minnesota on January 17, 1986, under Document No. 5072479 and in the Office of the Registrar of Titles on January 17, 1986, under Document No. 1698734; and WHEREAS, a mortgage registration tax in the amount of $5,391.00 was paid to Hennepin County upon recordation of the Mortgage, as evidenced by Treasurer's Receipt No. 1786; and WHEREAS, Grantor and Mortgagee desire to amend and restate the Mortgage to further encumber certain real property in Dakota County, Minnesota; NOW, THEREFORE, for and in consideration of the mutual covenants and conditions contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and confessed by the parties hereto, Grantor and Mortgagee do hereby agree to amend and restate the Mortgage in its entirety as follows: By this instrument (this "Mortgage"), dated as of January 18, 1986, to be effective as of January 23, 1986, the undersigned, TRAMMELL CROW REAL ESTATE INVESTORS, a Texas real estate investment trust (hereinafter referred to as "Grantor"), whose address is 2001 Ross Avenue, 3500 LTV Center, Dallas, Texas 75201, to secure the obligations hereinafter described, does hereby GRANT, BARGAIN, SELL, ASSIGN, CONVEY, MORTGAGE and GRANT A SECURITY INTEREST unto J. HENRY SCHRODER BANK & TRUST 2 COMPANY, TRUSTEE, a New York banking corporation (hereinafter referred to as the "Mortgagee"), whose address is One State Street, New York, New York 10015, the trustee under that certain indenture (the "Indenture"), dated as of November 15, 1985, by and between Grantor and Mortgagee, securing payment of certain notes of even date herewith, maturing November 27, 1997, having an initial outstanding principal balance of $41,005,361, payable to the order of the holders identified in the Indenture, a copy of which Indenture is attached hereto as Exhibit A and incorporated herein by this reference for all purposes, the following described property, to wit: All of the real property (the "Mortgaged Property") located in Hennepin and Dakota Counties, Minnesota, and in or on the land described on the attached Exhibit B which is incorporated herein by reference (the "Land"), subject to the exceptions described on the attached Exhibit C which is incorporated herein by reference (the "Permitted Exceptions"), and All of the real property described on Exhibit D which is incorporated by reference and which real property is given as security for the Indebtedness as hereinafter defined and which real property is located in states other than Minnesota, TOGETHER WITH all of Grantor's right, title and interest in and to the following, whether now owned or hereafter acquired: (a) all improvements and fixtures now or hereafter attached to or placed, erected, constructed or developed on the Land (the "Improvements"); (b) all equipment, machinery, furnishings, inventory, chattels and all other articles of personal property (the "Personal Property") now or hereafter attached to, relating to or used in or about the Improvements or the Land; (c) all water and water rights, timber, crops and mineral interests pertaining to the Land; (d) all building materials and equipment now or hereafter delivered and installed or intended to be installed in or on the Land or the Improvements; (e) all plans, specifications and drawings for the Improvements; (f) all deposits (including tenants' security deposits and escrow deposits under contracts of sale), documents, contract rights, commitments, construction contracts, architectural agreements and general intangibles (including, without limitation, trademarks, trade names and symbols but expressly excluding the right to use the name "Trammell Crow" or any name associated therewith or derived therefrom); (g) all permits, licenses, franchises, certificates and other rights and privileges relating to or obtained in connection with the Land, the Improvements or the Personal -2- 3 Property; (h) all proceeds arising from or by virtue of the sale, lease or other disposition, encumbrance or refinancing, of the Land, the Improvements and the Personal Property; (i) all proceeds (including premium refunds) of each policy of insurance relating to the Land, the Improvements or the Personal Property; (j) all proceeds from the taking of any of the Land, the Improvements, the Personal Property or any rights appurtenant thereto by right of eminent domain or by private or other purchase in lieu thereof including change of grade of streets, curb cuts or other rights of access; (k) all streets, roads, public places, easements and rights-of-way, existing or proposed, public or private, located on or adjacent to or used in connection with the Land; (l) all of the leases, subleases, licenses or other agreements relating to the Land, the Improvements or the Personal Property, and all rents, deposits, royalties, bonuses, issues, profits, revenues, income or other benefits of the Land, the Improvements or the Personal Property, including, without limitation, cash, securities, letters of credit, guarantees or other instruments deposited pursuant to leases to secure performance by the lessees of their obligations thereunder and cash deposited in impound accounts for the payment of taxes and insurance under any deed of trust securing payment of the Indebtedness; (m) all heating, lighting, refrigeration, plumbing, ventilating, incinerating, water heating, transportation, communications, electrical and air-conditioning systems and equipment, sprinkler and fire-extinguishing systems, security systems, maintenance equipment and other fixtures or systems used in connection with the Land, the Improvements and the Personal Property; (n) all rights, hereditaments, strips, gores and appurtenances pertaining to the foregoing; and (o) all replacements, betterments, substitutions, renewals and additions to any of the Mortgaged Property; and all proceeds of any of the Mortgaged Property. TO HAVE AND TO HOLD the Mortgaged Property, together with the rights, privileges and appurtenances thereto belonging, unto the Mortgagee and its successors and assigns forever, and Grantor hereby binds itself and its administrators, personal representatives, successors and assigns to warrant and forever defend the Mortgaged Property unto the Mortgagee, its successors and assigns, against the claim or claims of all persons claiming or to claim the same or any part thereof. -3- 4 ARTICLE I INDEBTEDNESS This Mortgage is given to secure the payment of all sums and performance of all obligations and covenants contained in this Mortgage and of the Indenture. Unless otherwise defined herein, certain capitalized terms shall have the meaning ascribed to said terms by the Indenture. The above-described obligations are hereinafter collectively called the "Indebtedness". ARTICLE II ASSIGNMENT OF RENTS AND LEASES 2.1 Assignment of Rents, Profits, etc. Grantor hereby absolutely and unconditionally assigns to Mortgagee all of its right, title and interest in and to the rents, royalties, bonuses, issues, profits, revenue, income and other benefits derived from the Mortgaged Property or arising from the use or enjoyment of any portion thereof or from any lease, sublease, licenses or other agreement pertaining thereto, and any and all damages following default under such leases, and all proceeds payable under any policy of insurance covering loss of rents resulting from untenantability, together with any and all rights that Grantor may have against any tenant under such leases or any subtenants or occupants or users of any part of the Mortgaged Property (collectively, the "Rents"), whether owing pursuant to the terms of a presently existing lease or a lease entered into at any time during the term of this Mortgage, and whether becoming due before or after foreclosure or during any period of redemption. Prior to an Event of Default (as hereinafter defined), Grantor shall have a license to collect and receive all Rents and to apply same in accordance with the terms and provisions of the Indenture. 2.2 Assignment of Leases. Grantor hereby absolutely and unconditionally assigns to Mortgagee all of its right, title and interest in and to existing and future leases, including subleases thereunder, and any and all extensions, renewals, modifications, and replacements thereof, covering any part of the Mortgaged Property, whether any such lease is presently existing or entered into at any time during the term of this Mortgage and whether before or after foreclosure or during any period of redemption (collectively, the "Leases"). Grantor hereby further assigns to Mortgagee all guaranties of tenants' performances under the Leases. -4- 5 2.3 Mortgagee in Possession. Mortgagee's acceptance of this assignment shall not be deemed to constitute Mortgagee a "mortgagee in possession" nor obligate Mortgagee to appear in or defend any proceeding relating to any of the Leases or to the Mortgaged Property, or to take any action hereunder, expend any money, incur any expenses, or perform any obligation or liability under the Leases, or assume any obligation for any deposits delivered to Grantor by any tenant and not delivered to Mortgagee, prior to entry upon and taking possession of the Mortgaged Property by Mortgagee. Mortgagee shall not be liable for any injury or damage to person or property in or about the Mortgaged Property. 2.4 Indemnification. Grantor hereby agrees to indemnify Mortgagee and hold Mortgagee harmless from all liability, damage or expense incurred by Mortgagee from any claims under the Leases as well as all amounts indemnified against under the Indenture. All amounts indemnified against hereunder, including reasonable attorneys' fees, if paid by Mortgagee shall be payable by Grantor immediately upon demand by Mortgagee and shall be secured hereby. 2.5 Right to Rely. After the occurrence of an Event of Default (hereinafter defined), Grantor hereby authorizes and directs the tenants under the Leases to pay Rents to Mortgagee upon written demand by Mortgagee, without further consent of Grantor, and the tenants may rely upon any written statement delivered by Mortgagee to the tenants. Any such payment to Mortgagee shall satisfy the obligations of such tenant to make payment to Grantor under the Leases to the extent of the payment made to Mortgagee. ARTICLE III SECURITY AGREEMENT 3.1 Security Interest. This Mortgage shall be a security agreement between Grantor, as the debtor, and Mortgagee, as the secured party, covering the Mortgaged Property constituting personal property or fixtures governed by the Uniform Commercial Code, as enacted and amended from time to time in the state in which the Land is situated (hereinafter called the "Code"), and Grantor grants to Mortgagee a security interest in such portion of the Mortgaged Property. In addition to Mortgagee's other rights hereunder, Mortgagee shall have all rights of a secured party under the Code. Grantor shall execute and deliver to Mortgagee all financing statements that may be necessary or advisable to establish and maintain the -5- 6 validity, perfection and priority of Mortgagee's security interest, and Grantor shall bear all costs thereof, including all Code searches reasonably required by Mortgagee. If Mortgagee should desire to dispose of any of the Mortgaged Property pursuant to the Code, and if the Code requires prior notice to Grantor of such disposition, ten (10) days written notice by Mortgagee to Grantor shall be deemed to be reasonable notice; provided, however, Mortgagee may dispose of such property in accordance with the foreclosure procedures hereof in lieu of proceeding under the Code. 3.2 Notice of Changes. Grantor shall give advance notice in writing to Mortgagee of any proposed change in Grantor's name, identity, or structure and shall execute and deliver to Mortgagee, prior to or concurrently with the occurrence of any such change, all additional financing statements that Mortgagee may require to establish and maintain the validity and priority of Mortgagee's security interest with respect to any of the Mortgaged Property. 3.3 Financing Statement. Some of the items of the Mortgaged Property described herein are goods that are or are to become fixtures related to the Land, and it is intended that, as to those goods, this instrument shall be effective as a financing statement filed as a fixture filing from the date of its filing for record in the real estate records of the county in which the Mortgaged Property is situated. Information concerning the security interest created by this instrument may be obtained from Mortgagee, as secured party, at the address of Mortgagee stated above. The mailing address of Grantor as debtor is as stated above. Grantor is the record owner of the Land. ARTICLE IV REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF GRANTOR Grantor does hereby warrant and represent to and covenant and agree with Mortgagee as follows: 4.1 Title to Mortgaged Property and Lien of this Mortgage. Grantor has good and marketable title to the Land and the Improvements, and good and marketable title to the remainder of the Mortgaged Property, free and clear of any liens, charges, encumbrances, security interests and adverse claims whatsoever, except for the Permitted Exceptions. -6- 7 4.2 Limitation of Liability. Any obligation or liability whatsoever of the Grantor which may arise at any time under this Mortgage, or any obligation or liability incurred by it pursuant to any other instrument, transaction or undertaking contemplated by this Mortgage, shall be satisfied, if at all, out of the Grantor's property only. No such obligation or liability shall be personally binding upon nor shall there be any resort for the enforcement thereof to the private property of any of Grantor's Trust Managers, shareholders, officers, employees or agents, regardless of whether such obligations or liability are in the nature of contract, tort or otherwise. 4.3 Repair. Grantor will cause the Mortgaged Property to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, which in the judgment of the Grantor may be necessary or prudent so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however that nothing in this Section 4.3 shall prevent the Grantor from discontinuing the operation and maintenance of any of its properties if such discontinuance is, in the judgment of the Grantor, desirable in the conduct of its business and not disadvantageous in any material respect to the Holders. 4.4 Insurance. (a) Grantor will at all times keep all the Mortgaged Property of an insurable nature and of the character usually insured by companies operating similar properties, insured in amounts customarily carried, and against loss or damage from such causes as are customarily insured against, by similar companies. (b) All such insurance shall be effected with insurance carriers having a claims paying rating of "AA" or better by Standard & Poor's Corporation. All policies or other contracts for such insurance on the Mortgaged Property shall provide that the proceeds of such insurance (except in the case of any particular casualty resulting in damage or destruction not exceeding $780,750.00 in the aggregate) shall be payable, subject to the requirements of any Prior Lien, to the Mortgagee as its interest may appear (by means of a standard mortgagee clause or other similar clause acceptable to the Mortgagee, without contribution). Each policy or other contract for such insurance, or such mortgagee clause, shall contain an agreement by the insurer that, notwithstanding any right of cancellation reserved to such insurer, such policy or contract shall not be -7- 8 cancelled unless and until the insurer has provided Mortgagee written notice thirty calendar days prior to cancellation. As soon as practicable after the execution of this Mortgage, and within 120 calendar days after the close of each fiscal year thereafter, and at any time upon the request of the Mortgagee, Grantor will deliver to the Mortgagee an officer certificate containing a detailed list of the insurance in force upon the Mortgaged Property on a date therein specified (which date shall be within 30 calendar days of the filing of such certificate), including the names of the insurers with which the policies and other contracts of insurance of the Mortgaged Property are carried, the numbers, amounts and expiration dates of such policies and other contracts and the property and hazards covered thereby, and stating that the insurance so listed complies with this Section 4.4, together with copies of all insurance policies or certificates thereof. (c) All proceeds of any insurance of any part of the Mortgaged Property not payable to the Mortgagee or the trustee, mortgagee or other holder or beneficiary of a Prior Lien shall be applied in accordance with the Indenture. In the event that the proceeds of insurance are made available for restoration, Grantor shall restore the Improvements to substantially the same condition and quality of the Improvements prior to the casualty. 4.5 Taxes. Grantor will pay all taxes, assessments and governmental charges or levies imposed upon it or the Mortgaged Property when due and payable and before any penalty attaches, and all claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like persons which, if unpaid, might result in the creation of a lien upon the Mortgaged Property; provided that items of the foregoing description need not be paid while being contested in good faith and by appropriate proceedings, so long as such contest shall not create a risk of forfeiture of all or any portion of the Mortgaged Property. Nothing contained herein shall constitute the consent of Mortgagee to subject the Mortgaged Property to any of the aforesaid liens. 4.6 Casualty and Condemnation. All proceeds, judgments, decrees and awards for injury or damage to the Mortgaged Property, and all awards pursuant to proceedings for condemnation thereof, are hereby assigned in their entirety to Mortgagee, who shall apply the same in accordance with the Indenture. Immediately upon its obtaining knowledge of the institution or the threatened institution of any proceedings for the condemnation of the Mortgaged Property, Grantor shall notify Mortgagee of such fact. Grantor shall then, if requested by Mortgagee, file or defend its claim thereunder and prosecute same with due diligence to its final disposition and shall cause any awards or settlements to be paid over to Mortgagee for disposition pursuant to the terms of sub-section 4.4(c) hereinabove. Mortgagee shall be entitled to participate in same and -8- 9 to be represented therein by counsel of its own choice, and Grantor shall deliver, or cause to be delivered, to Mortgagee such instruments as may be requested by it from time to time to permit such participation. 4.7 Compliance with Laws. Grantor shall cause the Mortgaged Property and the use thereof to comply with all laws, rules, ordinances, regulations, covenants, conditions, restrictions, orders and decrees of any governmental authority or court applicable to Grantor or the Mortgaged Property and its use, and Grantor shall pay all fees or charges of any kind in connection therewith. 4.8 Operation. For so long as there is no Event of Default hereunder, Grantor may use and operate, alter and improve, manage, lease and maintain the Land, Improvements and Personal Property in accordance with customary and prudent management practices and in accordance with the provisions hereof and of the Indenture. 4.9 Successors and Assigns; Use of Terms. The covenants herein contained shall bind, and the benefits and advantages hereof shall inure to, the respective heirs, executors, administrators, personal representatives, successors and assigns of the parties hereto, including the successor to Mortgagee as trustee under the Indenture. Whenever used, the singular number shall include the plural and the plural the singular, and the use of any gender shall be applicable to all genders. The duties, covenants, conditions, obligations and warranties of Grantor in this instrument shall be joint and several obligations of Grantor and of each Grantor, if more than one, and of each Grantor's heirs, personal representatives, successors and assigns. Each party who executes this instrument and each subsequent owner of the Mortgaged Property, or any part thereof (other than Mortgagee), covenants and agrees that it will perform, or cause to be performed, each term and covenant of this instrument as if such party were the named Grantor. 4.10 Severability. If any provision of this instrument is held to be illegal, invalid, or unenforceable under present or future laws effective while this instrument is in effect, the legality, validity and enforceability of the remaining provisions of this instrument shall not be affected thereby, and in lieu of each such illegal, invalid or unenforceable provision there shall be added automatically as a part of this instrument a provision that is legal, valid and enforceable and as similar in terms to such illegal, invalid or unenforceable provision as may be possible. 4.11 Unsecured Indebtedness. If any of the indebtedness shall be unsecured, the unsecured portion of the Indebtedness shall be completely paid prior to the payment of the secured portion of such Indebtedness, and all payments made on account of the Indebtedness shall be considered to have been paid on and applied first to the complete payment of the unsecured portion of the Indebtedness. -9- 10 4.12 Modification or Termination. This Mortgagee may only be modified in accordance with the terms of the Indenture. 4.13 No Partnership. Nothing contained in this Mortgagee is intended to create any partnership, joint venture or association between Grantor and Mortgagee, or in any way make Mortgagee a co-principal with Grantor with reference to the Mortgaged Property, and any inferences to the contrary are hereby expressly negated. 4.14 Headings. The Article, Paragraph and Subparagraph headings hereof are inserted for convenience of reference only and shall not alter, define, or be used in construing the text of such Articles, Paragraphs or Subparagraphs. 4.15 Governing Law. This Mortgagee and the enforcement of the provisions hereof shall be governed by the laws of the State of Minnesota except with respect to the obligations of the Grantor and the rights of the Mortgagee under Paragraph 2.4, which shall be governed by the laws of the State of New York, and the laws of the United States applicable to transactions in such state. 