-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FrV/jmhxuv7lTtoZC0MycwSUxJ73E0upInXNPEOZ2qUwfDIj1tEyMlxLJZuU4d/a lNlGNDi2KmyUP3XIfMLkIA== 0000950134-99-002267.txt : 19990402 0000950134-99-002267.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950134-99-002267 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN INDUSTRIAL PROPERTIES REIT INC CENTRAL INDEX KEY: 0000778437 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 756335572 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-09016 FILM NUMBER: 99579437 BUSINESS ADDRESS: STREET 1: 6210 N BELTLINE RD STREET 2: STE 170 CITY: IRVING STATE: TX ZIP: 75063 BUSINESS PHONE: 9727566000 MAIL ADDRESS: STREET 1: 6220 N BELTLINE ROAD STREET 2: SUITE 205 CITY: IRVING STATE: TX ZIP: 75063 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN INDUSTRIAL PROPERTIES REIT DATE OF NAME CHANGE: 19931203 FORMER COMPANY: FORMER CONFORMED NAME: TRAMMELL CROW REAL ESTATE INVESTORS DATE OF NAME CHANGE: 19931203 10-K405 1 FORM 10-K FOR FISCAL YEAR END DECEMBER 31, 1998 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-9016 AMERICAN INDUSTRIAL PROPERTIES REIT (Exact Name of Registrant as Specified in Its Charter) TEXAS 75-6335572 (State of Organization) (I.R.S. Employer Identification Number) 6210 NORTH BELTLINE, SUITE 170 75063 IRVING, TEXAS (Zip Code) (Address of Principal Executive Offices)
Registrant's telephone number, including area code: (972) 756-6000 Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common Shares of Beneficial Interest, New York Stock Exchange par value $0.10 per share
Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant was $225,350,449 as of March 29, 1999. The aggregate market value has been computed by reference to the closing price at which the stock was sold on the New York Stock Exchange on March 24, 1999. 20,486,409 Common Shares of Beneficial Interest were outstanding as of March 29, 1999. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 AMERICAN INDUSTRIAL PROPERTIES REIT FOR THE YEAR ENDED DECEMBER 31, 1998 TABLE OF CONTENTS FORM 10-K
PAGE SECURITIES AND EXCHANGE COMMISSION ITEM NUMBER AND DESCRIPTION ---- PART I Item 1. Business.................................................... 1 The Company................................................. 1 Business Objectives and Strategy............................ 1 Recent Developments......................................... 2 Revenue and Loss from Operations............................ 6 Geographic Analysis of Revenue.............................. 6 Competition................................................. 6 Employees................................................... 7 Item 2. Properties.................................................. 7 Item 3. Legal Proceedings........................................... 13 Item 4. Submission of Matters to a Vote of Shareholders............. 13 PART II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters....................................... 14 Item 6. Selected Financial Data..................................... 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 16 Results of Operations....................................... 16 Year 2000 Issues............................................ 19 Liquidity and Capital Resources............................. 20 Item 7A. Quantitative and Qualitative Disclosures About Market Risk...................................................... 22 Item 8. Financial Statements and Supplementary Data................. 22 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................. 22 PART III Item 10. Trust Managers and Executive Officers of the Registrant..... 23 Item 11. Executive Compensation...................................... 26 Item 12. Security Ownership of Certain Beneficial Owners and Management................................................ 29 Item 13. Certain Relationships and Related Party Transactions........ 30 PART IV Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K....................................................... 31 Index to Consolidated Financial Statements and Financial Statement F-1 Schedule............................................................