4.16 Prior Liens. It is expressly understood and agreed that the lien of this Mortgage with respect to that portion of the Mortgaged Property located in Dakota County, Minnesota, is subject, subordinate and inferior to the lien of that certain Mortgage, Security Agreement and Financing Statement duly filed of public record as Document No. 700631 (the "Prior Lien"), securing the payment of that certain promissory note dated September 12, 1985, in the original principal amount of $2,800,000.00, executed by Gopher VI Limited Partnership and payable to the order of Aetna Life Insurance Company. Notwithstanding anything contained herein to the contrary, in the event that any of the obligations of Grantor herein with respect to that portion of the Mortgaged Property located in Dakota County, Minnesota, (except for the obligations set forth in paragraph 2.4 hereof) conflict with any of the obligations of Grantor set forth in the Prior Lien, the obligations of the Prior Lien shall control and such conflicting obligations hereof shall be of no force and effect to the extent of such conflict. ARTICLE V EVENTS OF DEFAULT 5.1 Default of Indenture. It shall be an "Event of Default" hereunder if Grantor commits an Event of Default, as that term is defined by the Indenture. -10- 11 ARTICLE VI REMEDIES If an Event of Default shall occur, Mortgagee may exercise any one or more of the remedies provided in the Indenture or the following remedies, without notice (provided, however, before Mortgagee may exercise any one or more of the foregoing remedies with respect to that portion of the Mortgaged Property located in Dakota County, Minnesota, Mortgagee shall provide the then holder of the Prior Lien written notice of said Event of Default at CityPlace (YFFI), Hartford, Connecticut 06156, or at any subsequent address provided by the then holder of the Prior Lien): 6.1 Enforcement of Assignment of Leases and Rents. Upon the occurrence of an Event of Default, as herein defined, and whether before or after the institution of legal proceedings to foreclosure the lien hereof or before or after sale thereunder or during any period of redemption, and without regard to waste, adequacy of the security or solvency of Grantor, Mortgagee may revoke the privilege granted Grantor hereunder to collect the Rents, and may, at its option, without notice, either: (a) In person or by agent, with or without taking possession of or entering the Mortgaged Property, with or without bringing any action or proceeding, (i) give, or require Grantor to give, notice to any or all tenants under any lease authorizing and directing the tenant to pay the Rents to Mortgagee, (ii) collect all of the Rents, (iii) enforce the payment thereof and exercise all of the rights of Grantor under the leases and all of the rights of Mortgagee hereunder, (iv) enter upon, take possession of, manage and operate the Mortgaged Property, or any part thereof, (v) enter into, cancel, enforce or modify the leases, and fix or modify the Rents, (vi) do any acts which Mortgagee deems proper to protect the security hereof, (vii) require Grantor to transfer all security deposits and records thereof to Mortgagee, or (vii) any or all of the foregoing; or (b) Apply for the appointment of a receiver in accordance with the statutes and law made and provided for, to which receivership Grantor hereby consents, who shall collect said rents, profits and other income, manage the Mortgaged Property so to prevent waste, execute leases within or beyond the period of the receivership, and perform the terms of this Mortgage and apply the said rents, profits and other income as hereinafter provided from the date of his appointment through the entire redemption period from any foreclosure sale. Any such Rents shall be applied in the following order: (i) to payment of all reasonable fees of any receiver appointed hereunder, (ii) to application of tenant's security deposits as -11- 12 required by Minn. Stat. Section 504.20, (iii) to payment when due of prior or current real estate taxes or special assessments with respect to the Mortgaged Property or, if this Mortgage so requires, to the periodic escrow for payment of the taxes or special assessments, (iv) to payment when due of premiums for insurance of the type required by this Mortgage or, if this Mortgage so requires, to the periodic escrow for the payment of premiums, and (v) to payment of all expenses for normal maintenance of the Mortgaged Property. Any Rents remaining after application of the above items shall be applied in reduction of the Indebtedness in such order and manner as Mortgagee may elect. If (A) the Mortgaged Property shall be foreclosed and sold pursuant to a foreclosure sale, and (B) any Rents attributable to the period of redemption remain after application of the above items (i) through (v) (the "Balance"), then: (aa) If Mortgagee is the purchaser at the foreclosure sale, the Balance shall be paid to Mortgagee to be applied to the extent of any deficiency remaining after the sale, and if there is any excess amount remaining of said Balance after payment in full of said deficiency, said excess amount shall be paid to Mortgagee; provided that, if the Mortgaged Property is redeemed by Grantor or any other party entitled to redeem, said excess amount shall be applied as a credit against the redemption price, with any remaining further balances to be paid to Grantor; and (bb) If Mortgagee is not the purchaser at the foreclosure sale, the Balance shall be paid to Mortgagee to be applied to the extent of any deficiency remaining after the sale, and if there is any excess amount remaining of said Balance after payment in full of said deficiency, said excess amount shall be paid to Grantor; provided that (i) if the Mortgaged Property is redeemed by Grantor or any other party entitled to redeem, said excess amount shall be applied as a credit against the redemption price, with any remaining further balances to be paid to Grantor, and (ii) if the Mortgaged Property is not redeemed by Grantor or any other party entitled to redeem, said excess amount shall be paid to the purchaser at the foreclosure sale in an amount equal to the interest accrued upon the sale price pursuant to Minn. Stat. Section 580.23 or Section 581.10, with any remaining further balances to be paid to Grantor. -12- 13 The purchaser at any foreclosure sale, including Mortgagee, shall have the right, at any time and without limitation as provided in Minn. Stat. Section 582.03, to advance money to any receiver appointed hereunder to pay any part or all of the items which the receiver would otherwise be authorized to pay if the cash were available from the Mortgaged Property and the sum so advanced, with interest at the rate equal to the sum of the prime rate of interest announced by The Chase Manhattan Bank, National Association, plus one percent (1%), shall be a part of the sum required to be paid to redeem from any foreclosure sale. The rights hereunder shall in no way be dependent upon and shall apply without regard to whether the Mortgaged Property is in danger of being lost, materially injured or damaged or whether the Mortgaged Property is adequate to discharge the Indebtedness. 6.2 Remedies; Acceleration and Foreclosure. In addition to, and not in lieu of the remedies set forth in Section 6.1 above, if an Event of Default shall occur, Mortgagee may immediately and without notice to Grantor declare the entire unpaid principal balance of the Indebtedness to be immediately due and payable and thereupon all such Indebtedness secured hereby shall be and become immediately due and payable. If an Event of Default shall occur, then in every such case Mortgagee may (a) proceed to protect and enforce its rights by a suit or suits in equity or at law, either for the specific performance of any term, covenant, agreement or condition contained herein or in the Indebtedness or in aid of the execution of any power herein or therein granted for collection of the Indebtedness or for the foreclosure of this Mortgage, or for the enforcement of any other appropriate legal or equitable remedy, and/or (b) foreclose this Mortgage; and Grantor hereby authorizes and fully empowers Mortgagee to foreclose this Mortgage by judicial proceedings or by advertisement with full authority to sell the Mortgaged Property at public auction and convey the same to the purchaser in fee simple all in accordance with and in the manner prescribed by law, and out of the proceeds arising from sale and foreclosure to retain the Indebtedness together with all such sums of money as Mortgagee shall have expended or advanced pursuant to this Mortgage or pursuant to statute together with interest thereon at the rate provided by applicable law, and all costs and expenses of such foreclosure, including lawful attorneys' fees, with the balance, if any, to be paid to the persons entitled thereto by law. In case of any sale of the Mortgaged Property, or any part thereof, pursuant to any judgment or decree of any court -13- 14 or otherwise in connection with the enforcement of any of the terms of this Mortgage, Mortgagee may become the purchaser, and for the purpose of making settlement for or payment of the purchase price, shall be entitled to deliver and use the amount of the Indebtedness in order that there may be credited as paid on the purchase price the sum then due under the Indebtedness. 6.3 Receiver. If an Event of Default shall occur, Mortgagee shall be entitled as a matter of right without notice and without giving bond and without regard to the solvency or insolvency of the Grantor, or waste of the Mortgaged Property or adequacy of the security of the Mortgaged Property, to apply for the appointment of a receiver in accordance with the statutes and law made and provided for, who shall have all the rights, powers and remedies as provided by such statute or law, including, without limitation, the rights of a receiver pursuant to Minn. Star. Section 576.01, as the same may be amended and who shall from the date of his appointment through any applicable period of redemption collect the rents, profits and all other income of any kind; manage the Mortgaged Property so to prevent waste; execute leases within or beyond the period of the receivership; perform the terms of this Mortgage and apply the rents, profits and other income to the payment of the expenses enumerated in Minn. Stat. Section 576.01, subd. 2 in the priority mentioned therein and to all expenses for the normal maintenance of the Mortgaged Property and to the costs and expenses of the receivership and to the payment of the Indebtedness in such order and manner as Mortgagee may elect and as further provided in Section 6.1 hereof. 6.3.1 Indemnification of Mortgagee. Except for gross negligence or willful misconduct, Mortgagee shall not be liable for any act or omission or error of judgment in connection with exercising the remedies provided herein. Mortgagee may rely on any document believed by him in good faith to be genuine. Grantor shall indemnify Mortgagee and hold Mortgagee harmless against all liability, cost, damage or expense that Mortgagee may incur in the performance of his duties hereunder. 6.3.2 Compensation to Mortgagee. Grantor hereby agrees to pay to Mortgagee reasonable compensation for all services rendered by it hereunder and to reimburse Mortgagee upon request for all reasonable expenses, disbursements and advances incurred or made by Mortgagee in accordance with any provision hereof. 6.4 Right to Discontinue Proceeding. In the event Mortgagee shall have proceeded to invoke any right, remedy or recourse permitted under this Mortgage and shall thereafter -14- 15 elect to discontinue or abandon the same for any reason, Mortgagee shall have the unqualified right to do so and in such event Grantor and Mortgagee shall be restored to their former positions with respect to the Indebtedness. This Mortgage, the Mortgaged Property and all rights, remedies and recourse of Mortgagee shall continue as if the same had not been invoked. 6.5 Acknowledgment of Waiver of Hearing Before Sale. Grantor understands and agrees that if an Event of Default occurs under the terms of this Mortgage, Mortgagee has the right, inter alia, to foreclose this Mortgage by advertisement pursuant to Minnesota Statutes, Chapter 580, as hereafter amended, or pursuant to any similar or replacement statute hereafter enacted; that if Mortgagee elects to foreclose by advertisement, it may cause the Mortgaged Property, or any part thereof, to be sold at public auction; that notice of such sale must be published for six (6) successive weeks at least once a week in a newspaper of general circulation and that no personal notice is required to be served upon Grantor. Grantor further understands that in the event of such default Mortgagee may also elect its rights under the Code and take possession of any Personal Property, or any part thereof, and dispose of the same by sale or otherwise in one or more parcels provided that at least ten (20) days' prior notice of such disposition must be given, all as provided for by the Code, as hereafter amended or by any similar or replacement statute hereafter enacted. Grantor further understands that under the Constitution of the United States and the Constitution of the State of Minnesota it may have the right to notice and hearing before the Mortgaged Property may be sold and that the procedure for foreclosure by advertisement described above does not insure that notice will be given to Grantor and neither said procedure for foreclosure by advertisement nor the Code requires any hearing or other judicial proceeding. GRANTOR HEREBY RELINQUISHES, WAIVES AND GIVES UP ANY CONSTITUTIONAL RIGHTS IT MAY HAVE TO NOTICE AND HEARING BEFORE SALE OF THE MORTGAGED PROPERTY AND EXPRESSLY CONSENTS AND AGREES THAT THE MORTGAGED PROPERTY MAY BE FORECLOSED BY ADVERTISEMENT AND THAT THE COLLATERAL MAY BE DISPOSED OF PURSUANT TO THE CODE, ALL AS DESCRIBED ABOVE. GRANTOR ACKNOWLEDGES THAT IT IS REPRESENTED BY LEGAL COUNSEL; THAT BEFORE SIGNING THIS DOCUMENT THIS SECTION AND GRANTOR'S CONSTITUTIONAL RIGHTS WERE FULLY EXPLAINED BY SUCH COUNSEL AND THAT GRANTOR UNDERSTANDS THE NATURE AND EXTENT OF THE RIGHTS WAIVED HEREBY AND THE EFFECT OF SUCH WAIVER. All references herein to any Minnesota Statute shall include that statute as hereinafter amended, or to any similar or replacement statute hereinafter enacted. -14a- 16 6.6 Notice. Any notice which any party hereto may desire or may be required to give to any other party shall be in writing and the mailing thereof by certified mail to their respective addresses as set forth in page one of this Mortgage, or to such other places any party hereto may hereafter by notice in writing designate, shall constitute service of notice hereunder. 6.7 Remedies Cumulative, Concurrent and Nonexclusive. Mortgagee shall have all rights, remedies and recourses granted in this Mortgagee or the Indenture or available at law or equity (including, without limitation, those granted by the Code and applicable to the Mortgaged Property, or any portion thereof) and the same (a) shall be cumulative and concurrent, (b) may be pursued separately, successively or concurrently against Grantor or others obligated for the Indebtedness, or any part thereof or against any one or more of them, or against the Mortgaged Property, at the sole discretion of Mortgagee, (c) may be exercised as often as occasion therefor shall arise, it being agreed by Grantor that the exercise or failure to exercise any of the same shall in no event be construed as a waiver or release thereof or of any other right, remedy or recourse, and (d) are intended to be, and shall be, nonexclusive, nor shall exercise of any one or more constitute a waiver of a right to any other right, remedy or recourse therafter. This Mortgage is being delivered and recorded prior to its effective date and such delivery shall continue through the effective date and thereafter to the extent necessary to Complete such delivery and the conveyance intended by this Mortgage. EXECUTED as of the date first set forth above. GRANTOR: Drafted by: Jones, Day, Reavis & Pogue TRAMMELL CROW REAL ESTATE 2300 LTV Center INVESTORS, a Texas real 2001 Ross Avenue estate investment trust Dallas, Texas 75201 By: /s/ DAVID CLOSSEY Name: David F. Clossey Trust Manager -15- 17 MORTGAGEE: J. HENRY SCHRODER BANK & TRUST COMPANY, TRUSTEE, a New York banking corporation By: /s/ MARK MCLAUGHLIN Name: Mark F. McLaughlin Title: Assistant Vice President -15a- 18 STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, personally appeared David F. Clossey, Trust Manager of Trammell Crow Real Estate Investors, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed same as the act of such trust, for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 18th day of January, 1986. My Commission Expires: /s/ LYNN SUTTAN NOTARY PUBLIC IN AND FOR THE STATE OF TEXAS LYNN SUTTON Notary Public for the State of Texas {SEAL} My Commission Expires 7-28-88 6614r -16- 19 STATE OF NEW YORK ) ) COUNTY OF NEW YORK ) On the 20th day of January, 1986, before me personally came Mark McLaughlin, to me known, who being by me duly sworn, did depose and say that he resides in Allenhurst, New Jersey; that he is the Asst. Vice President of J. Henry Schoroder Bank Trust Company *, the corporation described in and which executed the above instrument; and that he signed his name thereto by order of the board of directors of said corporation. *a New York banking corporation /s/ MIRIAM STEGEL Notary Public in and for New York {SEAL} County, New York My Commission Expires: Miriam Stegel Notary Public State of New York No. 31-4803577 Qualified in New York Commmission Expires March 30, 1986 -16a- 20 EXHIBIT B Edina PROPERTY DESCRIPTION Lot 2, Block 1, Atwood Station Second Addition, according to the recorded plat thereof, and situated in Hennepin County, Minnesota. -20- 21 BURNSVILLE EXHIBIT B - continued PROPERTY DESCRIPTION Lot One (1), Block One (1), Burnsville Corporate Center 1st Addition, according to the recorded plat thereof, Dakota County, Minnesota. -21- 22 EDINA EXHIBIT C PERMITTED EXCEPTIONS 1. Utility and drainage easement(s) over 10 feet adjoining streets, 50 feet adjoining railroad right of way and 5 feet adjoining all other interior lot lines as shown on the recorded plat. 2. Electric transmission line easement and incidental rights connected therewith in favor of Northern States Power Company, a Minnesota corporation, now over, across and upon the East 50 feet of Lot 2, Block 1 as shown by deed recorded in Book 1048 of Deeds, page 80, Document No. 1256331. 3. Special Assessments affecting the property. 3244h 23 BURNSVILLE EXHIBIT C -continued PERMITTED EXCEPTIONS 1. Easement Agreement dated September 11, 1985, recorded September 16, 1985, as Document No. 700630 from Gopher VI Limited Partnership, a Texas limited partnership, to Gopher VIII Limited Partnership, a Texas limited partnership. 2. Mortgage, Security Agreement and Financing Statement dated September 12, 1985, recorded September 16, 1985, as Document No. 700631 from Gopher VI Limited Partnership, a Texas limited partnership to Aetna Life Insurance Company, a Connecticut corporation, in the original principal amount of $2,800,000.00. Note: Assignment of Rents and Leases dated September 12, 1985, recorded September 16, 1985, as Document No. 700633. 3. Limitation of right of access to Highway 13 from subject property pursuant to Notice of Lis Pendens, dated March 6, 1947, recorded March 12, 1947, in Book 184 of Mortgages, page 79, and Final Certificate, dated November 19, 1952, recorded May 25, 1952, in Book 62 of Miscellaneous Records, page 19. This exception is limited to the limitation stated herein and does not include any other terms and conditions contained in the said documents including without limitation the snow fence easement referred to in the document recorded in Book 62 of Miscellaneous Records, page 19. 4. Rights of tenants under unrecorded leases as to possession only. 5. Financing Statement of record as follows: Secretary of State, State of Minnesota, on September 16, 1985 as File No. 838919. Debtor: Gopher VI Limited Partnership Secured Party: Aetna Life Insurance Company 24 Exhibit C - continued 6. Levied assessments as follows Installments Balance on 1986 taxes ---------- ------------- TR SE 66-1 _ $22.35 $25.04 TR Sewer _ $134.10 $59.00 Street Improvements _ $22,159.71 $4,313.22 Storm Sewer _ $22,118.83 $4,305.26 Water & Sewer Lats. _ $12,720.12 $2,475.86 2243i -2- 25 EXHIBIT D Springbrook PROPERTY DESCRIPTION Lots 1, 2, 3 and 4, Block 1, Burlington Northern Norpac Industrial District No. 1, Division No. 2, according to the plat thereof recorded in Volume 98 of Plats, Pages 27 and 28, Records of King County, Washington; except the East 9.05 feet thereof of said Lot 4; except that portion thereof condemned in King County Superior Court Cause No. 81-2-08117-7 for South 180th Street. 2845h 26 COMMERCE CENTER EXHIBIT D - continued PARCEL 2, IN THE CITY OF COMMERCE, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS SHOWN ON PARCEL MAP NO. 8365 AS FILED. IN BOOK 87 PAGES 66 AND 67 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. 27 LOS NIETOS EXHIBIT D - continued PARCEL 1, IN THE CITY OF SANTA FE SPRINGS, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, SHOWN AS PARCEL MAP NO. 5213, FILED IN BOOK 56 PAGE 28 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPT AN UNDIVIDED ONE-HALF INTEREST IN AND TO ALL OIL, GAS, MINERALS AND OTHER HYDROCARBON SUBSTANCES IN OR PRODUCED FROM BELOW 500 FEET BELOW THE SURFACE OF THAT PORTION LYING SOUTHEASTERLY OF THE NORTHWESTERLY 25.5 FEET OF SAID LAND, AS EXCEPTED AND RESERVED BY MARY F. BARLEY, A WIDOW, IN THE DEED TO BEN WEINGART, ET AL., RECORDED APRIL 06, 1956 IN BOOK 50812 PAGE 170, OFFICIAL RECORDS, AS INSTRUMENT NO. 1990. ALL INTEREST TO ENTER IN AND UPON THE SURFACE OF SAID LAND OR WITHIN 500 FEET OF SAID LAND WERE QUITCLAIMED TO THE RECORD OWNERS OF THE SURFACE SAID LAND BY DEED RECORDED FEBRUARY 16, 1961 AS INSTRMENT NO. 1596 IN BOOK D1125 PAGE 872, OFFICIAL RECORDS. ALSO EXCEPT AN UNDIVIDED ONE-HALF INTEREST IN ALL OIL, GAS OR OTHER HYDROCARBON SUBSTANCES AND ALL MINERALS OF EVERY KIND AND NATURE IN OR UNDER OR PRODUCED FROM BELOW 500 FEET FROM THE SURFACE OF THAT PORTION LYING SOUTHEASTERLY OF THE NORTHWESTERLY 25.5 FEET OF SAID LAND, WITHOUT THE RIGHT OF SURFACE ENTRY, AS RESERVED IN THE DEED FROM BEN WEINGART, TRUSTEE FOR TRUST NO. 2 UNDER THE WILL OF STELLA WEINGART, DECEASED, ET AL., RECORDED FEBRUARY 16, 1961 AS INSTRMENT NO. 1597 IN BOOK D1125 PAGE 874, OFFICIAL RECORDS. ALSO EXCEPT FROM THE NORTHWESTERLY 25.5 FEET OF SAID LAND AN UNDIVIDED ONE-HALF OF ALL OIL, GAS AND MINERALS AND OF ALL OIL, GAS AND MINERALS RIGHTS UPON AND UNDER SAID LAND WITH NO RIGHT OF ENTRY ON THE SURFACE OF SAID LAND FOR THE PURPOSE OF EXTRACTING OIL, GAS AND MINERALS THEREIN THEREUNDER AS RESERVED BY SECURITY-FIRST NATIONAL BANK OF LOS ANGELES, DEED RECORDED IN BOOK 18259 PAGE 99, OF OFFICIAL RECORDS. ALSO EXCEPT FROM THE NORTHWESTERLY 25.5 FEET OF SAID LAND, AN UNDIVIDED 1/4TH INTEREST IN AND TO ALL OIL, GAS OR OTHER HYDROCARBON SUBSTANCES ALL MINERALS OF EVERY KIND AND NATURE IN OR UNDER OR PRODUCED FROM BELOW 500 FEET FROM THE SURFACE OF SAID LAND, AS RESERVED BY JUSTIN J. ACCAR, ET AL., IN THE DEED RECORDED JANUARY 05, 1956 IN BOOK 49964 PAGE 184, OFFICIAL RECORDS. ALL INTEREST TO ENTER IN AND UPON THE SURFACE OR WITHIN 500 FEET OF THE SURFACE OF SAID LAND WERE QUITCLAIMED TO THE RECORD OWNERS OF THE SURFACE OF SAID LAND BY A DEED RECORDED FEBRUARY 16, 1961 AS INSTRUMENT NO. 15 IN BOOK D1125 PAGE 870, OFFICIAL RECORDS. ALSO EXCEPT FROM THE NORTHWESTRLY 25.5 FEET OF SAID LAND, AN UNDIVIDED ONE-FOURTH INTEREST IN ALL OIL, GAS, OR OTHER HYDROCARBON SUBSTANCES ALL MINERALS OF EVERY KIND AND NATURE, IN OR UNDER OR PRODUCED FROM BELOW 500 FEET FROM THE SURFACE OF SAID LAND WITHOUT THE RIGHT OF SURFACE AS RESERVED IN THE DEED FROM BEN WEINGART, DECEASED, ET AL., RECORDED FEBRUARY 16, AS INSTRUMENT NO. 1597 IN BOOK D1125 PAGE 874, OFFICIAL RECORDS. -1- 28 LOS NIETOS Exhibit D - continued ALSO EXCEPT FROM THE NORTHWESTERLY 25.5 FEET OF SAID LAND AN UNDIVIDED ONE-HALF INTEREST IN ALL OIL, GAS, MINERALS AND OTHER HYDROCARBON SUBSTANCES IN OR PRODUCED FROM BELOW 500 FEET BELOW THE SURFACE OF THE ABOVE DESCRIBED PROPERTY, AS EXCEPTED AND RESERVED BY MARY F. BARLEY, A WIDOW, IN THE DEED TO BEN WEINGART, ET AL., RECORDED APRIL 06, 1956 IN BOOK 50812 PAGE 170, OFFICIAL RECORDS. ALL INTEREST TO ENTER IN AND UPON THE SURFACE OF SAID LAND OR WITHIN 500 FEET OF SAID LAND WERE QUITCLAIMED TO THE RECORD OWNERS OF THE SURFACE OF SAID LAND BY DEED RECORDED FEBRUARY 16, 1961 AS INSTRUMENT NO. 1596 IN BOOK D1125 PAGE 372, OFFICIAL RECORDS. ALSO EXCEPT FROM THE NORTHWESTERLY 25.5 FEET OF SAID LAND AN UNDIVIDED ONE-HALF INTEREST IN ALL OIL, GAS OR OTHER HYDROCARBON SUBSTANCES AND MINERALS OF EVERY KIND AND NATURE IN OR UNDER OR PRODUCED FROM BELOW 500 FEET FROM THE SURFACE OF SAID LAND WITHOUT THE RIGHT OF SURFACE ENTRY. RESERVED IN THE DEED FROM BEN WEINGART, AS TRUSTEE FOR TRUST NO. 2 UNDER THE WILL OF STELLA WEINGART, DECEASED, ET AL., RECORDED FEBRUARY 16, 1961 AS INSTRUMENT NO. 1597 IN BOOK D1125 PAGE 874, OFFICIAL RECORDS. -2- 29 HUNTINGTON EXHIBIT D - continued LEGAL DESCRIPTION Parcels 1 and 2 of Parcel Map 15739, in the City of Monrovia, County of Los Angeles, State of California, as per map filed in Book 165, Pages 31 and 32 of Parcel Maps, in the office of the County Recorder of said County. 30 EXHIBIT D - continued Tamarac Mall RESTAURANT SITE A part of the Southwest One Quarter of Section 33, Township 4 South, Range 67 West of the Sixth Principal Meridian, City and County of Denver, State of Colorado, described as follows: Commencing at the Southwest corner of said Section 33: thence Northerly along the West line of said Section 33, 75.00 feet to the Point of Beginning, said point being on the North right of way line of Hampden Avenue; thence continuing along the aforesaid course 187.50 feet; thence on an angle to the right of 89 degrees 58'43", 239.95 feet; thence on an angle to the right of 90 degrees 01'17", 189.13 feet to a point on said North right of way line; thence on an angle to the right of 98 degrees 30'40" and along said right of way line, 10.97 feet; thence on an angle to the left of 8 degrees 31'57" and along said right of way lane, 229.10 feet to the Point of Beginning; TOGETHER WITH all right, title, and interest of the owner of said property in, to, or under that certain Reciprocal Easement Agreement among Tamarac Square #1, Annuity Board of the Southern Baptist Convention, and Tamarac Square #2, dated May 23, 1974, and recorded on September 11, 1974, in Book 943 at Page 167 of the real property records of the City and County of Denver, Colorado. Page 1 of 3 Pages. 31 EXHIBIT D - continued Tamarac Mall - continued SAVINGS AND LOAN SITE A parcel of land located in the West one-half of the Southwest quarter of Section 33, Township 4 South, Range 67 West of the Sixth Principal Meridian, City and County of Denver, State of Colorado, more particularlY described as follows: Beginning at a point on the North right-of-way line of Hampden Avenue as deeded and recorded in Book 948 at Page 518 of the records of Arapahoe County, said point being 60.00 feet North of the South line of said Southwest one-quarter and also being the true point of beginning of the right-of-way description of South Tamarac Drive as deeded and recorded in Book 73 at Page 7 of the records of the City and County of Denver; thence Westerly along said North right-of-way line of Hampden Avenue and parallel to the South line of said Southwest one-quarter, 479.50 feet; thence on an angle to the right of 90 degrees 00'00", 212.50 feet; thence on an angle to the right of 90 degrees 00'00", 479.50 feet to a point on the Westerly right-of-way line of said South Tamarac Drive; thence on an angle to the right of 90 degrees 00'00" and along said right-of-way line 212.50 feet to the point of beginning; excepting the Southerly 10 feet thereof; TOGETHER WITH all right, title, and interest of the owner of said property in, to, or under that certain Reciprocal Easement Agreement among Tamarac Square #1, Annuity Board of the Southern Baptist Convention, and Tamarac Square #2, dated May 23, 1974, and recorded on September 11, 1974, in Book 943 at Page 167 of the real property records of the City and County of Denver, Colorado. Page 2 of 3 Pages 32 EXHIBIT D - continued Tamarac Mall - continued SPECIALITY CENTER SITE A parcel of land located in the West one-half of the Southwest quarter of Section 33, Township 4 South, Range 67 West of the Sixth Principal Meridian, City and County of Denver, State of Colorado, more particularly described as follows: Commencing on a point on the north Right-of-Way line of Hampden Avenue as deeded and recorded in Book 948 at Page 518 of the Records of Arapahoe County, said point going 60 feet North of the South line of said Southwest quarter and also being the true point of beginning of the Right-of-way description of South Tamarac Drive as deeded and recorded in Book 73 at Page 7 of the Records of the City and County of Denver; thence Northerly along the Westerly Right-of-Way of said South Tamarac Drive 212.50 feet to the point of beginning; thence continuing along the aforesaid course 277.50 feet to a point of curve; thence along a curve to the left having a radius of 1,658.00 feet, a central angle of 28 degrees 12'32", and arc distance of 816.29 feet; thence on an angle to the left of 89 degrees 23'43", 125.60 feet to a point of curve; thence along a curve to the right having a radius of 25.00 feet, a central angle of 83 degrees 40'30", and arc distance of 36.51 feet; thence on an angle to the left of 85 degrees 49'18", 65.88 feet; thence on an angle to the left of 60 degrees 14'58", 232.98 feet; thence on an angle to the right of 90 degrees 00'00", 120.75 feet; thence on an angle to the left of 90 degrees 00'00", 140.54 feet; thence on an angle to the right of 90 degrees 00'00", 106.40 feet; thence on an angle to the right of 45 degrees 00'00", 82.05 feet; thence on an angle to the left of 63 degrees 57'15", 117.46 feet; thence on an angle to the left of 90 degrees 00'00", 874.80 feet to a point on the North Right-of-Way line of Hampden Avenue; thence on an angle to the left of 71 degrees 02'45", and along said North Right-of-Way line 30.36 feet; thence on an angle to the left of 90 degrees 00'00", 202.50 feet; thence on an angle to the right of 90 degrees 00'00", 479.50 feet to the point of beginning; TOGETHER WITH all right, title and interest of the owner of said property in, to, or under that certain Reciprocal Easement Agreement among Tamarac Square #1, Annuity Board of the Southern Baptist convention, and Tamarac Square #2, dated May 23, 1974, and recorded on September 11, 1974, in Book 943 at Page 167 of the real property records of the City and County of Denver, Colorado. 33 Exhibit D - continued EXCEPT the following described parcel: A parcel of land located in the W1/2 of the SW 1/4 of Section 33; Township 4 South, Range 67 West of the 6th P.M., more particularly described as follows: COMMENCING on a point of the North right of way line of Hampden Avenue as deeded and recorded in Book 948 at Page 518 of the Records of Arapahoe County, said point being 60 feet North of the South line of said SW1/4 and also being the TRUE POINT OF BEGINNING of the right of way description of South Tamarac Drive as deeded and recorded in Book 73 at Page 7 of the Records of the City and County of Denver; thence Northerly along the Westerly right of way of said South Tamarac Drive, 490.00 feet to a point of curve; thence along a curve to the left having a radius of 1,658.00 feet, a central angle of 28 degrees 12'32" an arc distance of 816.29 feet; thence on an angle to the left of 89 degrees 23'43", 125.60 feet to a point of curve; thence along a curve to the right having a radius of 25.00 feet, a central angle of 83 degrees 40'30" an arc distance of 36.51 feet; thence on an angle to the left of 85 degrees 49'18", 65.88 feet; thence on an angle to the left of 60 degrees 14'58", 232.98 feet; thence on an angle to the right of 90 degrees 00'00", 120.75 feet; thence on an angle to the left of 90 degrees 00'00", 140.54 feet; thence on an angle to the right of 90 degrees 00'00", 106.40 feet; thence on an angle to the right of 45 degrees 00'00", 48.75 feet to the TRUE POINT OF BEGINNING; thence continuing along the aforesaid course, 33.30 feet; thence on an angle to the left of 63 degrees 57'15", 117.46 feet; thence on an angle to the left of 90 degrees 00'00", 15.58 feet; thence on an angle to the left of 85 degrees 43'51", 86.20 feet; thence on an angle to the right of 5 degrees 28'18", 46.80 feet to the TRUE POINT OF BEGINNING. 3371j 34 TAMARAC CENTER EXHIBIT D - continued A parcel of land located in the W 1/2 of the SW 1/4 of Section 33, Township 4 South, Range 67 West of the 6th P.M., more particularly described as follows: COMMENCING on a point on the North right of way line of Hampden Avenue as deeded and recorded in Book 948 at Page 518 of the Records of Arapahoe County, said point being 60 feet North of the South line said SW 1/4 and also being the TRUE POINT OF BEGINNING of the right of way description of South Tamarac Drive as deeded and recorded in Book 73 at Page 7 of the Records of the City and County of Denver; thence Northerly along the Westerly right of way of said South Tamarac Drive, 490.00 feet to a point of curve; thence along a curve to the left having a radius of 1,658.00 feet a central angle of 28 degrees 12'32", and arc distance of 816.29 feet; thence along a curve to the right having a radius of 25.00 feet, a central angle of 83 degrees 40'30", an arc distance of 36.51 feet; thence on an angle to the left of 85 degrees 49'18", 15.83 feet to the POINT OF BEGINNING; thence continuing along the aforesaid course, 50.05 feet; thence on an angle to the left of 60 degrees 14'58", 232.98 feet; thence on an angle to the right of 90 degrees 00'00", 120.75 feet; thence on an angle to the left of 90 degrees 00'00", 140.54 feet; thence on an angle to the right of 90 degrees 00'00", 106.40 feet; thence on an angle to the right of 45 degrees 00'00", 5.56 feet; thence on an angle to the right of 44 degrees 45'45", 360.39 feet; thence on an angle to the left of 24 degrees 37'00", 105.81 feet to a point on the Southerly right of way of Eastman Avenue and a point of curve; thence on an angle to the right of 91 degrees 03'11" and along said Southerly right of way and along a curve to the left having a radius of 680.00 feet, a central angle of 10 degrees 31'56", and arc distance of 125.00 feet to a point of tangent; thence along said Southerly right of way and along said tangent, 123.72 feet; thence on an angle to the right of 94 degrees 44'50", 221.22 feet to the POINT OF BEGINNING. TOGETHER WITH all right, title and interest of the owner of said property in, to or under that certain Reciprocal Easement Agreement among Tamarac Square #1, Annuity Board of the Southern Baptist Convention and Tamarac Square #2, dated May 23, 1974 and recorded on September 11, 1974 in Book 943 at Page 167 of the real property records of the City and County of Denver, Colorado. 35 EXHIBIT D - continued TOGETHER WITH all right, title and interest of the owner in, to or under that certain reciprocal easement agreement between Annuity Board of the Southern Baptist Convention and Crow Tamarac Square Associates dated June 7, 1978 and recorded July 17, 1978 in Book 1706 at Page 91 TOGETHER WITH all right, title and interest of the owner of said property in, to or under that certain Construction Easement from Crow Tamarac Square Associates to Crow-Watson #1, dated September 2, 1978 and recorded September 29, 1978 in Book 1759 at Page 260. -2- 36 WOODLAND EXHIBIT D - continued All that certain land, together with all improvements thereon, consisting of thirteen (13) parcels located in the City of Charlotte, Mecklenburg County, North Carolina, and more particularly described as follows: WOODLAND II PARCEL: BEGINNING at a point located at the intersection of the southerly margin of the 60-foot wide right of way of Starita Road, (if extended) and the easterly margin of Woodpark Boulevard (if extended), (the intersection of the margin of such street rights of way being formed by the arc of a circular curve having a 30 foot radius), and running thence from said Beginning Point with the aforesaid southerly margin of the right of way of Starita Road in three calls as follows: (1) S 83-49-46 E 168.26 feet to a new iron pin; thence (2) with the arc of a circular curve to the right having a radius of 286.57 feet, and arc distance of 87.31 feet to a new iron pin; thence (3) S 66-22-26 E 64.14 feet to a point; thence a new line S 24-09-43 W 437.81 feet to a point; thence another new line N 65-50-17 W 310.0 feet to a point in the easterly margin of Woodpark Boulevard; thence with said margin of Woodpark Boulevard N 24-09-43 E 371.24 feet to the point or place of BEGINNING; containing 2.956 acres, or 128,747.38 square feet, according to a survey by R.B. Pharr & Associates, RS, dated May 26, 1981, last revised November 6, 1985. WOODLAND III PARCEL: BEGINNING at a point in the westerly margin of the 60 feet wide right of way of Woodpark Boulevard said Beginning Point being located S. 24-09-43 W. 630.43 feet along said margin of Woodpark Boulevard from the point of its intersection, if extended, with the southerly margin of the 60 foot wide right of way of Starita Road, if extended (the aforesaid intersection being formed by the arc of a circular curve and being shown on a map recorded in Map Book 19 at page 407 in the Mecklenburg Registry), and running thence from said Beginning Point along said margin of Woodpark Boulevard S. 24-09-43 W. 627.33 feet to a point; thence a new line N. 65-50-17 W. 352.04 feet to a point in the line of the Page 1 of 16 Pages. 37 Exhibit D - continued property of the City of Charlotte (now or formerly) as described in a deed recorded in Book 2689 at page 460 in the Mecklenburg Registry; thence with a line of said property N. 24-09-43 E. 625.23 feet to a point, being a corner of the property described in an agreement of option recorded in Book 4340 at page 519 in the Mecklenburg Registry; thence with the southerly line of said property S. 66-10-13 E. 352.05 feet to the point or place of Beginning; containing 220,485.17 square feet, or 5.062 acres, all as shown on that survey of Woodland #3, a Portion of Woodland Business Park, dated October 6, 1980, last revised November 6, 1985, by R.B. Pharr & Associates, to which survey reference is hereby made. WOODLAND IV PARCEL: BEGINNING at a new iron pin located in the northerly margin of the 60 foot wide right of way of Starita Road, said iron pin being located 465.11 feet along said margin of Starita Road from its intersection with the western margin of the 50 foot wide right of way of Hartley Street, and running thence from said Beginning Point with the aforesaid northerly margin of Starita Road the following courses and distances: (1) N. 66-22-26 W. 307.66 feet to a new iron pin; thence (2) with the arc of a circular curve to the left having a radius of 346.57 feet, an arc distance of 103.89 feet to a new iron pin; thence a new line N. 23-37-34 E. 384.39 feet to a new iron pin; thence another new line S. 66-22-26 E. 410.00 feet to a new iron pin; thence another new line S. 23-37-34 W. 368.94 feet to the point or place of BEGINNING; containing 3.485 acres, or 151,786.99 square feet, according to a survey by R.B. Pharr & Associates, RS, dated May 20, 1981, File No. V-213, as last revised November 6, 1985. This conveyance is made subject to an easement for a joint non-exclusive and common drive, for the purposes of access, ingress, egress and regress, over and across that certain strip of land fifteen (15) feet in width, the southeasterly boundary of which is the southeasterly boundary of the property hereinabove described and conveyed ("Woodland IV,") said 15 foot strip extending across Woodland IV from Starita Road N. 23-37-34 E. approximately 368.94 feet tot he northeasterly line of Woodland IV, for the use and benefit of the owners Page 2 of 16 Pages. 38 EXHIBIT D - continued and occupants of both Woodland IV and the property adjoining such easement on its southeasterly side, described hereinbelow as Woodland VII, their heirs, successors and assigns, and others entitled to the use thereof (such easement being hereinafter referred to as the "Easement"). There is included in this conveyance an easement for a joint non-exclusive and common drive for the purpose of access, ingress, egress and regress over and across a portion of Woodland VII, being that certain strip of land fifteen (15) feet in width, the northwesterly boundary of which is the southeasterly boundary of Woodland IV, said 15 foot wide strip being contiguous with, to the southeast of and parallel to the Easement described hereinabove, and extending across Woodland VII from Starita Road N. 23-37-34 E. approximately 368.94 feet to the northeasterly line of Woodland VII, for the use and benefit of the owners and occupants of both Woodland IV and Woodland VII, their heirs, successors and assigns, and others entitled to the use thereof. WOODLAND V PARCEL: BEGINNING at a point in the easterly margin of the 60 foot wide right of way of Woodpark Boulevard said Beginning Point being located S. 24-09-43 W. 371.24 feet along said margin of Woodpark Boulevard from the point of its intersection, if extended, with the southerly margin of the 60 foot wide right of way of Starita Road, if extended (the aforesaid intersection being formed by the arc of a circular curve and being shown on a map recorded in Map Book 19 at page 407 in the Mecklenburg Registry), and running thence from said Beginning Point S. 65-50-17 E. 310.00 feet to a point, thence S. 24-09-43 W. 390.00 feet to a point; thence N. 65-50-17 W. 310.00 feet to a point in the aforesaid easterly margin of Woodpark Boulevard; thence with the easterly margin of Woodpark Boulevard, N. 24-09-43 E. 390.00 feet to the point or place of Beginning; containing 2.775 acres, or 120,900.00 square feet, according to survey No. XX-381 by R.B. Pharr & Associates, dated October 10, 1981, last revised November 6, 1985. TOGETHER WITH AND SUBJECT TO a non-exclusive perpetual 15-foot wide sanitary sewer easement running along the southerly boundary of the real property hereinabove described, as shown on the aforesaid survey by R.B. Pharr & Associates, P.A. Page 3 of 16 Pages. 39 Exhibit D - continued WOODLAND VI PARCEL: BEGINNING at a point in the easterly margin of the 60 foot wide right of way of Woodpark Boulevard said Beginning Point being located S. 24-09-43 W. 761.24 feet along said margin of Woodpark Boulevard from the point of its intersection if extended, with the southerly margin of the 60 foot wide right of way of Starita Road, if extended (the aforesaid intersection being formed by the arc of a circular curve and being shown on a map recorded in Map Book 19 at page 407 in the Mecklenburg Registry), and running thence from said Beginning Point S. 65-50-17 E. 310.00 feet to a point; thence S. 24-09-43 W. 632.00 feet to a point; thence N. 65-50-17 W. 310.00 feet to a point in the aforesaid easterly margin of Woodpark Boulevard; thence with the easterly margin of Woodpark Boulevard N. 24-09-43 E. 632.00 feet to the point or place of Beginning; containing 4.498 acres or 195,920.00 square feet, according to survey No. XX-382 by R.B. Pharr & Associates, dated October 22, 1981, last revised November 6, 1985. WOODLAND VII PARCEL: BEGINNING at a point located in the northerly margin of the 60 foot wide right of way of Starita Road, said point being located 55.11 feet along said margin of Starita Road from its intersection with the western margin of the 60 foot wide right of way of Hartley Street, and running thence from said Beginning Point with the aforesaid northerly margin of Starita Road N. 66-22-26 W. 410.00 feet to a point; thence N. 23-37-34 E. 368.94 feet to a point; thence S. 66-22-26 E. 153.73 feet to a point; thence N. 23-39-00 E 66.78 feet to a point; thence S. 66-09-30 E. 261.34 feet to a point located in the westerly margin of the 50 foot wide right of way of Hartley Street; thence with said right of way of Hartley Street in two calls as follow: (1) S. 04-47-33 W. 44.43 feet to a point; thence (2) in a southwesterly direction with the arc of a circular curve to the right having a radius of 666.34 feet, an arc distance of 24.94 feet to a point; thence N. 66-22-26 W. 27.04 feet to a point; thence S. 23-37-34 W. 368.94 feet to the point or place of Beginning; containing 3.837 acres or 169,324.08 square feet, as shown on survey of R.B. Pharr & Associates dated February 17, 1982 (File No. XX-394) as last revised November 6, 1985. Page 4 of 16 Pages. 40 Exhibit D - continued This conveyance is made subject to an easement for a joint non-exclusive and common drive, for the purposes of access, ingress, egress and regress, over and across that certain strip of land fifteen (15) feet in width, the northwesterly boundary of which is the northwesterly boundary of the property hereinabove described and conveyed ("Woodland VII,") said 15 foot strip extending across Woodland VII from Starita Road N. 23-37-34 E. approximately 368.94 feet to the northeasterly line of Woodland VII for the use and benefit of the owners and occupants of both Woodland VII and the property adjoining such easement on its northwesterly side, (described hereinabove as Woodland IV) their heirs, Successors and assigns and others entitled to the use thereof (such easement being hereinafter referred to as the "Easement"). There is included in this conveyance an easement for a joint non-exclusive and common drive for the purposes of access, ingress, egress and regress over and across a portion of Woodland IV, being that certain strip of land fifteen (15) feet in width, the southeasterly boundary of which is the northwesterly boundary of Woodland VII, said 15 foot wide strip being contiguous with, to the northwest of and parallel to the Easement described hereinabove, and extending across Woodland IV from Starita Road N. 23-37-34 E. approximately 368.94 feet to the northeasterly line of Woodland IV for the use and benefit of the owners and occupants of both Woodland VII and Woodland IV their heirs, successors and assigns, and others entitled to the use thereof. WOODLAND VIII PARCEL: BEGINNING at a point in the westerly margin of the 60 foot wide right of way of Woodpark Boulevard, said Beginning Point being located the following three courses and distances along said margin of Woodpark Boulevard from the point at its intersection, if extended, with the southerly margin of the 60 foot wide right of way of Starita Road, if extended (the aforesaid intersection being formed by the arc of a circular curve and being shown on a map recorded in Map Book 19 at page 407 in the Mecklenburg Registry): (1) S. 24-09-43 W. 1257.76 feet to a point; thence (2) with the aforesaid westerly margin of the 60 foot wide right of way of Woodpark Boulevard as shown on a map recorded in Map Book 19 at page 641 in the Mecklenburg Registry S. 24-09-43 W. 422.50 feet to a point; thence (3) continuing with said margin of Woodpark Boulevard as shown on said map, in a southerly direction with the arc of a circular curve to the left having a radius of 155 feet, an arc distance of 141.21 feet to the point or place of Beginning; and running thence form said Beginning Point with the aforesaid margin of Woodpark Boulevard as shown on the map recorded in Map Book 19 at page 641 in the Mecklenburg Registry, Page 5 of 16 Pages. 