ii 3 PART I. ITEM 1. BUSINESS THE COMPANY American Industrial Properties REIT (together with its subsidiaries, the "Trust" or the "Company") is a Texas real estate investment trust that was organized on September 26, 1985. On November 27, 1985, the Trust completed an initial public offering of its common shares of beneficial interest (the "Shares") and commenced operations. In addition to wholly owned subsidiaries, the Trust owns a general partner interest and substantially all of the economic interests, directly or indirectly, in three operating partnerships, a 55.84% interest in a joint venture owning an office building and a 50% interest in a partnership developing a build-to-suit property. As of December 31, 1998, the Trust directly or indirectly owned a portfolio of 65 real estate properties, excluding the build-to-suit property, aggregating 7.4 million net rentable square feet ("nrsf"). The Trust's emphasis is in the light industrial sector, which is characterized as office showroom, service center and flex properties, low rise offices, and small bay distribution properties (see "Business Objectives and Strategy" below). Based on net rentable square feet, as of December 31, 1998, approximately 76% of the Trust's portfolio is represented by light industrial properties, 20% of the portfolio is represented by office properties and 4% of the portfolio is represented by retail properties. The light industrial properties are leased for office, office showroom, warehouse, distribution, research and development, and light assembly purposes. The retail properties are leased to retail merchandise establishments, restaurants and a cinema. No single tenant accounts for more than 10% of the Trust's consolidated gross revenue. No individual property accounted for more than 10% of total revenues of the Trust for the year ended December 31, 1998. The Trust has qualified as a real estate investment trust ("REIT") for federal income tax purposes since 1985 and intends to maintain its REIT qualification in the future. In order to preserve its REIT status, the Trust must meet certain criteria with respect to assets, income, and shareholder ownership. In addition, the Trust is required to distribute at least 95% of taxable income (as defined in the Internal Revenue Code of 1986, as amended (the "Code") to its shareholders. The Trust's executive offices are located at 6210 North Beltline Road, Suite 170, Irving, Texas 75063. The Trust's main telephone number is (972)756-6000. The Trust's web site address is www.aipreit.com. BUSINESS OBJECTIVES AND STRATEGY The Trust's business objective is to increase shareholder value through opportunistic investments and efficient operations in the light industrial property sector, including office showroom, service center and flex properties, low rise offices, and small bay distribution properties. Focus on Light Industrial Properties. The Trust intends to focus on the light industrial sector of the real estate market, believing that this sector offers a number of compelling benefits. The light industrial property sector serves the smaller tenant population and, in many instances, serves as a low cost office space alternative. In general, rents in light industrial office space offer the opportunity for increased returns as suburban office rents rise. The Trust believes that this sector a) is characterized by highly fragmented ownership, b) offers current opportunities to purchase properties at attractive yields and at a discount to replacement cost, and c) has, to date, avoided much of the institutional activity leading to higher prices and lower yields common to many other sectors of the real estate market. The Trust also believes that there are inherent benefits to its strategy of consolidating ownership in this sector, including greater returns through economies of scale and the ability to offer space alternatives to tenants which may not be currently available. Geographic Focus. The Trust will concentrate its efforts in the Southern and Western regions of the United States with primary target markets in Texas (Dallas, Houston, Austin), California (San Francisco, Los Angeles, San Diego), Florida (Orlando, Tampa), Phoenix, Denver and Washington, D.C. The target markets are characterized by above average economic growth, strong levels of new business formation and favorable supply and demand characteristics. 1 4 Experienced Management. The Trust has seasoned management with extensive experience in all phases of the real estate cycle. Management utilizes research-driven analysis of markets and sub-markets to identify targeted opportunities and intensive due diligence efforts to evaluate potential acquisitions. Management believes it has strong acquisition and networking capabilities to identify acquisition opportunities on both a single property and portfolio basis. Growth from Existing Portfolio. The Trust will pursue increases in cash flow from its existing portfolio through intensive management of the portfolio and its tenant base. Portfolio management is focused on tenant service, leasing the portfolio to stabilized occupancy (generally 94-96%), retaining existing tenants and increasing rental rates. In addition, the Trust will seek to control operating expenses and should benefit from economies of scale as the size of its portfolio increases. The Trust is currently transitioning from third party property management to internal property management and has taken over the management of approximately 24% of the portfolio on a total revenue basis. Although the Trust does not expect to convert to internal property management in markets where it does not own a sufficient critical mass to justify internalization of management, it has begun the process of reducing fees paid to third party providers in those markets by taking responsibility for the property accounting from the third party property managers. When combined with expected savings resulting from changes in its property insurance program, the Trust expects to realize net contribution from these efforts during 1999 in excess of $1.0 million. In addition to these savings, the Trust expects to realize future benefits from a more direct relationship with its tenants. Growth from Acquisitions. The Trust believes that it will be able to acquire properties in the light industrial sector at prices which justify investment. The Trust evaluates potential acquisitions from both a current