41 Exhibit D - continued in two courses as follows: (1) in a southeasterly direction with the arc of a circular curve to the left having a radius of 155 feet, an arc distance of 102.25 feet to a point; thence (2) S. 65-50-17 E. 213.86 feet to a point in the center of the Southern Railway service track; thence with the center line of said track in a southerly direction with the arc of a circular curve to the left having a radius of 492.31 feet, an arc distance of 97.59 feet to a point; thence S. 24-09-43 W. 243.24 feet to a point; thence N. 65-50-17 W. 538 feet to a point; thence S. 24-09-43 W. 82.6 feet, crossing a 36 foot Southern Railway right of way, to a point; thence N. 39-03-46 W. 255.66 feet to a point; thence N. 24-11-03 E. 252.44 feet to a point; thence S. 65-50-17 E. 412.15 feet to a point; thence N. 24-09-43 E. 79.53 feet to the point or place of Beginning; containing 239,766.26 square feet or 5.504 acres, all as shown on that survey of Woodland VIII by R.B. Pharr & Associates, P.A., dated July 28, 1982, last revised October 31, 1985, to which survey reference is hereby made. WOODLAND IX PARCEL: BEGINNING at a point in the southeasterly margin of the 60 foot wide right of way of Woodpark Boulevard, said Beginning Point being located 1,765.46 feet along said margin of Woodpark Boulevard from the point of its intersection, if extended, with the southerly margin of the 60 foot wide right of way of Starita Road, if Extended (the aforesaid intersection being formed by the arc of a circular curve and being shown on a map recorded in Map Book 19 at page 642, reference being also made to a map recorded in Map Book 19 at page 641 in the Mecklenburg Registry), and running thence form said beginning Point S. 53-00 E. 29.00 feet to a point; thence S. 36-01-30 E. 127.27 feet to a point; thence N. 74-37-30 E. 39.43 feet to a point; thence S. 15-22-30 E. 208.65 feet to a point; thence with the proposed northerly line of a 36 foot wide right of way to be granted to Southern Railway company in five calls as follow: (1) S. 57-06-59 W. 84.02 feet to a point; thence (2) S. 63-04-42 W. 24.90 feet to a point; thence (3) S. 68-03-00 W. 90.80 feet to a point; thence (4) in a westerly direction with the arc of a circular curve to the right having a radius of 394.56 feet, an arc distance of 246.73 feet to a point (the chord of the aforesaid curve being S. 88-44-43 W. 242.73 feet); thence (5) in a northwesterly direction with the arc of a circular curve to the right having a radius of 472.43 feet, an arc distance of 5.39 feet to a point (the chord of the aforesaid curve being N. 72-31-49 W. 5.39 feet); thence N. 15-32-19 W. 205.35 feet to a point; thence N. 19-09-57 E. Page 6 of 16 Pages. 42 Exhibit D - continued 133.04 feet to a point located in the aforesaid margin of the right of way of Woodpark Boulevard, said point being located 2,479.26 feet along said right of way of Woodpark Boulevard from the point of its intersection, if extended, with the southerly margin of the 60 foot wide right of way of Starita Road, if extended (the aforesaid intersection being formed by the arc of a circular curve and being shown on a map recorded in Map Book 19 at page 407 in the Mecklenburg Registry); thence with said margin of the right of way of Woodpark Boulevard in an easterly and northeasterly direction with the arc of a circular curve to the left having a radius of 205.00 feet, an arc distance of 279.30 feet to the point or place of BEGINNING; containing 138,453 square feet or 3.178 acres, all as shown on a survey for Trammell Crow Company, Woodland IX by R.B. Pharr & Associates, P.A. dated December 12, 1983 (File No. W-622-1), last revised November 6, 1985. This conveyance is made subject to an easement for a joint non-exclusive and common drive, for the purposes of access, ingress, egress and regress, over and across that certain strip of land more particularly described as follows: BEGINNING at a point in the southeasterly margin of the 60 foot wide right of way of Woodpark Boulevard, said Beginning Point being the Beginning Point of the property hereinabove described and conveyed, and running thence from said Beginning Point with two lines of the property hereinabove described and conveyed, as follow: (1) S. 53-00 E. 29.00 feet to a point; thence (2) S. 36-01-30 E. 127.27 feet to a point; thence S. 74-37-30 W. 17.10 feet to a point; thence N. 36-01-30 W. 121.24 feet to a point; thence N. 72-00 W. 25.17 feet to a point located in the aforesaid margin of Woodpark Boulevard; thence with the aforesaid margin of the right of way of Woodpark Boulevard in a northeasterly direction with the arc of a circular curve to the left having a radius of 205 feet, an arc distance of 23.51 feet to the point of place of Beginning; all as shown on the aforesaid survey by R.B. Pharr & Associates, dated December 12, 1983; the northeasterly boundary of said strip of land being a northeasterly boundary of the 3.178 acre tract of land as hereinabove described and conveyed "Woodland IX,") for the use and benefit of the owners and occupants of both the Property and the property adjoining such easement on its northeasterly Page 7 of 16 Pages. 43 Exhibit D - continued side (described hereinbelow as Woodland XI,) their heirs, successors and assigns, and others entitled to the use thereof (such easement being hereinafter referred to as the "Easement"). There is included in this conveyance an easement for a joint non-exclusive and common drive for the purposes of access, ingress, egress and regress over and across a portion of Woodland XI, being that certain strip or parcel of land more particularly described as follows: BEGINNING at a point in the southeasterly margin of the 60 foot wide right of way of Woodpark Boulevard, said Beginning Point being the Beginning Point of Woodland IX as hereinabove described and conveyed, and running thence with two lines of Woodland IX, as follow: (1) S. 53-00 E. 29.00 feet to a point; thence (2) S. 36-01-30 E. 127.27 feet to a point; thence continuing with a line of Woodland IX N. 74-37-30 E. 17.10 feet to a point; thence a new line N. 36-01-30 W. 172.62 feet to a point located in the aforesaid margin of the right of way of Woodpark Boulevard; thence with said margin of the right of way of Woodpark Boulevard in a southwesterly direction with the arc of a circular curve to the right having a radius of 205.00 feet, and arc distance of 27.09 feet to the point or place of Beginning; all as shown on the aforesaid survey by R.B. Pharr & Associates dated December 12, 1983; the southeasterly boundary of said strip of land being a northeasterly boundary of Woodland IX, for the use and benefit of the owners and occupants of both Woodland IX and Woodland XI their heirs, successors and assigns, and others entitled to the use thereof. WOODLAND X PARCEL: BEGINNING at a point in the southeasterly margin of the 60 foot wide right of way of Woodpark Boulevard, said Beginning Point being located 389.99 feet along said margin of Woodpark Boulevard from the point of its intersection, if extended, with the southerly margin of the 60 foot wide right of way of Starita Road, if extended (the aforesaid intersection being formed by the arc of a circular curve and being shown on a map recorded in Map Book 20 at page 252, reference being also made to maps recorded in Map Book 19 at pages 641 and 642 in the Mecklenburg Registry), and running thence from said Beginning Point S. 65-50-17 E. 301.71 feet to a point located in the Page 8 of 16 Pages. 44 Exhibit D - continued northeasterly margin of the 50 foot wide right of way of Hartley Street (said point being located 592.73 feet along said right of way of Hartley Street from its intersection with the southerly margin of the 60 foot wide right of way of Starita Road); and running thence along said margin of the right of way of Hartley Street in two calls as follow: (1) S. 23-37-34 W. 462.19 feet to a point; thence (2) S. 7-48-46 W. 39.51 feet to a point; thence N. 65-50-17 W. 317.16 feet to a point located in the aforesaid southeasterly margin of the right of way of Woodpark Boulevard; thence with said margin of the right of way of Woodpark Boulevard N. 24-09-43 E. 500.03 feet to the point or place of BEGINNING; containing 152,253 square feet or 3.495 acres, all as shown on a survey for Trammell Crow Company, Woodland X, by R.B. Pharr & Associates, P.A., dated January 26, 1984, as last revised November 6, 1985 (File No. W-622-3). TOGETHER WITH AND SUBJECT to a non-exclusive perpetual 15-foot wide sanitary sewer easement crossing the real property hereinabove described, as shown on the aforesaid survey by R.B. Pharr & Associates, P.A. WOODLAND XI PARCEL: BEGINNING at a point in the southeast margin of the sixty-foot wide right-of-way of Woodpark Boulevard, said Beginning Point being located 890.07 feet measured along said margin of Woodpark Boulevard in a southwesterly direction from the point of its intersection, if extended, with the south margin of the sixty-foot wide right-of-way of Starita Road, if extended (the aforesaid intersection being formed by the arc of a circular curve and being shown on a map recorded in Map Book 20 at Page 252 in the Mecklenburg Public Registry; reference being also made to maps recorded in Map Book 19 at Pages 641 and 642 in said Registry); and running thence from said Beginning Point S 65-50-17 E 317.16 feet to a point in the west margin of the fifty foot wide right-of-way of Hartley Street; thence with said margin of the right-of-way of Hartley Street S 07-48-46 W 605.66 feet to the southwestern terminus of said margin; thence N 82-08-53 W 24.65 feet to a point in the centerline of a proposed 36 foot wide railway right-of-way; thence with the centerline of said proposed railway right-of-way S 08-16-30 W 130.64 feet to a point, thence continuing with the centerline of said proposed railway right-of-way in a southwesterly direction with the arc of a circular curve to the right having a radius of 403.57 feet, an arc distance of 343.17 feet to a point; S 63-04-42 W 36.48 feet to a point; thence N 15-22-30 W 217.55 feet to a point; thence S 74-37-30 W 39.43 feet to a point; thence N 36-01-30 W 127.27 feet to a point; thence N 53- 00 W 29.00 feet to a point in the aforesaid southeast of the right-of-way Page 9 of 16 Pages. 45 Exhibit D - continued of Woodpark Boulevard; thence with said margin of the right-of-way of Woodpark Boulevard four calls and distances as follows: (1) in a northerly direction with the arc of a circular curve to the left having a radius of 205 feet, an arc distance of 86.80 feet to a point; (2) N 08-09-43 E 335 feet to a point; (3) in a northerly direction with the arc of a circular curve to the right having a radius of 570 feet, an arc distance of 159.17 feet to a point; and (4) N 24-09-43 E 294.43 feet to the point or place of BEGINNING; containing 374,238 square feet or 8.591 acres, all as shown on survey by R.B. Pharr & Associates, P.A., dated January 25, 1984 (File No. W-622-2) as last revised November 6, 1985, to which survey reference is hereby made. This conveyance is made subject to an easement for a joint non-exclusive and common drive, for the purposes of access, ingress, egress and regress, over and across that certain strip of land shown on the aforesaid R.B. Pharr survey and described as follows: BEGINNING at a point in the southeast margin of the sixty-foot wide right-of-way of Woodpark Boulevard, said Beginning Point being the southwest corner of the property hereinabove described and conveyed; and running thence with three lines of such property as follows: (1) S 53-00 E 29.00 feet to a point; (2) S 36-01-30 E 127.27 feet to a point; and (3) N 74-37-30 E 17.10 feet to a point; thence a new line N 36-01- 30 W 172.62 feet to a point located in the aforesaid margin of the right-of-way of Woodpark Boulevard; thence with said margin of said street in a southwesterly direction and with the arc of a circular curve to the right having a radius of 205.00 feet, an arc distance of 27.00 feet to the point or place of Beginning. There is included in this conveyance an easement (hereinafter called the Easement Tract) for a joint non-exclusive and common drive for the purposes of access, ingress, egress and regress over and across a portion of the property adjoining the above described 8.591 acre tract and adjoining the above described casement, which strip or parcel is described as follows: BEGINNING at a point in the southeast margin of the sixty-foot wide right-of-way of Woodpark Boulevard, said Beginning Point being the southwest corner of the hereinabove described 7.852 acre tract; and running thence from said Beginning Point with two lines of said tract, as follows: (1) S 53-00 E 29.00 feet to a point and (2) S 36-01-30 E 127.27 feet to a point; thence S 74-37-30 W 17.10 feet to a point; thence N 36-01-30 W 121.24 feet to a point; thence N 72-00 W 25.17 feet to a point located in the aforesaid margin of woodpark Boulevard; thence with said margin of said street in a northeasterly direction and with the arc of a circular curve to the left having a radius of 205 feet, an arc distance of 23.51 feet to the point or place of Beginning. Page 10 of 16 Pages. 46 Exhibit D - continued The two above described easement parcels together comprise a single access easement for the common use and benefit of the owners and occupants of both the 8.591 acre parcel and the parcel described hereinabove as Woodland IX and for the use and benefit of their respective heirs, successors and assigns, and of others now or hereafter entitled to the use thereof. WOODLAND XII PARCEL: BEGINNING at a point on that side of the 60-foot wide right-of-way of Woodpark Boulevard which constitutes its northwesterly margin at the easternmost intersection hereinafter mentioned, which point of beginning is located south 24 degrees 09' 43" west a distance of 38.28 feet from an existing iron pin at the easternmost of the two (2) intersections of the southwesterly margin of the 60-foot wide right-of-way of Woodpark Boulevard (if extended) (which right-of-way of Woodpark Boulevard is a U-shaped road which intersects said Starita Road at two (2) separate locations); running thence from said Beginning Point with the aforesaid margin of the right-of-way of Woodpark Boulevard south 24 degrees 09' 43" west a distance of 771.29 feet to an existing iron pin; thence north 65 degrees 58' 00" west 310.74 feet to a point; thence north 65 degrees 50' 30" west a distance of 39.26 feet to a point in the center line of a 50-foot wide easement; thence north 24 degrees 09' 43" east a distance of 799.00 feet to a point located on the aforesaid southwesterly margin of the right-of-way of Starita Road; thence with said margin of the right-of-way of Starita Road south 66 degrees 22' 26" east a distance of 319.73 feet to a point which is located north 66 degrees 22' 26" west a distance of 30.28 feet from the above-mentioned existing iron pin at the above-mentioned easternmost intersection of the extended rights-of-way of Starita Road and Woodpark Boulevard; then southeasterly, southerly and southwesterly along the curvature of the intersection of the rights-of-way of Starita Road of a circular curve tot he right having a radius of 30 feet and running for an arc distance of 47.40 feet to the northwesterly margin of the 60-foot wide right-of-way of Woodpark Boulevard and the point or place of Beginning; containing 6.426 acres or 279,926 square feet, all as shown on a survey for Crow-Childress-Klein #2, Standard Mortgage Corporation of Georgia and State Farm Life Insurance Company, entitled "Woodland XII" prepared by R.B. Pharr & Associates, P.A. dated November 6, 1984, last revised November 6, 1985 (File No. W-789), to which survey reference is hereby made. ALSO TOGETHER WITH AND SUBJECT TO a non-exclusive perpetual 15-foot wide sanitary sewer easement running along the southwesterly boundary or the real property first hereinabove described (which southwesterly boundary is also the center line of Page 11 of 16 Pages. 47 Exhibit D - continued said sanitary sewer easement), all as shown on the aforesaid survey by R.B. Pharr & Associates, P.A., and as shown on a plat recorded in Map Book 20 at page 252 in the Mecklenburg Registry. TOGETHER WITH a non-exclusive perpetual easement for the use, maintenance, repair and replacement of certain storm drain limes and a catch basin on certain real property which is located southwesterly of the real property first above described, and which is shown in part on the aforesaid survey by R.B. Pharr & Associates, P.A. WOODLAND XIII PARCEL: BEGINNING at a point located in the westerly margin of the 60 foot wide right of way of Woodpark Boulevard, said Beginning Point being located S. 24-09-43 W. 1,257.76 feet along said margin of Woodpark Boulevard from the point of its intersection, if extended, with the southerly margin of the 60 foot wide right of way of Starita Road, if extended (the aforesaid intersection being formed by the arc of a circular curve and being shown on a map recorded in Map Book 19 at page 407 in the Mecklenburg Registry); and running thence form said Beginning Point along said margin of the right of way of Woodpark Boulevard in two calls as follows: (1) S. 24-09-43 W. 422.50 feet to a point; thence (2) in a southeasterly direction with the arc of a circular curve to the left having a radius of 155 feet, an arc distance of 141.21 feet to a point; thence S. 24-09- 43 W. 79.53 feet to a point; thence N. 65-50-17 W. 412.25 feet to a point; thence N. 24-11-03 E. 295.56 feet to a point; thence N. 24-09-43 E. 328.94 feet to a point; thence S. 65-50-17 E. 352.04 feet to the point or place of Beginning; containing 226,858 square feet of 5.208 acres, all as shown on a survey for Trammell Crow Co., Woodland XIII, by R.B. Pharr & Associates dated May 1, 1985 (File No. W-838), last revised November 6, 1985, to which survey reference is hereby made. WOODLAND XIV PARCEL: BEGINNING at a point located in the northwesterly margin of the 60 foot wide right of way of Woodpark Boulevard, said Beginning Point being located S. 24-09-43 W. 801.57 feet from the intersection of said northwesterly margin of the 60 foot wide right of way of Woodpark Boulevard (if extended) Page 12 of 16 Pages. 48 Exhibit D - continued with the southwesterly margin of the 60 foot wide right of way of Starita Road (if extended), (the aforesaid intersection being formed by the arc of a circular curve, as shown on a map recorded in Map Book 19 at page 642 in the Mecklenburg Registry); and running thence from said Beginning Point with the aforesaid northwesterly margin of the right of way of Woodpark Boulevard in three calls as follow: (1) S. 24-09-43 W. 382.37 feet to a point; thence (2) in a southwesterly direction, with the arc of a circular curve to the left having a radius of 630 feet, an arc distance of 175.93 feet to a point; thence (3) S. 08-09-43 w. 22.98 feet to a point; thence N. 65-58-00 W. 380.77 feet to the center line of a 50 foot wide easement; thence N. 24-09-43 E. 578.26 feet to a point, being located in the center line of a 15 foot wide sanitary sewer right of way as shown on a map recorded in Map Book 20 at page 252 in the Mecklenburg Registry; thence S. 65-58-00 E. 310.74 feet to the point or place of Beginning; containing 4.692 acres or 204,375 square feet, all as shown on a survey for Trammell Crow Co. by R.B. Pharr & Associates dated May 3, 1985 (File No. W-836), last revised November 6, 1985, to which survey reference is hereby made. This conveyance is made subject to a 15-foot wide sanitary sewer right of way extending across the northerly 7.5 feet of the aforesaid property, all as shown on the aforesaid survey by R.B. Pharr & Associates, and as shown on a plat recorded in Map Book 20 at page 252 in the Mecklenburg Registry. Grantor, for itself, its successors and assigns, reserves from the aforesaid conveyance of the thirteen (13) parcels described above (i) an exclusive easement and right-of-way over and upon those three (3) certain parcels designated as Parcel I, Parcel II, and Parcel IV described on Rider "A" for the operation, maintenance, renewal, repair, and removal of lead railway tracks, industrial railway tracks, and other railway tracks; and (ii) a non-exclusive easement and right-of-way in common with others over and upon that certain parcel designated as Parcel III described in Rider "A" for both (a) the operation, maintenance, renewal, repair, and removal of lead railway tracks, industrial railway tracks and other railway tracks and (b) ingress, egress and regress for the purpose of installation, construction, maintenance and repair and replacement, at any time, of water, sanitary sewer drainage, electrical, telephone, natural gas and other utility and service lines, conduits, poles, apparatus and equipment and improvements necessary thereto. The conveyance of the above-described thirteen (13) parcels is made subject to easements and restrictions of record affecting any of said parcels. Page 13 of 16 Pages. 49 Exhibit D - continued All those four (4) certain parcels of land, improved with railway tracks and railway bed, situated in the City of Charlotte, Mecklenburg County, North Carolina, being more particularly described as follows: PARCEL I: BEGINNING at a point in the northwesterly right of way boundary for the existing lead track of Southern Railway Company now serving Woodland Business Park, near Charlotte, North Carolina, said point being opposite a point in the center line of said existing lead track which is 2,740.6 feet southwestwardly from, as measured along said center line, the point of switch in the main track of said Southern Railway Company, as it runs between Charlotte and Statesville, North Carolina, said point of switch being opposite Milepost 0-3.3 of said main track; and running thence, from said point of beginning, North 57 degrees 06' 59" East, a distance of 90.56 feet; thence, in a northeastwardly direction along a curve to the left (radius 385.57 feet; chord North 33 degrees 37' 46" East, 345.09 feet), an arc distance of 357.79 feet; thence, North 8 degrees 16' 30" East a distance of 675.21 feet; thence South 81 degrees 43' 30" East, a distance of 36.00 feet; thence, South 8 degrees 16' 30" West, a distance of 675.21 feet; thence, in a southwestwardly direction along a curve to the right (radius 421.57 feet; chord South 26 degrees 10' 15" West, 263.64 feet), an arc distance of 268.14 feet, more or less, to a point on said northwesterly right of way boundary for said existing lead track; thence, South 63 degrees 04' 42" West along the said northwesterly right of way boundary for said existing lead track, a distance of 209.19 feet, more or less, to the point of beginning; containing 0.8168 acres, more or less, and being located substantially as shown on print of Drawing No. TD-83-0058 (the "Drawing No. TD-83-0058"), dated March 14, 1983, prepared by Southern Railway System; said Parcel I being indentified on said Drawing No. TD-83-0058 as "Tract 1", and as depicted on that certain Survey for Trammell Crow Company (the "Composite Survey"), dated May 20, 1980, last revised May 7, 1985 (File No. W-465-D). PARCEL II: BEGINNING at a point in the northwesterly right of way boundary for the existing lead track of Southern Railway Company, now serving Woodland Business Park, near Charlotte, North Carolina, said point being opposite a point in the center line of the said existing lead track which is 2,765.5 feet southwest- Page 14 of 16 Pages. 50 Exhibit D - continued wardly from, as measured along said center line, the point of switch in the main track of Southern Railway Company, as it runs between Charlotte and Statesville, North Carolina, said point of switch being opposite Milepost 0-3.3 of said main track; and running thence, from said point of beginning, South 63 degrees 04' 42" West along the said northwesterly right of way boundary for the said existing lead track, a distance of 204.30 feet; thence, leaving the said railroad right of way boundary in a northwestwardly direction along a curve to the right (radius 430.56 feet; chord North 83 degrees 08' 25" West, 155.54 feet), an arc distance of 156.4 feet; thence, North 72 degrees 27' 24" West, a distance of 87.37 feet; thence, in a northwestwardly direction along a curve to the left (radius 460.34 feet; chord North 77 degrees 46' 42" West, 85.39 feet), an arc distance of 85.51 feet; thence, North 83 degrees 06' 00" West, a distance of 382.07 feet; thence, in a northwestwardly direction along a curve to the right (radius 496.34 feet; chord North 29 degrees 33' 08" West, 798.46 feet), an arc distance of 927.74 feet; thence, North 23 degrees 59' 45" East, a distance of 571.8 feet; thence, South 65 degrees 50' 17" East, a distance of 36.00 feet; thence, South 23 degrees 59' 45" West, a distance of 571.80 feet; thence, in a southeastwardly direction along a curve to the let (radius 460.34 feet; a chord South 29 degrees 33' 08" East, 740.55 feet), an arc distance of 860.45 feet; thence, South 83 degrees 06' 00" East, a distance of 379.92 feet; thence, in a northwestwardly direction along a curve to the right (radius 445.89 feet; chord North 31 degrees 54' 12" West, 293.51 feet), an arc distance of 299.09 feet; thence, in a northwardly direction along a curve to the right (radius 510.31 feet, chord North 3 degrees 34; 46" West, 176.21 feet), and arc distance of 177.10 feet, more or less, to the southerly right of way boundary or Woodpark Boulevard; thence, South 65 degrees 50' 17" East along the said southerly right of way boundary of Woodpark Boulevard, a distance of 37.96 feet; thence, in a southwardly direction along a curve to the left (radius 474.31 feet; chord South 04 degrees 16' 20" East, 152.33 feet), an arc distance of 152.99 feet; thence, in a southeastwardly direction along a curve to the left (radius 409.89 feet; chord South 33 degrees 46' 33" East, 293.11 feet), an arc distance of 299.74 feet; thence, continuing in a southeastwardly direction along a curve to the left (radius 472.43 feet; chord South 65 degrees 35' 06" East, 144.33 feet), an arc distance of 144.9 feet; thence, in a northeastwardly direction along a curve to the left (radius 394.56 feet, chord North 88 degrees 44' 43" East, 242.73 feet), an arc distance of 246.73 feet; thence, North 68 degrees 03' 00" East, a distance of 90.80 feet, more or less, to the point of beginning; containing 2.2671 acres, more or Page 15 of 16 Pages. 51 Exhibit D - continued less, and being located substantially as shown on Drawing No. TD-83-0058 as "Tract 2", and as depicted on the Composite Survey. PARCEL III: BEGINNING at the point of intersection of the center line of a recently constructed lead track serving Woodland Business Park with the northerly right of way boundary of Woodpark Boulevard; and running thence, North 65 degrees 50' 17" West along the said northerly right of way boundary of Woodpark Boulevard, a distance of 23,26 feet; thence, North 24 degrees 09' 43" East, a distance of 1,423.27 feet; thence, South 65 degrees 50' 17" East, a distance of 8 feet; thence, South 65 degrees 09' 43" East, a distance of 473.81 feet, more or less, to the southerly right of way boundary of Starita Road; thence, South 66 degrees 22' 26" East along the said southerly right of way boundary of Starita Road, a distance of 50 feet; thence, South 24 degrees 09' 43" West, a distance of 1,861.55 feet, more or less, to the said northerly right of way boundary of Woodpark Boulevard; thence, North 65 degrees 50' 17" West, along the said northerly right of way line of Woodpark Boulevard, a distance of 34.74 feet, more or less, to the point of beginning; containing 2.3976 acres, more or less, and being located substantially as shown on Drawing No. TD-83-0058 as "Tract 3", and as depicted on the Composite Survey. PARCEL IV: That certain tract or parcel of land 36 feet in width extending form the northerly terminus of Parcel I hereinabove described in a westerly direction along the easterly line of the Woodland XI Parcel, as hereinabove described, to the northerly line of the Woodland XI Parcel. Page 16 of 16 Pages. 52 PLAZA SOUTHWEST EXHIBIT D - continued TRACT I: Description of a 3.785 acres (164,875 square foot) tract of land situated in the John H. Walton Survey, Abstract No. 852, Harris County, Texas which is part of and out of Block 2 of the Sharpstown Business Park as recorded in Volume 162, Page 82, of the Harris County Map Records and being more particularly described by metes and bounds as follows (with bearings being referenced to the map or plat of said Sharpstown Business Park): BEGINNING at an "X" cut in concrete at the Southeast corner of the aforementioned Block 2 and the Southwest corner of Block 3 of said Sharpstown Business Park, said point being on the Northerly right-of-way line of Harwin Drive (variable width); THENCE, S 89 degrees 35' 54" W, along the Northerly right-of-way of said Harwin Drive a distance of 224.79 feet to a 1/2-inch iron rod found for point of curvature of a curve to the right; THENCE, NORTHWESTERLY, along the arc of said curve to the right having a radius of 30.00 feet, a central angle of 90 degrees 24' 06", a chord bearing of N 45 degrees 12' 03" W, for 42.57 feet and an arc distance of 47.33 feet to a 5/8-inch iron rod found for tangency, said corner being on the Easterly right-of-way line of Bonhomme Road (60-foot right-of-way) and the West line of said Block 2; THENCE, NORTH, along said lines, a distance of 580.63 feet to an "X" set in concrete at the beginning of a 60 foot radius cul-de-sac; THENCE, NORTHEASTERLY, along said cul-de-sac and curve to the left having a radius of 60.00 feet, a central angle of 48 degrees 52' 30", a chord bearing of N 35 degrees 33' 45" E, for 49.64 feet, and an arc distance of 51.18 feet to a 5/8-inch iron rod set for corner, said corner being the most Northerly Northeast corner of the herein described tract; THENCE, EAST, along the north line of the herein described tract, a distance of 226.13 feet to a fence post found for the Northeast corner which is located in the Easterly line of said Block 3 and the Westerly line of said Block 2; THENCE, SOUTH, along said lines and the Easterly line of the herein described tract a distance of 649.44 feet to the POINT OF BEGINNING and containing 3.785 acres of land. 53 PLAZA SOUTHWEST Exhibit "D", Con't. Page Two TRACT II: Description of a 2.993 acre (130,393 square foot) tract of land situated in the John H. Walton Survey, Abstract 852, Harris County, Texas which is part of and out of Block 4 of the Sharpstown Business Park as recorded in Volume 162, Page 82, of the Harris County Map Records and being more particularly described by metes and bounds as follows (with bearings being referenced to the map or plat of said Sharpstown Business Park): BEGINNING at a 5/8-inch iron rod set for the Northeast corner of the aforementioned Block 4 and the Northwest corner of Block 5 of said Sharpstown Business Park, said point being on the Southerly line of a Houston Lighting & Power Company Fee Strip as recorded in Volume 1216, Page 67 of the Harris County Deed Records; THENCE, SOUTH, along the Easterly line of said Block 4 and the herein described tract and the Westerly line of Block 5, a distance of 530.00 feet to a 5/8-inch iron rod set for the Southeasterly corner of the herein described tract; THENCE, WEST, a distance of 255.00 feet to a 5/8-inch iron rod set for the Southwesterly corner of the herein described tract, said point being in the Easterly right-of-way line of Bintliff Drive (60-foot right-of-way); THENCE, NORTH, along the Easterly line of said Bintliff Drive, a distance of 394.46 feet to a 5/8-inch iron rod found for corner at the beginning of a 60-foot radius cul-de-sac; THENCE, NORTHWESTERLY, along said cul-de-sac and curve to the left having a radius of 60.00 feet, a central angle of 154 degrees 40' 21", a chord bearing of N 17 degrees 20' 41" W, for 117.08 feet and an arc distance of 161.99 feet to a 1/2 inch iron rod found for the Northwest corner of aforementioned Block 4 and of the herein described tract which is located on the Southerly line of the aforementioned Houston Lighting & Power Company Fee Strip; THENCE, N 85 degrees 18' 39" E, along the Southerly line of said Houston Lighting & Power Company Fee Strip, a distance of 290.88 feet to the POINT OF BEGINNING and containing 2.993 acres of land. 54 PLAZA SOUTHWEST Exhibit "D", Con't. Page Three TRACT III: Description of a 3.495 acres (152,234 square foot) tract of land situated in the John H. Walton Survey, Abstract 852, Harris County, Texas which is part of and out of Block 3 of Sharpstown Business Park as recorded in Volume 162, Page 82 of the Harris County Map Records and being more particularly described by metes and bounds as follows (with bearings being referenced to the map or plat of said Sharpstown Business Park): BEGINNING at an "X" cut in concrete at the Southwest corner of the aforementioned Block 3 and the Southeast corner of Block 2 of said Sharpstown Business Park, said point being on the Northerly right-of-way line of Harwin Drive (variable width); THENCE, NORTH, along the West line of said Block 3 and the East line of said Block 2, a distance of 649.44 feet to a fence post found for the Northwest corner of this tract; THENCE, EAST, along the North line of the herein described tract, a distance of 235.00 feet to a 5/8-inch iron rod set for the Northeast corner which is located in the East line of said Block 3 and the West line of Bintliff Drive (60-foot right-of-way); THENCE, SOUTH, along the East line of said Block 3 and the herein described tract and the West right-of-way line of said Bintliff Drive, a distance of 618.00 feet to a 1/2-inch iron rod found for the point of curvature of a curve to the right; THENCE, SOUTHWESTERLY, continuing along said line and the arc of a curve to the right having a radius of 30.00 feet, a central angle of 89 degrees 35' 54", a chord bearing of S 44 degrees 47' 57" W, for 42.28 feet and an arc distance of 46.91 feet to a 5/8-inch iron rod set for corner, said corner being in the Northerly right-of-way line of aforementioned Harwin Drive and the South line of said Block 3; THENCE, S 89 degrees 35' 54" W, along said South line of Block 3 and the Northerly line of said Harwin Drive, a distance of 205.22 feet to the POINT OF BEGINNING and containing 3.495 acres of land. 55 COMMERCE PARK Exhibit D - continued BEING 5.5243 acres (240,639 square feet) of land situated in the C. Richey Survey, Abstract 1021 and the Wm. Hobby Survey, Abstract 1599, Harris County, Texas being out of and a part of Restricted Reserve B "Commerce Park North Business Center", a recorded subdivision as filed for record in Volume 310, Page 100 of the Map Records of Harris County, Texas and being more particularly described by metes and bounds as follows: BEGINNING at a found 5/8" iron rod located at the southwest corner of Restricted Reserve B, "Commerce Park North Business Center" and being the southwest corner of the herein described tract of land. Said point also being located on the north line of a Sate of Texas 60 foot wide tract of land as filed for record in Volume 3594, Page 665 of the Deed Records of Harris County, Texas; THENCE N 07 degrees 56' 42" W, along the west line of Restricted Reserve B, "Commerce Park North Business Center" a distance of 330.00 feet to a set 5/8" iron rod and the northwest corner of the herein described tract of land; THENCE N 82 degrees 03' 18" E, leaving said west line of Restricted Reserve B "Commerce Park North Business Center", a distance of 708.27 feet to a set 5/8" iron rod, the northeast corner of the herein described tract of land, a point on the east line of said Restricted Reserve B and a point on the west line of Blue Ash Drive (60' right-of-way) as recorded by the plat of Commerce Park North Business Center; THENCE S 27 degrees 05' 37" W, along the east line of said Restricted Reserve B and the west line of Blue Ash Drive, a distance of 19.14 feet to a found 5/8" iron rod and the point of curvature of a curve to the left; THENCE continuing along the east line of said Restricted Reserve B and the west line of Blue Ash Drive in a southerly direction along said curve to the left having a radius of 330.00 feet, subtending a central angle of 26 degrees 30' 00" and having an arc length of 152.63 feet to a found 5/8" iron rod and the point of tangency of said curve; THENCE S 00 degrees 35' 37" W, continuing along the east line of said Restricted Reserve B and the west line of Blue Ash Drive, a distance of 190.53 feet to a set 5/8" iron rod and the point of curvature of a curve to the right; THENCE continuing along the east line of said Restricted Reserve B and the west line of Blue Ash Drive in a southerly direction along said curve to the right having a radius of 270.00 feet, subtending a central angle of 02 degrees 25' 54" and having an arc length of 11.46 feet to a found 5/8" iron rod and the point of tangency of said curve; THENCE S 03 degrees 01' 31" W, continuing along the east line of said Restricted Reserve B and the west line of Blue Ash Drive, a distance of 50.05 feet to a found 5/8" iron rod and the point of curvature of a curve to the left; 56 COMMERCE PARK Exhibit "D", Cont'd. Page Two THENCE continuing along the east line of said Restricted Reserve B and the west line of Blue Ash Drive in a southerly direction along said curve to the left having a radius of 330.00 feet, subtending a central angle of 02 degrees 25' 38" and having an arc length of 13.98 feet to a found 5/8" iron rod, the southeast corner of the herein described tract of land, and a point on the north line of a State of Texas 60 foot wide fee strip as filed for record in Volume 3494, Page 609 of the Deed Records of Harris County, Texas; THENCE N 89 degrees 31' 00" W, along the south line of Restricted Reserve B and the north line of said State of Texas 60' wide fee strip, passing the northeast corner of the previously mentioned State of Texas 60 foot wide tract of land, a distance of 605.55 feet to the POINT OF BEGINNING and containing 5.5243 acres (240,639 square feet) of land, more or less. 57 SOUTHLAND 1 EXHIBIT D - continued A tract of land containing 14.050 acres, more or less, out of Lots 2 and 3 of the McIver Subdivision in the James Hamilton Survey, Abstract 883, and the B.H. Freeling Survey, Abstract 270, in Harris County, Texas, according to the plat thereof recorded in Volume 8, Page 48 of the Map Records of Harris County, Texas: BEGINNING at a point on the Southeast right-of-way line of Holmes Road, 100 feet wide, and in the East line of Lot 3 of said McIver Subdivision; THENCE South 2 degrees 49' 32" East, with the East line of said Lot 3, a distance of 1742.13 feet to a point for the Southeast corner of Lot 3: THENCE South 87 degrees 10' 43" West, with the South line of said Lot 3 and the South line of Lot 2, a distance of 363.53 feet to a point for corner; THENCE North 2 degrees 49' 33" West, a distance of 1624.89 feet to a point for corner on the Southeast right-of-way line of said Holmes Road; THENCE North 69 degrees 18' 14" East, with the Southeast right-of-way line of Holmes Road, a distance of 381.96 feet to the PLACE OF BEGINNING and containing 14.050 acres of land. 58 SOUTHLAND 2 EXHIBIT D - continued All that certain 6.723 acres of land out of Lot 2, McIver Subdivision according to plat thereof filed in Volume 8, Page 48 of the Map Records of Harris County, Texas, and being more particularly described by metes and bounds as follows: COMMENCING at a 3/4 inch iron rod marking the Northeast corner of that certain 27.121 acres of land described in a deed dated April 11, 1974, from South Industrial Properties, Ltd. to Crow & Associates, Inc., filed in the Official Public Records of Real Property of Harris County, Texas, under Harris County Clerk's File No. E130311, Film Code No. 102-06-1924; THENCE S 69 degrees 18' 14" W, 381.96 feet along the South right-of-way line of Holmes Road (100 feet wide) to a 5/8 inch iron rod, the POINT OF BEGINNING of the herein described tract; THENCE S 02 degrees 49' 33" E, 864.12 feet along the West line of that certain 14.050 acres out of said 27.121 acres described in a deed dated October 13, 1975, from Crow-Shutt-Simmons No. 8 to Crow-Clay-Houston One, filed in the Official Public Records of Real Property of Harris County, Texas, under Harris County Clerk's File No. E571475, Film Code No. 129-01-2374, to a 1/2 inch iron rod for corner; THENCE S 87 degrees 10' 27" W, 363.54 feet to a 1/2 inch iron rod for corner; THENCE N 02 degrees 49' 33" W, 746.91 feet along the West line of said Lot 2 to a 3/4 inch square iron rod for corner; THENCE N 69 degrees 18' 14" E, 381.97 feet along said South right-of-way line of Holmes Road to the POINT OF BEGINNING and containing 6.723 acres of land, more or less. 59 WESTCHASE EXHIBIT D - continued All that certain 4.202 acres of land out of Block 3, of Unrestricted Reserve "C", of Westchase Subdivision, Section 12, according to the plat thereof filed at Volume 265, Page 74, Harris County Map Records and being more particularly described by metes and bounds as follows: COMMENCING at the northeast corner of that certain called "Parcel A" described in a deed dated 12/10/1979 from Westchase Two to Crow & Associates, Inc., filed in the Official Public Records of Real Property of Harris County, Texas, at Clerk's File No. G357121, Film Code No. 146-87-1190; Thence S 02 degrees 44' 51" E - 314.50' to a 5/8" iron rod marking the POINT OF BEGINNING of the herein described parcel; THENCE S 02 degrees 44' 51" E - 406.82', along the west right-of-way line of Rogerdale Road (60' wide), to a 5.8" iron rod for corner; THENCE S 87 degrees 15' 09" W - 431.88', along the south line of that certain called "Parcel B" described in a deed dated 12/10/1979 from Westchase Two to Crow & Associates, Inc. filed in the Official Public Records of Real Property of Harris County, Texas at Clerk's File No. G357121, Film Code No. 146-87-1190, to a 5/8" iron rod for angle point; THENCE N 79 degrees 21' 27" W - 18.62' to a 5/8" iron rod for corner; THENCE N 02 degrees 44' 51" W - 402.51', along the west line of said "Parcel A and B", to a 5/8" iron rod for corner; THENCE N 87 degrees 15' 09" E - 449.98' to the POINT OF BEGINNING and containing 4.202 acres of land, more or less. 60 EXHIBIT D - continued NORTHGATE II TRACT 1 BEING a tract of land situated in the H. HUSTEAD SURVEY, Abstract No. 587, and being part of City Block A/8088 of NORTHGATE BUSINESS PARK - PHASE II, an addition to the City of Dallas, as recorded in Volume 81114, Page 1104, of the Map Records of Dallas, Dallas County, Texas and being more particularly described as follows: BEGINNING at the most Northwesterly intersection of the West R.O.W. line of Markison Road and the South R.O.W. line of Brockwood Road, said point also being the beginning of a non-tangent curve to the left, having a central angle of 32 degrees 26 minutes 26 seconds, a radius of 258.00 feet, a tangent of 75.06 feet and a tangent bearing of S 18 degrees 26 minutes 28 seconds E; THENCE, along the West R.O.W. line of Markison Road (56' R.O.W.) an arc distance of 146.08 feet to the point of tangency; THENCE, S 50 degrees 52 minutes 54 seconds E, continuing along the West R.O.W. line of Markison Road a distance of 447.76 feet to a point for a corner; THENCE, S 39 degrees 07 minutes 06 seconds W, a distance of 544.00 feet to a point on the East R.O.W. line of Brockwood Road; THENCE, N 50 degrees 52 minutes 54 seconds W, along the East R.O.W. line of Brockwood Road a distance of 242.64 feet to the beginning of a curve to the right, having a central angle of 23 degrees 00 minutes 00 seconds, a radius of 202.00 feet and a tangent of 41.10 feet; THENCE, continuing along the East R.O.W. line of Brockwood Road an arc distance of 81.09 feet to the point of tangency; THENCE, N 27 degrees 52 minutes 54 seconds W, continuing along the East R.O.W. line of Brockwood Road, a distance of 444.45 feet to the beginning of a curve to the right, having a central angle of 87 degrees 00 minutes 00 seconds, a radius of 20.00 feet and a tangent of 18.98 feet; THENCE, along said curve to the right, an arc distance of 30.37 feet to the point of tangency, said point also being on the South R.O.W. line of Brockwood Road; THENCE, N 59 degrees 07 minutes 06 seconds E, along the South R.O.W. line of Brockwood Road, a distance of 281.15 feet to the beginning of a curve to the right, having a central angle of 18 degrees 54 minutes 34 seconds, a radius of 367.38 feet and a tangent of 61.18 feet; THENCE, continuing along the South line of Brockwood Road, an arc distance of 121.25 feet to the POINT OF BEGINNING and CONTAINING 341,369 Square Feet or 7.8368 Acres of Land. Page 1 of 2 Pages. 61 NORTHGATE II - EXHIBIT D (continued) TRACT 2 BEING a tract of land situated in the H. HUSTEAD SURVEY, Abstract No. 587, and being part of City Block B/8090 of NORTHGATE BUSINESS PARK - PHASE II, an addition to the City of Dallas, as recorded in Volume 81114, Page 1104, of the Map Records of Dallas, Dallas County, Texas, and being more particularly described as follows: COMMENCING at the most Northwesterly intersection of Markison Road (56' R.O.W.) and Brockwood Road (56' R.O.W.), said point also being the beginning of a non-tangent curve to the left, having a central angle of 18 degrees 52 minutes 41 seconds, a radius of 423.38 feet, a tangent of 70.39 feet and a tangent bearing of S 77 degrees 59 minutes 47 seconds W; THENCE, along the North R.O.W. line of Brockwood Road, an arc distance of 139.50 feet to the point of tangency; THENCE, S 59 degrees 07 minutes 06 seconds W, continuing along the North R.O.W. line of Brockwood Road a distance of 353.27 feet to a point on the West R.O.W. line of Brockwood Road, said point also being the POINT OF BEGINNING of the herein described tract of land; THENCE, S 27 degrees 52 minutes 54 seconds E, along the West line of Brockwood Road a distance of 516.57 feet to the beginning of a curve to the left, having a central angle of 23 degrees 00 minutes 00 seconds, a radius of 258.00 feet and a tangent of 52.49 feet; THENCE, along the West line of Brockwood Road an arc distance of 103.57 feet to the point of tangency; THENCE, S 50 degrees 52 minutes 54 seconds E, continuing along the West line of Brockwood Road, a distance of 55.85 feet to a point for a corner; THENCE, S 50 degrees 26 minutes 23 seconds W, a distance of 269.65 feet to a point on the East R.O.W. line of the Gulf Colorado and Santa Fe Railroad (125' R.O.W.), said point also being the beginning of a non-tangent curve to the right, having a central angle of 10 degrees 56 minutes 18 seconds, a radius of 3,744.80 feet, a tangent of 358.55 feet, and a tangent bearing of N 41 degrees 39 minutes 17 seconds W; THENCE, continuing along the East R.O.W. line of the Gulf Colorado and Santa Fe Railroad an arc distance of 714.92 feet to a point for a corner; THENCE, N 59 degrees 07 minutes 06 seconds E, a distance of 325.27 feet to the POINT OF BEGINNING and CONTAINING 201,310 Square Feet or 4.621 Acres of Land. Page 2 of 2 Pages. 62 EXHIBIT D - continued ROYAL LANE PARK TRACT 1 BEING a tract of land situated in the City of Dallas, Dallas County, Texas, out of J.B. Shade Survey, Abstract 1390, and being part of Lot 5 in Block A/6563 of the Royal Lane Business Park Addition, an Addition to the City of Dallas, as recorded in Volume 79138, Page 313, of the Deed Records of Dallas County, Texas, and being more particularly described as follows: BEGINNING at a set iron rod in the westerly line of Harry Hines Boulevard (164 feet wide), said point being a distance of 914.8 feet from its intersection with the northwesterly cut-off line between the westerly line of Harry Hines Boulevard and Royal Lane (100 feet wide); THENCE North 88 degrees 37 minutes 18 seconds West, along the North line of Lot 2, Block E/6563 a distance of 218.16 feet to a set iron rod for corner; THENCE South 14 degrees 59 minutes 33 seconds East, along the West line of said Lot 2, Block E/6563 a distance of 492.20 feet to a set "X" in concrete for corner; THENCE North 87 degrees 33 minutes 31 seconds West, a distance of 337.04 feet to a set "X" in concrete for corner; THENCE South 02 degrees 26 minutes 29 seconds West, a distance of 3.0 feet to a set "X" in concrete for corner; THENCE North 87 degrees 33 minutes 31 seconds West, a distance of 282.0 feet to a found iron rod for corner in the East line of Lot 4, Block A/6563; THENCE North 02 degrees 26 minutes 29 seconds East, a distance of 347.74 feet along said East line to a found iron rod for corner; THENCE North 31 degrees 06 minutes 16 seconds East, a distance of 24.86 feet to a found iron rod for corner; THENCE North 01 degrees 12 minutes 47 seconds West, a distance of 80.00 feet to a found "X" for corner; THENCE North 07 degrees 22 minutes 47 seconds West, a distance of 49.02 feet to a found P.K. nail for corner; THENCE North 89 degrees 18 minutes 23 seconds East, along the South line of Block 6566, a distance of 674.27 feet to a found iron rod for corner in the westerly line of Harry Hines Boulevard; THENCE South 14 degrees 47 minutes 48 seconds East, a distance of 60.65 feet to the POINT OF BEGINNING AND CONTAINING 285,337 square feet or 6.5504 acres of land. TRACT 2 BEING a tract of land situated in the City of Dallas, Dallas County, Texas, out of J.B. Shade Survey, Abstract 1390, and being part of Lot 5 in Block A/6563 of 63 ROYAL LANE - EXHIBIT D (continued) PARK the Royal Lane Business Park, an Addition to the City of Dallas as recorded in Volume 79138, Page 313, of the Deed Records of Dallas County, Texas, and being more particularly described as follows: COMMENCING at a point for a corner in the westerly line of Harry Hines Boulevard (164 feet wide), said point being a distance of 914.8 feet from its intersection with the northwesterly cut-off line between the westerly line of Harry Hines Boulevard and Royal Lane (100 feet wide); THENCE North 88 degrees 37 minutes 18 seconds West, along the North line of Lot 2, Block E/6563 a distance of 218.16 feet to a found iron rod for a corner; THENCE South 14 degrees 59 minutes 33 seconds East, along the West line of said Lot 2, Block E/6563 a distance of 492.20 feet to a set "X" for the POINT OF BEGINNING; THENCE South 14 degrees 59 minutes 33 seconds East, continuing along said West line, a distance of 365.19 feet to a set iron rod for a corner; THENCE North 89 degrees 13 minutes 21 seconds West, a distance of 22.83 feet to a set iron rod for a corner; THENCE South 1 degree 22 minutes 19 seconds West, a distance of 193.86 feet to a set iron rod for a corner on the North line of Royal Lane; THENCE Westerly, with the North line of Royal Lane, along a curve to the left, said curve having a radius of 1530.71 feet, a central angle of 7 degrees 51 minutes 30 seconds, a chord bearing of North 85 degrees 13 minutes 24 seconds West and an arc length of 209.94 feet to a set iron rod for the end of curve; THENCE North 89 degrees 09 minutes 09 seconds West, continuing along said northerly line of Royal Lane a distance of 496.22 feet to a set iron rod being the southwesterly corner of said Lot 5 in Block A/6563; THENCE North 0 degrees 50 minutes 51 seconds East, along the common line between Block 6563 and said Lot 5 in Block A/6563 a distance of 130.10 feet to a found iron rod for an angle point; THENCE North 2 degrees 26 minutes 29 seconds East, along the easterly line of Lot 4 in Block A/6563 of Autry Industries Addition as recorded in Volume 72226, Page 1416, of the Deed Records of Dallas County, Texas, a distance of 415.10 feet to a found iron rod for a corner; THENCE South 87 degrees 33 minutes 31 seconds East, a distance of 282.00 feet to a set "X" for a corner; THENCE North 02 degrees 26 minutes 29 seconds East, a distance of 3.00 feet to a set "X" for a corner; THENCE South 87 degrees 33 minutes 31 seconds East, a distance of 337.04 feet to the POINT OF BEGINNING AND CONTAINING 369,057 square feet or 8.472 acres of land. Page 2 of 2 Pages. 64 EXHIBIT D - continued GATEWAY BEING a tract of land situated in Dallas County, Texas in the City of Irving, out of S. A. & M. G. R. R. Survey, Abstract No. 1433, and also being part of the Las Colinas Business Park, Second Installment, an addition to the City of Irving, according to the plat recorded in Volume 81057, Page 436 of the Deed Records of Dallas County, Texas and being more particularly described as follows: BEGINNING at a found iron rod at the intersection of the west line of Commerce Drive (60 foot right-of-way) and the south line of Gateway Drive (70 foot right-of-way); THENCE South 0 degrees 01 minutes 00 seconds West, along the west line of Commerce Drive, a distance of 620.00 feet to a found "x" for a corner; THENCE South 89 degrees 59 minutes 00 seconds West, departing the west line of said Commerce Drive, a distance of 127.03 feet to a found "x" for a corner; THENCE North 44 degrees 49 minutes 35 seconds West, a distance of 332.10 feet to a found "x" for a corner; THENCE South 60 degrees 23 minutes 03 seconds West, a distance of 54.31 feet to a found "x" for a corner; THENCE North 0 degrees 01 minutes 00 seconds West, a distance of 416.16 feet to a set iron rod on the south line of said Gateway Drive; THENCE North 89 degrees 59 minutes 00 seconds East, along the south line of said Gateway Drive, a distance of 417.00 feet to the POINT OF BEGINNING AND CONTAINING 218,681 square feet or 5.020 acres of land. 65 EXHIBIT D - continued BELTLINE - CENTER BEING a tract of land situated in the S. A. & M. G. R. R. SURVEY, ABSTRACT NO. 1143, City of Irving, Dallas County, Texas, being all of LAS COLINAS BUSINESS PARK, SIXTEENTH INSTALLMENT recorded in Volume 81200, Page 1120, Dallas County, Map and Deed Records, and being more particularly described as follows: BEGINNING at a set iron rod at the intersection of the south right-of-way line of Gateway Drive (70 feet wide) and the west right-of-way line of Campus Circle Drive (60 feet wide); THENCE South 0 degrees 01 minute 00 seconds East, along the west line of Campus Circle Drive, a distance of 395.14 feet to a set iron rod found for the point of curvature of a circular curve to the left having a radius of 430.00 feet; THENCE in a southerly direction, along said west line and curve, through a central angle of 1 degree 35 minutes 29 seconds and an arc length of 11.94 feet to a set iron rod for a corner; THENCE South 67 degrees 23 minutes 18 seconds West, departing said west line, a distance of 450.04 feet to a set iron rod for corner; THENCE North 44 degrees 49 minutes 35 seconds West, a distance of 35.00 feet to a set iron rod being on the east right-of-way line of Beltline Road (130 feet wide); THENCE North 0 degrees 01 minute 00 seconds West, along said east line, a distance of 530.17 feet to a set iron rod for the point of curvature of a circular curve to the right having a radius of 25.00 feet; THENCE in a northeasterly direction, through a central angle of 90 degrees 00 minutes 00 seconds and an arc distance of 39.27 feet to a set iron rod on the south line of Gateway Drive; THENCE North 89 degrees 59 minutes 00 seconds East, along said south line, a distance of 415.00 feet to the POINT OF BEGINNING AND CONTAINING 218,866 square feet or 5.025 acres of land. 66 STATE OF MINNESOTA County of Dakota Office of County Recorder This is to certify that the within instrument was filed for record in this office at Hastings, on the 24th day of January A.D. 1986 at 12:00 o'clock A.M., and that the same was duly recorded in Dakota County Records. JAMES N. DOLAN County Recorder By: /s/ CK Deputy RETURN TO: TITLE SERVICES, INC. Park Square Court Suite 255 400 Sibley St. St. Paul, Minnesota 55101 EX-10.22 20 DEED OF TRUST (SPRINGBROOK) 1 EXHIBIT 10.22 AFTER RECORDING, RETURN TO: SPRINGBROOK Jones, Day, Reavis & Pogue 2300 LTV Center TICOR TITLE INSURANCE CO 2001 Ross Avenue 1008 WESTERN AVE., SUITE 200 Dallas, Texas 75201 SEATTLE, WA 98104 Attention: David D. Vineyard ESCROW NO. A343162 CB DEED OF TRUST (WITH SECURITY AGREEMENT AND ASSIGNMENT OF RENTS AND LEASES) By this instrument (this "Mortgage"), dated as of January 14, 1986, to be effective as of January 16, 1986, the undersigned, TRAMMELL CROW REAL ESTATE INVESTORS, a Texas real estate investment trust (hereinafter referred to as "Grantor"), whose address is 2001 Ross Avenue, 3500 LTV Center, Dallas, Texas 75201, to secure the obligations hereinafter described, does hereby GRANT, BARGAIN, SELL, ASSIGN and CONVEY unto FIRST AMERICAN TITLE INSURANCE COMPANY (hereinafter referred to as "Trustee"), whose address is Fourth and Blanchard Building, Seattle, Washington 98121, acting for the benefit of J. HENRY SCHRODER BANK & TRUST COMPANY, a New York banking corporation whose address is One State Street, New York, New York 10015 (hereinafter referred to as "Beneficiary"), the trustee under that certain indenture (the "Indenture"), dated as of November 15, 1985, by and between Grantor and Beneficiary, securing payment of certain zero coupon notes due 1997, payable to the order of the Holders, a copy of which Indenture is attached hereto as Exhibit A and incorporated herein by this reference for all purposes, the following described mortgaged property (the "Mortgaged Property"), to wit: All of the real property located in King County, Washington, described on the attached Exhibit B which is incorporated herein by reference (the "Land"), subject to the exceptions described on the attached Exhibit C which is incorporated herein by reference (the "Permitted Exceptions"), TOGETHER WITH all of Grantor's right, title and interest in and to the following, whether now owned or hereafter acquired: (a) all improvements and fixtures now or hereafter attached to or placed, erected, constructed or developed on the Land (the "Improvements"); (b) all equipment, machinery, furnishings, inventory, chattels and all other articles of personal property (the "Personal Property") now or hereafter attached to, relating to or used in or about the Improvements or the Land; (c) all water and water rights, timber, crops and mineral interests pertaining to the Land; (d) all building materials 2 and equipment now or hereafter delivered and installed or intended to be installed in or on the Land or the Improvements; (e) all plans, specifications and drawings for the Improvements; (f) all deposits (including tenants' security deposits and escrow deposits under contracts of sale), documents, contract rights, commitments, construction contracts, architectural agreements and general intangibles (including, without limitation, trademarks, trade names and symbols but expressly excluding the right to use the name "Trammell Crow" or any name associated therewith or derived therefrom); (g) all permits, licenses, franchises, certificates and other rights and privileges relating to or obtained in connection with the Land, the Improvements or the Personal Property; (h) all proceeds arising from or by virtue of the sale, lease or other disposition, encumbrance or refinancing, of the Land, the Improvements and the Personal Property; (i) all proceeds (including premium refunds) of each policy of insurance relating to the Land, the Improvements or the Personal Property; (j) all proceeds from the taking of any of the Land, the Improvements, the Personal Property or any rights appurtenant thereto by right of eminent domain or by private or other purchase in lieu thereof including change of grade of streets, curb cuts or other rights of access; (k) all streets, roads, public places, easements and rights-of-way, existing or proposed, public or private, located on or adjacent to or used in connection with the Land; (l) all of the leases, subleases, licenses or other agreements relating to the Land, the Improvements or the Personal Property, and all rents, deposits, royalties, bonuses, issues, profits, revenues, income or other benefits of the Land, the Improvements or the Personal Property, including, without limitation, cash, securities, letters of credit, guarantees or other instruments deposited pursuant to leases to secure performance by the lessees of their obligations thereunder and cash deposited in impound accounts for the payment of taxes and insurance under any deed of trust securing payment of the Indebtedness; (m) all heating, lighting, refrigeration, plumbing, ventilating, incinerating, water heating, transportation, communications, electrical and air-conditioning systems and equipment, sprinkler and fire-extinguishing systems, security systems, maintenance equipment and other fixtures or systems used in connection with the Land, the Improvements and the Personal Property; (n) all rights, hereditaments, strips, gores and appurtenances pertaining to the foregoing; and (o) all replacements, betterments, substitutions, renewals and additions to any of the above-described Mortgaged Property; and all proceeds of any of the above-described Mortgaged Property. TO HAVE AND TO HOLD the Mortgaged Property, together with the rights, privileges and appurtenances thereto belonging, -2- 3 unto the Trustee and its substitutes or successors and assigns forever, and Grantor hereby binds itself and its administrators, personal representatives, successors and assigns to warrant and forever defend the Mortgaged Property unto the Trustee, its substitutes or successors and assigns, against the claim or claims of all persons claiming or to claim the same or any part thereof. ARTICLE I INDEBTEDNESS This Mortgage is given to secure the payment of all sums and performance of all obligations and covenants contained in this Mortgage and of the Indenture. Unless otherwise defined herein, certain capitalized terms shall have the meaning ascribed to said terms by the Indenture. The above-described obligations are hereinafter collectively called the "Indebtedness". ARTICLE II ASSIGNMENT OF RENTS AND LEASES 2.1 Assignment of Rents, Profits, etc. Grantor hereby absolutely and unconditionally assigns to Beneficiary all of its right, title and interest in and to the rents, royalties, bonuses, issues, profits, revenue, income and other benefits derived from the Mortgaged Property or arising from the use or enjoyment of any portion thereof or from any lease, sublease, licenses or other agreement pertaining thereto, and any and all damages following default under such leases, and all proceeds payable under any policy of insurance covering loss of rents resulting from untenantability, together with any and all rights that Grantor may have against any tenant under such leases or any subtenants or occupants or users of any part of the Mortgaged Property (collectively, the "Rents"). Prior to an Event of Default (as hereinafter defined), Grantor shall have a license to collect and receive all Rents and to apply same in accordance with the terms and provisions of the Indenture. 2.2 Assignment of Leases. Grantor hereby absolutely and unconditionally assigns to Beneficiary all of its right, title and interest in and to existing and future leases, including subleases thereunder, and any and all extensions, renewals, modifications, and replacements thereof, covering any part of the Mortgaged Property (collectively, the "Leases"). Grantor -3- 4 hereby further assigns to Beneficiary all guaranties of tenants' performances under the Leases. 2.3 Beneficiary in possession. Beneficiary's acceptance of this assignment shall not be deemed to constitute Beneficiary a "mortgagee in possession" nor obligate Beneficiary to appear in or defend any proceeding relating to any of the Leases or to the Mortgaged Property, or to take any action hereunder, expend any money, incur any expenses, or perform any obligation or liability under the Leases, or assume any obligation for any deposits delivered to Grantor by any tenant and not delivered to Beneficiary, prior to entry upon and taking possession of the Mortgaged Property by Beneficiary. Beneficiary shall not be liable for any injury or damage to person or property in or about the Mortgaged Property. 2.4 Indemnification. Grantor hereby agrees to indemnify Beneficiary and hold Beneficiary harmless from all liability, damage or expense incurred by Beneficiary from any claims under the Leases as well as all amounts indemnified against under the Indenture. All amounts indemnified against hereunder, including reasonable attorneys' fees, if paid by Beneficiary shall be payable by Grantor immediately upon demand by Beneficiary and shall be secured hereby. 2.5 Right to Rely. After the occurrence of an Event of Default (hereinafter defined), Grantor hereby authorizes and directs the tenants under the Leases to pay Rents to Beneficiary upon written demand by Beneficiary, without further consent of Grantor, and the tenants may rely upon any written statement delivered by Beneficiary to the tenants. Any such payment to Beneficiary shall satisfy the obligations of such tenant to make payment to Grantor under the Leases to the extent of the payment made to Beneficiary. ARTICLE III SECURITY AGREEMENT 3.1 Security Interest. This Mortgage shall be a security agreement between Grantor, as the debtor, and Beneficiary, as the secured party, covering the Mortgaged Property constituting personal property or fixtures governed by the Uniform Commercial Code, as enacted and amended from time to time in the state in which the Land is situated (hereinafter called the "Code"), and Grantor grants to Beneficiary a security interest in such portion of the Mortgaged Property. In addition to Beneficiary's other rights hereunder, Beneficiary shall have all rights of a secured party under the Code. Grantor shall -4- 5 execute and deliver to Beneficiary all financing statements that may be necessary or advisable to establish and maintain the validity, perfection and priority of Beneficiary's security interest, and Grantor shall bear all costs thereof, including all Code searches reasonably required by Beneficiary. If Beneficiary should desire to dispose of any of the Mortgaged Property pursuant to the Code, and if the Code requires prior notice to Grantor of such disposition, ten (10) days written notice by Beneficiary to Grantor shall be deemed to be reasonable notice; provided, however, Beneficiary may dispose of such property in accordance with the foreclosure procedures hereof in lieu of proceeding under the Code. 3.2 Notice of Changes. Grantor shall give advance notice in writing to Beneficiary of any proposed change in Grantor's name, identity, or structure and shall execute and deliver to Beneficiary, prior to or concurrently with the occurrence of any such change, all additional financing statements that Beneficiary may require to establish and maintain the validity and priority of Beneficiary's security interest with respect to any of the Mortgaged Property. 3.3 Financing Statement. Some of the items of the Mortgaged Property described herein are goods that are or are to become fixtures related to the Land, and it is intended that, as to those goods, this instrument shall be effective as a financing statement filed as a fixture filing from the date of its filing for record in the real estate records of the county in which the Mortgaged Property is situated. Information concerning the security interest created by this instrument may be obtained from Beneficiary, as secured party, at the address of Beneficiary stated above. The mailing address of Grantor as debtor is as stated above. ARTICLE IV REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF GRANTOR Grantor does hereby warrant, represent, covenant and agree as follows: 4.1 Title to Mortgaged Property and Lien of this Mortgage. Grantor has good and indefeasible title to the Land and the Improvements, and good and marketable title to the remainder of the Mortgaged Property, free and clear of any liens, charges, encumbrances, security interests and adverse claims whatsoever, except for the Permitted Exceptions. -5- 6 4.2 Limitation of Liability. Any obligation or liability whatsoever of the Grantor which may arise at any time under this Mortgage, or any obligation or liability incurred by it pursuant to any other instrument, transaction or undertaking contemplated by this Mortgage, shall be satisfied, if at all, out of the Grantor's property only. No such obligation or liability shall be personally binding upon nor shall there be any resort for the enforcement thereof to the private property of any of its Trust Managers, shareholders, officers, employees or agents, regardless of whether such obligations or liability are in the nature of contract, tort or otherwise. 4.3 Repair. Grantor will cause the Mortgaged Property to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, which in the judgment of the Grantor may be necessary or prudent so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however that nothing in this Section 4.3 shall prevent the Grantor from discontinuing the operation and maintenance of any of its properties if such discontinuance is, in the judgment of the Grantor, desirable in the conduct of its business and not disadvantageous in any material respect to the Holders. 4.4 Insurance. (a) Grantor will at all times keep all the Mortgaged Property of an insurable nature and of the character usually insured by companies operating similar properties, insured in amounts customarily carried, and against loss or damage from such causes as are customarily insured against, by similar companies. (b) All such insurance shall be effected with insurance carriers having a claims paying rating of "AA" or better by Standard & Poor's Corporation. All policies or other contracts for such insurance on the Mortgaged Property shall provide that the proceeds of such insurance (except in the case of any particular casualty resulting in damage or destruction not exceeding $1,325,000.00 in the aggregate) shall be payable, subject to the requirements of any Prior Lien, to the Beneficiary as its interest may appear (by means of a standard mortgagee clause or other similar clause acceptable to the Beneficiary, without contribution). Each policy or other contract for such insurance, or such mortgagee clause, shall contain an agreement by the insurer that, notwithstanding any right of cancellation reserved to such insurer, such policy or contract shall not be cancelled unless and until the insurer -6- 7 has provided Beneficiary written notice thirty calendar days prior to cancellation. As soon as practicable after the execution of this Mortgage, and within 120 calendar days after the close of each fiscal year thereafter, and at any time upon the request of the Beneficiary, Grantor will deliver to the Beneficiary an officer certificate containing a detailed list of the insurance in force upon the Mortgaged Property on a date therein specified (which date shall be within 30 calendar days of the filing of such certificate), including the names of the insurers with which the policies and other contracts of insurance of the Mortgaged Property are carried, the numbers, amounts and expiration dates of such policies and other contracts and the property and hazards covered thereby, and stating that the insurance so listed complies with this Section 4.4, together with copies of all insurance policies or certificates thereof. (c) All proceeds of any insurance of any part of the Mortgaged Property not payable to the Beneficiary or the trustee, mortgagee or other holder or beneficiary of a Prior Lien shall be applied in accordance with the Indenture. In the event that the proceeds of insurance are made available for restoration, Grantor shall restore the Improvements to substantially the same condition and quality of the Improvements prior to the casualty. 4.5 Taxes. Grantor will pay, prior to delinquency, all taxes, assessments and governmental charges or levies imposed upon it or the Mortgaged Property, and all claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like persons which, if unpaid, might result in the creation of a lien upon the Mortgaged Property; provided that items of the foregoing description need not be paid while being contested in good faith and by appropriate proceedings, so long as such contest shall not create a risk of forfeiture of all or any portion of the Mortgaged Property. Nothing contained herein shall constitute the consent of Beneficiary to subject the Mortgaged Property to any of the aforesaid liens. 4.6 Casualty and Condemnation. All proceeds, judgments, decrees and awards for injury or damage to the Mortgaged Property, and all awards pursuant to proceedings for condemnation thereof, are hereby assigned in their entirety to Beneficiary, who shall apply the same in accordance with the Indenture. Immediately upon its obtaining knowledge of the institution or the threatened institution of any proceedings for the condemnation of the Mortgaged Property, Grantor shall notify Beneficiary of such fact. Grantor shall then, if requested by Beneficiary, file or defend its claim thereunder and prosecute same with due diligence to its final disposition -7- 8 and shall cause any awards or settlements to be paid over to Beneficiary for disposition pursuant to the terms of sub-section 4.4(c) hereinabove. Beneficiary shall be entitled to participate in same and to be represented therein by counsel of its own choice, and Grantor shall deliver, or cause to be delivered, to Beneficiary such instruments as may be requested by it from time to time to permit such participation. 4.7 Compliance with Laws. Grantor shall cause the Mortgaged Property and the use thereof to comply with all laws, rules, ordinances, regulations, covenants, conditions, restrictions, orders and decrees of any governmental authority or court applicable to Grantor or the Mortgaged Property and its use, and Grantor shall pay all fees or charges of any kind in connection therewith. 4.8 Operation. For so long as there is no Event of Default hereunder, Grantor may use and operate, alter and improve, manage, lease and maintain the Land, Improvements and Personal Property in accordance with customary and prudent management practices and in accordance with the provisions hereof and of the Indenture. 4.9 Successors and Assigns; Use of Terms. The covenants herein contained shall bind, and the benefits and advantages hereof shall inure to, the respective heirs, executors, administrators, personal representatives, successors and assigns of the parties hereto, including any successor to Beneficiary under the Indenture. Whenever used, the singular number shall include the plural and the plural the singular, and the use of any gender shall be applicable to all genders. The duties, covenants, conditions, obligations and warranties of Grantor in this instrument shall be joint and several obligations of Grantor and of each Grantor, if more than one, and of each Grantor's heirs, personal representatives, successors and assigns. Each party who executes this instrument and each subsequent owner of the Mortgaged Property, or any part thereof (other than Beneficiary or Trustee), covenants and agrees that it will perform, or cause to be performed, each term and covenant of this instrument as if such party were the named Grantor. 4.10 Severability. If any provision of this instrument is held to be illegal, invalid, or unenforceable under present or future laws effective while this instrument is in effect, the legality, validity and enforceability of the remaining provisions of this instrument shall not be affected thereby, and in lieu of each such illegal, invalid or unenforceable provision there shall be added automatically as a part of this instrument a provision that is legal, valid and enforceable and -8- 9 as similar in terms to such illegal, invalid or unenforceable provision as may be possible. 4.11 Unsecured Indebtedness. If any of the Indebtedness shall be unsecured, the unsecured portion of the Indebtedness shall be completely paid prior to the payment of the secured portion of such Indebtedness, and all payments made on account of the Indebtedness shall be considered to have been paid on and applied first to the complete payment of the unsecured portion of the Indebtedness. 4.12 Modification or Termination. This Mortgage may only be modified in accordance with the terms of the Indenture. 4.13 No Partnership. Nothing contained in this Mortgage is intended to create any partnership, joint venture or association between Grantor and Beneficiary, or in any way make Beneficiary a co-principal with Grantor with reference to the Mortgaged Property, and any inferences to the contrary are hereby expressly negated. 4.14 Headings. The Article, Paragraph and Subparagraph headings hereof are inserted for convenience of reference only and shall not alter, define, or be used in construing the text of such Articles, Paragraphs or Subparagraphs. 4.15 Governing Law. This Mortgage and the enforcement of the provisions hereof shall be governed by the laws of the State of Washington except with respect to the obligations of the Grantor and the rights of the Beneficiary under Paragraph 2.4, which shall be governed by the laws of the State of New York, and the laws of the United States applicable to transactions in such state. ARTICLE V EVENTS OF DEFAULT 5.1 Default of Indenture. It shall be an "Event of Default" hereunder if Grantor commits an Event of Default, as that term is defined by the Indenture. ARTICLE VI REMEDIES If an Event of Default shall occur, Beneficiary may exercise any one or more of the remedies provided in the Indenture or the following remedies, without notice: -9- 10 6.1 Enforcement of Assignment of Rents and Leases. Beneficiary may: (a) terminate the license granted to Grantor to collect the Rents and enforce the Leases, and thereafter collect and sue for the Rents in Beneficiary's own name, give receipts and releases therefor, and after deducting all expenses of collection, including reasonable attorneys fees, apply the net proceeds thereof to any Indebtedness in accordance with the Indenture; (b) make, modify, enforce, cancel or accept surrender of any Leases, evict tenants, adjust the Rents, maintain, decorate, refurbish, repair, clean, and make space ready for renting, and otherwise do anything Beneficiary deems advisable in connection with the Mortgaged Property; (c) apply the Rents so collected to the operation and management of the Mortgaged Property, including the payment of reasonable management, brokerage and attorneys' fees, or to the Indebtedness; and (d) require Grantor to transfer all security deposits and records thereof to Beneficiary. 6.2 Foreclosure. Upon written request of Beneficiary, Trustee may sell all or part of the Mortgaged Property, at public auction, to the highest bidder, for cash, at the Third Avenue entrance of the King County courthouse, between the hours of 10:00 o'clock A.M. and 4:00 o'clock P.M. on Friday, or if Friday is a legal holiday, on the following Monday, after giving notice of the time, place and terms of said sale and of the property to be sold, at least ninety (90) days preceding the date of the sale in the form and manner, and to the persons, specified in Chapter 61.24 of the Revised Code of Washington (as existing now or hereafter amended); provided that, with respect to any personal property to be sold by Trustee, such sale shall be conducted in accordance with the Uniform Commercial Code adopted by the State of Washington, to the extent applicable. Any notice that is required or permitted to be given to Grantor may be addressed to Grantor at Grantor's address as stated above. Any notice that is to be given by certified mail to any other debtor may, if no address for such other debtor is shown by the records of Beneficiary, be addressed to such other debtor at the address of Grantor as is shown by the records of Beneficiary. Notwithstanding the foregoing provisions of this paragraph, notice of such sale given in accordance with the requirements of the applicable laws of the State of Washington in effect at the time of such sale shall constitute sufficient notice of such sale. Trustee -10- 11 may sell all or any portion of the Mortgaged Property, together or in lots or parcels, and shall execute and deliver to the purchaser or purchasers of such property good and sufficient deeds of conveyance of fee simple title with covenants of general warranty made on behalf of Grantor. In no event shall Trustee or Beneficiary be required to exhibit, present or display at any such sale any of the personalty described herein to be sold at such sale. Trustee making such sale shall receive the proceeds thereof and shall apply the same as follows: (a) first, it shall pay the reasonable expenses of Trustee and Beneficiary (including any attorneys' fees) and the costs and expenses of such sale; (b) second, it shall pay, so far as may be possible, the Indebtedness; (c) third, it shall pay the residue, if any, to the persons legally entitled thereto. Payment of the purchase price to Trustee shall satisfy the obligation of the purchaser at such sale therefor, and such purchaser shall not be responsible for the application thereof. At any such sale (a) Grantor hereby agrees, in its behalf and in behalf of its heirs, executors, administrators, successors, personal representatives and assigns, that any and all recitals made in any deed of conveyance given by Trustee with respect to the identity of Trustee or Beneficiary, the occurrence or existence of any default, the acceleration of the maturity of any of the Indebtedness, the request to sell, the notice of sale, the giving of notice to all debtors legally entitled thereto, the time, place, terms, and manner of sale, receipt, distribution and application of the money realized therefrom, or the due and proper appointment of a substitute Trustee, and, without being limited by the foregoing, with respect to any other act or thing having been duly done by Trustee or Beneficiary shall be taken by all courts of law and equity as prima facie evidence that the statements or recitals state facts and are without further question to be so accepted, and Grantor hereby ratifies and confirms every act that Beneficiary, Trustee or any substitute Trustee hereunder may lawfully do in the premises by virtue hereof, and (b) the purchaser may disaffirm any easement granted, or rental, lease or other contract made, in violation of any provision of this Deed of Trust, and may take immediate possession of the Mortgaged Property free from, and despite the terms of, such grant of easement and rental or lease contract. Beneficiary and any other party, other than Trustee, may bid and become the purchaser of all or any part of the Mortgaged Property at any trustee's or foreclosure sale hereunder, and the amount of Beneficiary's successful bid may be credited on the Indebtedness. Notwithstanding the above, Beneficiary may cause the liens of this Deed of Trust to be foreclosed in any other manner provided for under the laws of the State of Washington. -11- 12 6.3 Tenancy at Will. In the event of a trustee's sale hereunder and if at the time of such sale Grantor or any other party occupies the portion of the Mortgaged Property so sold or any part thereof, such occupant, at the option of such purchaser, shall immediately become the tenant of the purchaser at such sale, which tenancy, at the option of such purchaser, shall be a tenancy at will, at a reasonable rental per day based upon the value of the portion of the Mortgaged Property so occupied, such rental to be due and payable daily to the purchaser. An action of forcible detainer shall lie if the tenant holds over after a demand in writing for possession of such Mortgaged Property. 6.4 Indemnification of Trustee. Except for gross negligence or willful misconduct, neither Beneficiary nor Trustee shall be liable for any act or omission or error of judgment in connection with exercising the remedies provided herein. Beneficiary or Trustee may rely on any document believed by it in good faith to be genuine. All money received by Beneficiary or Trustee shall, until used or applied as herein provided, be held in trust, but need not be segregated (except to the extent required by law), and Trustee shall not be liable for interest thereon. Except as provided above, Grantor shall indemnify Beneficiary and Trustee and hold Beneficiary and Trustee harmless against all liability, cost, damage or expense that (i) Trustee may incur in the performance of its duties hereunder, and (ii) that Beneficiary may incur in the exercise of any of its rights and remedies hereunder. 6.5 Lawsuits. Beneficiary may proceed by a suit or suits in equity or at law, whether for the specific performance of any covenant or agreement herein contained or in aid of the execution of any power herein granted, or for any foreclosure hereunder or for the sale of the Mortgaged Property under the judgment or decree of any court or courts of competent jurisdiction. 6.6 Entry on Mortgaged Property. Upon occurrence of an Event of Default hereunder, Beneficiary may enter into and upon and take possession of all or any part of the Mortgaged Property, and may exclude Grantor, and all persons claiming under Grantor, and its or their agents or servants, wholly or partly therefrom; and, holding the same, Beneficiary may use, administer, manage, operate, and control the Mortgaged Property and may exercise all rights and powers of Grantor in the name, place and stead of Grantor, or otherwise, as Beneficiary shall deem best; and in the exercise of any of the foregoing rights and powers Beneficiary shall not be liable to Grantor for any loss or damage thereby sustained unless due solely to the willful misconduct or gross negligence of Beneficiary. -12- 13 Beneficiary's powers shall include the right to complete construction of any part of the Mortgaged Property and to make any repairs or alterations necessary or advisable for the successful operation of the Mortgaged Property. 6.7 Receiver. Beneficiary may make application to a court of competent jurisdiction, as a matter of strict right and without notice to Grantor or regard to the adequacy of the Mortgaged Property for the repayment of the Indebtedness, for appointment of a receiver of the Mortgaged Property, and Grantor does hereby irrevocably consent to such appointment. Any such receiver shall have all the usual powers and duties of receivers in similar cases, including the full power to rent, maintain and otherwise operate the Mortgaged Property upon such terms as may be approved by the court, and shall apply the Rents in accordance with the provisions hereof. 6.8 Remedies Cumulative, Concurrent and Nonexclusive. Beneficiary shall have all rights, remedies and recourses granted in this Mortgage or the Indenture or available at law or equity (including, without limitation, those granted by the Code and applicable to the Mortgaged Property, or any portion thereof) and the same (a) shall be cumulative and concurrent, (b) may be pursued separately, successively or concurrently against Grantor or others obligated for the Indebtedness, or any part thereof or against any one or more of them, or against the Mortgaged Property, at the sole discretion of Beneficiary, (c) may be exercised as often as occasion therefor shall arise, it being agreed by Grantor that the exercise or failure to exercise any of the same shall in no event be construed as a waiver or release thereof or of any other right, remedy or recourse, and (d) are intended to be, and shall be, nonexclusive, nor shall exercise of any one or more constitute a waiver of a right to any other right, remedy or recourse thereafter. 6.9 Compensation to Trustee; Successor Trustees. Grantor hereby agrees to pay to Trustee and Beneficiary reasonable compensation for all services rendered by each hereunder and to reimburse Trustee and Beneficiary upon request for all reasonable expenses, disbursements and advances incurred or made by each in accordance with any provision hereof. Beneficiary may, from time to time, by a written instrument executed and acknowledged by Beneficiary and recorded in the county or counties where the Mortgaged Property is located, and by otherwise complying with applicable law, substitute successor or successors for the Trustee named herein or acting hereunder. -13- 14 6.10 Business Purpose. Grantor represents and warrants that the Indebtedness is a business loan transaction solely for the purpose of carrying on or acquiring Grantor's business and that no portion of the proceeds of the loan will be used for personal, family or household purposes. 6.11 Surety Defenses. Neither Grantor nor any other person now or hereafter obligated for the payment of the whole or any part of the sums now or hereafter secured by this Mortgage shall be relieved of such obligation by reason of the failure of Trustee or Beneficiary to comply with any request of Grantor or any other persons so obligated to take action to foreclose or otherwise realize upon this Mortgage or otherwise enforce any of the provisions of this Mortgage or of any obligations secured by this Mortgage or by reason of the release, regardless of consideration, of the whole or any part of the security held for the Indebtedness, or by reason of any agreement or stipulation between any subsequent owner or owners of the Mortgaged Property and Trustee or Beneficiary extending the time of payment or modifying the terms of the Indebtedness or this Mortgage without first having obtained the consent of Grantor or such other person, and in the latter event, Grantor and all such other persons shall continue to be liable to make such payments according to the terms of any such agreement or extension or modification unless expressly released and discharged in writing by Trustee or Beneficiary. 6.12 Non-Agricultural Use. The Land is not used principally or primarily for agricultural or farming purposes. This Mortgage is being delivered and recorded prior to its effective date and such delivery shall continue through the effective date and thereafter to the extent necessary to complete such delivery and the conveyance intended by this Mortgage. EXECUTED as of the date first set forth above. GRANTOR: TRAMMELL CROW REAL ESTATE INVESTORS, a Texas real estate investment trust By: /s/ DAVID CLOSSEY Name: David F. Clossey Trust Manager -14- 15 STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, personally appeared David F. Clossey, Trust Manager of Trammell Crow Real Estate Investors, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed same as the act of such trust, for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 14 day of January, 1986. My Commission Expires: /s/ SUE EDWARDS NOTARY PUBLIC IN AND FOR Sue Edwards THE STATE OF TEXAS {SEAL} Notary Public State of Texas Commission Expires 9-17-88 6416r -15- 16 EXHIBIT B Springbrook PROPERTY DESCRIPTION Lots 1, 2, 3 and 4, Block 1, Burlington Northern Norpac Industrial District No. 1, Division No. 2, according to the plat thereof recorded in Volume 98 of Plats, Pages 27 and 28, Records of King County, Washington; except the East 9.05 feet thereof of said Lot 4; except that portion thereof condemned in King County Superior Court Cause No. 81-2-08117-7 for South 18Oth Street. 17 SPRINGBROOK EXHIBIT C PERMITTED EXCEPTIONS 1. Assessment of $31,511.74 by/for street improvement Local Improvement District 307 Assessment #8, filed with Treasurer of the City of Kent (affects Lots 1, 2, 3 and 4, except the east 2905 feet of Lot 4). 2. Sewer Permit dated December 1, 1967, between Northern Pacific Railway Corporation and Municipality of Metropolitan Seattle, recorded in King County, Washington, January 19, 1968, at Recording No. 6293688. 3. Easements contained in plat recorded at Volume 98, Pages 27 and 28, Plat Records of King County, Washington. 4. Lot Line Revision dated June 1, 1981, recorded under King County, Washington Recording No. 8107080203. 5. Recital contained in Lot Line Revision dated December 9, 1983, recorded under King County, Washington Recording No. 8107080203, as follows: "Lot 4 cannot be developed as an individual lot, it must be developed in conjunction with Lot 3." 6. Easement dated January 15, 1982, between Crow-Spieker-Hosford #79 and Pacific Northwest Bell Telephone Company, recorded February 11, 1982 in King County, Washington, at Auditor's File No. 8202110360 (affects a strip of land 10 feet in width along a centerline established by the installation of a communication line, across Lots 3 and 4). 7. Easement dated November 30, 1982, between Crow-Spieker-Hosford #79 and Pacific Northwest Bell Telephone Company, recorded December 30, 1982 in King County, Washington, at Auditor's File No. 8212300785 (affects a strip of land 10 feet in width along a centerline established by the installation of a communication line, across Lots 1 and 2). 8. Waterline Easement dated October 18, 1983, between Crow-Spieker-Hosford #79 and the City of Kent, recorded October 24, 1983, in King County, Washington, at Auditor's File No. 8310240016. 18 9. Electric Transmission Line Easement dated November 28, 1983, between Crow-Spieker-Hosford #85 and Puget Sound Power and Light Company recorded December 9, 1983, in King County, Washington, at Auditor's File No. 8312090577. 10. Easement as delineated on King County, Washington Assessors Map, for power and telephone (affects a 10 foot wide strip along the northerly line of Block 1). 11. Right-of-Way Easement dated November 30, 1983, between Crow-Spieker-Hosford #85 and Springbrook Associates, Ltd., recorded December 12, 1983, in King County, Washington, at Auditor's File No. 8312120463. 12. Easement dated September 14, 1981, between Crow-Spieker-Hosford #79 and Puget Sound Power and Light Company, for underground electric system, recorded September 24, 1981, in King County, Washington, at Auditor's File No. 8109240728 (affects a portion of Lot 4 as per lot line revision recorded under recorded No. 8107080203). 13. Agreement dated August 17, 1983, between Crow-Spieker-Hosford #79 and the City of Kent, recorded August 30, 1983, in King County, Washington, at Auditor's File No. 8308300038, providing for the formation of a local improvement district or utility local improvement district to benefit the property described therein. 14. Agreement dated May 7, 1984, between the City of Kent and Crow-Spieker-Hosford #85, recorded May 14, 1984, in King County, Washington, at Auditor's File No. 8405140313, providing for the formation of a local improvement district to benefit the property described therein. 15. Slope and Drainage Easement established by proceedings in Superior Court Cause No. 81-2-08117-7, dated October 14, 1981, affecting a portion of Block 1. 16. Covenants, conditions and restrictions and rights of the public to make slopes as shown on the Plat. -2- EX-10.23 21 DIVIDEND REINVESTMENT PLAN 1 EXHIBIT 10.23 AMERICAN INDUSTRIAL PROPERTIES REIT DIVIDEND REINVESTMENT PLAN 1. Purpose. As Agent for participating holders ("Participants") of shares of beneficial interest ("Shares") of American Industrial Properties REIT ("Trust"), in the Dividend Reinvestment Plan ("Plan") of the Trust, Society National Bank ("Society") will, through the Plan, provide to the Shareholders a convenient way to buy additional Shares by automatic investment of cash distributions paid on such Shares. 2. Distributions; Purchases of Shares. The Trust will pay promptly to Society all cash distributions paid on Shares held by each Participant under the Plan, including distributions paid on any full or fractional share interest acquired under the Plan. Society will forward all funds received by it under the Plan to. Society, as Independent Purchasing Agent (the "Independent Purchasing Agent"), in sufficient time to permit the Independent Purchasing Agent to complete his acquisition of shares within 30 days of receipt of such funds by Society. The Independent Purchasing Agent will acquire Shares as agent for the Participants. Purchases other than during the period of any offering of Shares by the Trust may be made by securities dealers on behalf of the Independent Purchasing Agent from the securities dealers' inventory, on any securities exchange where the Shares may be traded, in the over-the-counter market, or in negotiated transactions and may be made at such times, in such amounts and on such terms as to price, delivery and otherwise as the Independent Purchasing Agent may determine. The Independent Purchasing Agent will invest all funds received from Society unless prevented from doing so by applicable securities or other laws. In making purchases for a Participant, Society and the Independent Purchasing Agent, as the case may be, may commingle a Participant's funds with those of other Participants. The price per Shares at which the Independent Purchasing Agent shall be deemed to have acquired Shares for each Participant's account will be the average price (including brokerage commissions and any other cost of purchase) of all Shares purchased by it as agent for the Participants with the proceeds of a single distribution. Neither the Plan, Society, the Independent Purchasing Agent, nor the Trust shall have responsibility for any change in the value of the Shares acquired for a Participant's account. 3. Prompt Investment. Each cash distribution of the Trust shall be invested promptly by the Independent Purchasing Agent following receipt from Society of such funds, and in no event later than 30 days following receipt by Society of the cash distribution. Under certain circumstances, however, observance of the rules and regulations of the Securities Exchange Commission may require temporary suspension of purchases or may require that purchases be spread over a period of more than 30 days. In this event, the purchases will be made or resumed as or when permitted by such rules and regulations. Society and the Independent Purchasing Agent may rely and act upon an opinion of counsel in this respect and, in such event, will not be accountable for such inability to purchase before the end of such 30-day period. Society will hold the Shares of all participants in the name of its nominee. 2 AMERICAN INDUSTRIAL PROPERTIES REIT DIVIDEND REINVESTMENT PLAN Page Two 4. Use of Funds Pending Investment. Pending investment, funds will be held in non-interest-bearing accounts maintained by Society. 5. Proxies; Voting. Society will distribute to Participants proxy solicitation material received by it from the Trust and attributable to Shares held in the Plan. Society will vote any Shares that it holds for the account of a Participant in accordance with the Participant's written instructions. If a Participant gives a proxy to persons representing the Trust's management covering Shares registered in the Participant's name, such proxy will be deemed to be an instruction to Society to vote the full Shares in the Participant's account in like manner. If a Participant does not direct Society as to how the Shares in the Participant's account should be voted and does not give a proxy to persons representing the Trust's management covering these Shares registered in the Participant's name, Society will not vote the Shares in the Participant's account. 6. Statements to Participants. A statement indicating the cash distribution invested, the number of Shares purchased, the price per Share and total Shares accumulated in a Participant's account will be mailed to each Participant as soon as practicable after completion of each investment for a Participant's account. 7. Share Certificates. Participants may obtain a certificate for all or part of the full Shares credited to their respective accounts in the Plan ("Plan Accounts") at any time by making a request in writing to the Trust. No certificates will be issued for any fractional Share. 8. Termination by Participant. Participation in the Plan may be terminated by a Participant at any time by written notice to that effect to the Trust. Upon termination, a Participant will receive certificates for the full Shares credited to his Plan Account. A Participant may specify in the termination notice that all or part to the full Shares in the Participant's account shall be sold. Such sale may, but need not, be made by purchase of the Shares for the account of other Participants. An offsetting transaction of this type shall be deemed to have been made at the average of the bid and asked prices as reported on the NASDAQ automatic quotation system or the closing price on the principal securities exchange if any, where the Shares may be traded, on the day next succeeding the date on which notice of termination is received. Any fractional Share credited to a terminating account will be paid in cash at the same price. In any event, a sale, whether offsetting or not, will be made within 30 days of receipt of the notice of termination unless the sale is prevented by applicable securities or other laws. 3 AMERICAN INDUSTRIAL PROPERTIES REIT DIVIDEND REINVESTMENT PLAN Page Three 9. Service Charge. A service charge to a Participant for the services of Society and the Independent Purchasing Agent amounting to the lesser of 5% of the Participant's cash distribution or $3.00 for each cash distribution will be deducted from each Participant's Plan Account prior to purchase of Shares with the remainder. 10. Taxation. The fact that cash distributions are reinvested does not relieve a Participant of liability for any income taxes payable on such cash distributions. Cash distributions paid on Shares held in the Plan for a Participant will be included in the appropriate form to be sent to the Internal Revenue Service and to each Participant. 11. Noncash Distribution. Any stock dividends or split shares distributed by the Trust on Shares held in the Plan for the Participant will be credited to the Participant's Plan Account. In the event that a rights offering is made, the rights will be sold by the Independent Purchasing Agent and the net proceeds used to purchase additional Shares at no service charge to the Participant. Should other forms of distribution be made by the Trust, Society may either cause the Independent Purchasing Agent to sell the rights, Shares or properties distributed or provide for their distribution to the Participants whichever it deems advisable. 12. Liability. The Independent Purchasing Agent, Society and the Trust shall not be liable hereunder for any act done; except in bad faith, or for any omission to act, including without limitation, any claims of liability (1) arising out of failure to terminate a Participant's account in the Plan upon such Participant's death prior to receiving notice in writing of such death and (2) with respect to the prices at which Shares are purchased for a Participant's account at the time such purchases are made. 13. Governing Law. The terms and conditions of the Plan and its operation shall be governed by the laws of the State of New York. 14. Termination by Trust. The Plan or a Participant's individual participation in the Plan may be terminated by the Trust at any time after it mails a notice of intention to terminate to the Participant. The Trust Managers of the Trust also reserve the right to amend the Plan at any time. In any event, the Plan will terminate upon the adoption of a plan of liquidation by the Trust Mangers of the Trust. EX-23.3 22 CONSENT OF KENNETH LEVENTHAL & COMPANY 1 EXHIBIT 23.3 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of American Industrial Properties REIT, Inc. on Amendment No. 1 to Form S-4 of our report on the financial statements and the financial statement schedule of American Industrial Properties REIT (formerly Trammell Crow Real Estate Investors) dated February 15, 1994, appearing on pages F-7 through F-20 in the Proxy Statement/Prospectus which is part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in giving said report in such Proxy Statement/Prospectus. KENNETH LEVENTHAL & COMPANY Dallas, Texas March 3, 1994 EX-23.4 23 CONSENT OF ERNST & YOUNG 1 EXHIBIT 23.4 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated March 1, 1994, in Amendment No. 1 to the Registration Statement (Form S-4 No. 33-74292) and related Proxy Statement/Prospectus of American Industrial Properties REIT, Inc. for the registration of 1,915,080 shares of its common stock. ERNST & YOUNG EX-99.1 24 FORM OF PROXY CARD 1 EXHIBIT 99.1 PRELIMINARY PROXY MATERIALS AMERICAN INDUSTRIAL PROPERTIES REIT THIS PROXY IS SOLICITED ON BEHALF OF THE TRUST MANAGERS OF AMERICAN INDUSTRIAL PROPERTIES REIT SPECIAL MEETING APRIL 28, 1994 The undersigned hereby appoints W. H. Bricker and Charles W. Wolcott, or either of them, as Proxies, each with the power to appoint his substitute, and hereby authorizes either of them to represent and to vote all of the undersigned's Shares of Beneficial Interest in the Trust, held of record on March 4, 1994, at the Special Meeting of Shareholders to be held on April 28, 1994 or at any adjournments thereof, on the proposal (the "Proposal") below, as directed. (1) THE ADOPTION AND APPROVAL OF THE MERGER AGREEMENT AND THE MERGER THEREUNDER OF AMERICAN INDUSTRIAL PROPERTIES REIT (THE "TRUST") WITH AND INTO A MARYLAND CORPORATION WHICH IS A WHOLLY-OWNED SUBSIDIARY OF THE TRUST. / / FOR: / / AGAINST: / / ABSTAIN: (2) IN THEIR DISCRETION, ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING OR ANY ADJOURNMENTS THEREOF. / / FOR: / / AGAINST: / / ABSTAIN: This Proxy, when properly executed, will be voted in the manner described above. If no direction is made, this Proxy will be voted FOR the Proposal. Please sign exactly as your name appears on your Share certificate. When Shares are held in more than one name, all parties should sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by an authorized officer. If a partnership, please sign in partnership name by an authorized person. _________________________ ______ Signature of Shareholder Date _________________________ ______ Signature if Shares held Date in more than one name PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE. EX-99.2 25 NOTICE OF SPECIAL MEETING 1 EXHIBIT 99.2 PRELIMINARY PROXY MATERIALS AMERICAN INDUSTRIAL PROPERTIES REIT NOTICE OF SPECIAL MEETING OF SHAREHOLDERS To be held April 28, 1994 TO THE SHAREHOLDERS OF AMERICAN INDUSTRIAL PROPERTIES REIT: You are cordially invited to attend a Special Meeting of Shareholders which will be held at the Four Seasons Resort and Club, Irving, Texas, on April 28, 1994, at 9:00 a.m. Dallas time, to consider and act upon the following matters: (1) The adoption and approval of the Merger Agreement and the merger thereunder of the Trust with and into a Maryland corporation which is a wholly-owned subsidiary of the Trust. (2) Such other business as may properly come before the Special Meeting or any adjournments thereof. Only holders of record of Shares of Beneficial Interest of the Trust on March 4, 1994 will be entitled to notice of and to vote at the Special Meeting or any adjournments thereof. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING REGARDLESS OF THE NUMBER OF SHARES OF BENEFICIAL INTEREST YOU HOLD. YOU ARE INVITED TO ATTEND THE MEETING IN PERSON, BUT WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE. IF YOU DO ATTEND THE MEETING, YOU MAY, IF YOU PREFER, REVOKE YOUR PROXY AND VOTE YOUR SHARES OF BENEFICIAL INTEREST IN PERSON. BY ORDER OF THE TRUST MANAGERS _________________________ Charles W. Wolcott President and Chief Executive Officer 6220 N. Beltline Suite 205 Irving, TX 75063 (214) 550-6053 , 1994 EX-99.3 26 CONSENT TO MERGER OF MANUFACTURER'S LIFE INS. CO. 1 EXHIBIT 99.3 AGREEMENT In accordance with the requirements of Section 5.11 of that certain Note Purchase Agreement (the "Agreement") dated as of February 27, 1992, by and between American Industrial Properties REIT (formerly known as Trammell Crow Real Estate Investors) ("AIP") and the undersigned, the undersigned hereby consents to the merger (the "Merger") of AIP with and into its wholly-owned subsidiary, American Industrial Properties REIT, Inc. Additionally, with respect to the Merger, the undersigned waive its rights pursuant to Section 5.11 of the Agreement in the event of a merger. This Agreement is dated as of the 14th day of February, 1994. MANUFACTURERS LIFE INSURANCE COMPANY By: /s/ STEWART SPRAGUE Printed Name: Stewart Sprague Title: Assistant Vice President, Investments 106064 EX-99.4 27 QUESTIONS AND ANSWERS RELATING TO MERGER 1 EXHIBIT 99.4 AMERICAN INDUSTRIAL PROPERTIES REIT Q & A 2 AMERICAN INDUSTRIAL PROPERTIES REIT Draft: March 1, 1994 Questions and Answers relating to the Merger of the Trust into American Industrial Properties REIT, Inc., a Maryland Corporation. Why is the Trust being merged into another entity? The proposal ("Proposal") is to merge American Industrial Properties REIT (the "Trust") with a wholly owned subsidiary, American Industrial Properties REIT, Inc., a Maryland Corporation (the "Company"). The purpose of the merger is to convert the Trust from its current form of organization as a Texas business trust to a new form of organization as a Maryland corporation. There are numerous advantages associated with the corporate form of organization, and in today's market many real estate investment trusts ("REITs") choose to organize as Maryland corporations. Because the new Company, which has been formed specifically for this merger, is a wholly-owned subsidiary of the Trust, each shareholder will own the same percentage of the new Company after the merger as they owned of the Trust before the merger. Why is the Trust reorganizing as a Maryland corporation at this time? The Trust is currently organized as a Texas business trust under the Texas REIT Act. The merger would effectively convert the Trust to a Maryland corporation under the Maryland General Corporation Law ("MGCL"). The Trust Managers believe the Proposal has the following potential benefits for the Trust and its shareholders: " Improved Capital and Organizational Structure. Consistent with recent shareholder action approving the removal of the finite life limitation on the Trust, the Proposal provides a capital and organizational structure under the Articles of Incorporation which is expected to allow the Company improved access to the capital markets. " Established Body of Law. A substantial body of law has developed around the MGCL, while the Texas REIT Act has been subject to relatively little judicial interpretation. " Properties No Longer Subject to Mandatory Sale or Improvement. The Texas REIT Act mandates the sale of real property owned by the Trust unless major capital improvements are made to the Property within 15 years of 1 3 its acquisition. There is no statutory guidance as to what constitute a major capital improvement. The merger alleviates the risk of a statutorily mandated sale at a time which is not beneficial to the shareholders. " Limited Liability of Stockholders. Although the Texas REIT Act specifically provides that the shareholders of a trust formed under the Texas REIT Act are not liable for the debts of the trust, it is unclear as to whether such protection would be afforded to the shareholders by courts outside Texas. It is well accepted as a general matter in all jurisdictions that stockholders in a corporation are not personally liable for the debts of a corporation. " Purchase of Property with Stock. The Articles of Incorporation of the new Company provide for a sufficient number of authorized shares to permit the Company to acquire property for Common Stock, thereby giving the Company increased flexibility in negotiating the purchases of additional properties. " Marginability. The exchange ratio of five shares in the Trust for one share in the new Company is anticipated to permit the Common Stock to be marginable under the requirements of most established brokerage firms, which management believes should improve the liquidity and marketability of the Common Stock. Are there potential detriments to the reorganization? Yes. As a Maryland corporation the Company's annual expense for Texas franchise taxes is expected to increase, though the increase is not expected to be substantial. In addition, there will be significant, one-time expenses associated with the merger and reorganization process. There will also be an increased risk of dilution if the Company were to issue additional shares out of the increased authorized limit of shares provided for with the new Company. Will the new Company continue to qualify as a real estate investment trust? It is our intent that the new Company will be operated in the same manner as the Trust, therefore, it should qualify as a REIT for Federal income tax purposes. As such, the Company will continue to receive the favorable tax treatment afforded to qualifying REITs under the internal Revenue Service Code. Will the new Company continue to be listed on the New York Stock Exchange? 2 4 Yes. The Company will continue to be listed on the NYSE under the ticker symbol "IND". Why are shareholders receiving one share in the new Company five shares in the Trust? Management believes that the Trust and its shareholders will benefit from having fewer shares outstanding at a higher average price per share. Based on recent trading prices for the Trust shares of 2-1/8 to 2-3/8 per share, management projects that the Company's shares will trade within a range of 10-1/2 to 12 per share immediately following the merger. This is because each share of the Company would be equal in value to five shares of the Trust at that time. A share price of $10 or above should increase investor interest in the Company's shares. Many potential investors, including many institutional investors, will only invest in shares of companies trading above $10 per share. In addition, many commercial brokerage houses will only provide margin financing for shares valued in excess of $5, or in some cases, $10 per share. Establishing a price for the Company's shares in excess of $10 per share should increase interest in the Company on the part of institutional investors while expanding the market for the Company's shares to those investors who invest through margin accounts. In any event, the total value of a shareholder's stock in the new Company just after the merger will be the same as the total value of that holder's shares in the Trust just before the merger. Why is the authorized share limit being increased to 50 million shares? The increased authorized share limit will enable the Company to attract new equity capital through the issuance of Common shares. This process, whether conducted via a rights offering to existing shareholders or through a new offering to the general market, will allow the Company to raise the equity capital needed to increase its asset base and its operating cash flow, thus leading ultimately to increased dividends and equity value for the Company's stockholders. Will the issuance of these newly authorized shares dilute my investment in the Company? Yes, dilution would occur, but there would also be substantial benefits to the Company and its stockholders through the issuance of additional shares. Equity capital raised through the issuance of additional shares could be 3 5 used to repay some or all of the Company's high interest rate debt, thus lowering the Company's annual interest expense. In addition, new equity capital would allow the Company to invest in additional industrial distribution properties at positive spreads to its cost of capital. Are there any plans at this time to issue Preferred Stock? No. There are no plans to issue Preferred Stock at this time. Management believes it is important, however, that the Company has the flexibility to issue Preferred Stock as part of its future capital raising activities. As a result, the Articles of incorporation of the new Company provide for the authorization of 10 million Preferred Shares. Will this merger complete the reorganization of the Company that was begun last year? Yes. With the merger of the Trust into the new Company the process of reorganizing the Trust to address opportunities in today's real estate and capital markets will have been completed. As a self-administered, perpetual life Maryland corporation, the Company will be organized in a manner consistent with those real estate investment trusts that currently are enjoying the greatest success and widest degree of investor acceptance in the capital marketplace. How will these changes affect the Company's ability to resume dividend distributions? None of the changes presented in the merger proposal will directly affect the Company's ability to resume dividend distributions; however, the proposed changes, in the aggregate, should improve the Company's ability to raise new capital with which to retire existing debt and to pursue new investments in industrial properties. These activities once concluded, would increase the cash flow of the Company and its ability to deliver a growing dividend to stockholders in the future. Will a supermajority vote of all outstanding shares be required to pass this merger proposal? Yes. This important proposal will require the affirmative vote of the holders of 66 2/3% of the Trust's outstanding shares. While this percentage is less than the 80% vote required to remove the limited term restriction of the Trust, it will still be important for each shareholder to sign and 4 6 return their proxy at the earliest possible opportunity. Early proxy returns save the Company the time and expense of costly remailings. A failure to return your proxy has the same effect as a vote against the proposed merger. 5 -----END PRIVACY-ENHANCED MESSAGE-----