yield and an internal rate of return perspective. The Trust periodically estimates its cost of capital in an effort to ensure that the internal rate of return on proposed acquisitions exceeds such cost of capital, thereby ensuring that an acquisition will be accretive on an equity basis. The Trust will, on occasion, utilize an operating partnership structure to acquire properties, which offers certain tax advantages to the seller of such properties. Financial Strategy. On a long term basis, the Trust seeks to lower its cost of capital through the appropriate use of debt and equity capital. The Trust is currently operating at higher levels of leverage than it would foresee on a longer term basis. The Trust believes that the use of leverage, which is 56.3% on a debt to total market capitalization ratio at December 31, 1998, is justified given existing acquisition prospects and the benefits of the Trust's transition to a larger entity. Although there is no assurance of ultimate availability, the Trust anticipates that future equity offerings will serve to deleverage the Trust. RECENT DEVELOPMENTS For the twelve months ended December 31, 1998, the Trust acquired approximately $237 million in real estate properties (see "ITEM 2. Properties" for additional information on these properties). From January 1, 1999 through March 29, 1999 the Trust acquired approximately $127 million of additional real estate properties. The Trust's acquisitions on a chronological basis are as follows: - On February 11, 1998, the Trust, through an indirect subsidiary, purchased Spring Valley Business Park #6, a 92,631 nrsf office and service center development in a suburb of Dallas, Texas for total consideration of $9.3 million. Of the total consideration, $6.5 million was borrowed under the Trust's acquisition line of credit with Prudential Securities Credit Corporation ("PSCC") and $0.9 million of limited partnership units in AIP Operating, L.P. were issued to the seller. After satisfaction of certain requirements, each limited partnership unit may be redeemed in exchange for cash equal to the value, as determined in accordance with the partnership agreement, of a Share (or, at the Trust's election, the Trust may purchase each limited partnership unit offered for redemption for one Share). - On March 26, 1998, the Trust purchased Southeast Commercial Center, a light industrial property in Austin, Texas with 35,673 nrsf for $1.8 million. 2 5 - On March 31, 1998, the Trust purchased Cameron Creek Business Park, a light industrial property in Austin, Texas with 50,000 nrsf. The Trust borrowed $1.4 million of the $4.8 million purchase price under its acquisition line of credit. - On April 30, 1998, the Trust purchased Northview Business Center, an office property in Austin, Texas with 252,280 nrsf for total consideration of $22.3 million. The Trust borrowed $15.5 million of the purchase price under a secured bridge loan from PSCC. - On May 6, 1998, the Trust purchased a portfolio consisting of five light industrial properties and one low-rise office property totaling 537,907 nrsf and two developed land parcels capable of accommodating 200,000 square feet of expansion space located in four markets throughout the Southwest for total consideration of $43.5 million. The purchase price was funded with $27.2 million in borrowings under a secured bridge loan from PSCC and the remainder from cash proceeds from private placements of equity. - On July 30, 1998, the Trust purchased Norfolk Commerce Center, a 323,731 nrsf light industrial property consisting of three buildings in Norfolk, Virginia. The $20.5 million purchase price was initially financed through an unsecured borrowing from Developers Diversified Realty Corporation ("DDR"). On August 3, 1998, the Trust repaid $14.7 million of this borrowing with funds received from DDR's initial purchase of Shares. - On August 3, 1998, the Trust acquired five industrial properties, valued at approximately $19.5 million, under the merger agreement between the Trust and DDR Office Flex Corporation, a wholly owned subsidiary of DDR. The five properties total 463,980 nrsf and are located in the Cleveland, Ohio market. The Trust issued 1,258,477 shares to DDR in connection with this merger. - On August 28, 1998, the Trust acquired 2121 Glenville, a light industrial property with a total of 20,645 nrsf for $1.8 million. The property is located in Dallas, Texas. - On September 23, 1998, the Trust purchased Metro Business Park, a 109,933 nrsf light industrial property located in Phoenix, Arizona for $9.9 million. The Trust borrowed $6.2 million of the purchase price under its acquisition line of credit with PSCC. - On October 5, 1998, the Trust purchased TechniPark 10 Service Center, a light industrial property located in Houston, Texas. The 71,635 nrsf property was acquired for $4.1 million. - Effective October 8, 1998, DDR acquired an 89% limited partnership interest and a 1% general partnership interest in DDR/Tech 29 Limited Partnership, a limited partnership whose assets consist of two light industrial properties and one office property totaling 290,991 nrsf located in Silver Springs, Maryland. Several selling entities and affiliates thereof acquired the remaining partnership interests. These partnership interests are convertible into DDR common shares. As of November 20, 1998, the Trust acquired 88.5% of DDR's limited partnership interest and, in consideration therefor, issued approximately $16.1 million in Shares to DDR. The acquisition was deemed to be effective as of October 8, 1998 and the purchase price included interest accrued from such date. To date, an Equalization Agreement, which provides, among other things, that DDR shall reimburse the Trust for certain dividend-based distributions to the holders of partnership interests has not been executed. It is anticipated that the Equalization Agreement will have an effective date in January 1999. - On October 16, 1998, the Trust completed the purchase of a portfolio consisting of four light industrial properties totaling 560,812 nrsf located in Virginia. The properties were acquired from five entities for total consideration of $40.2 million. The purchase price was funded with $22.4 million in assumed debt and the remainder in borrowings from an unsecured loan from DDR. - On December 8, 1998, the Trust purchased Columbia Corporate Center, a 128,122 nrsf light industrial property located in Aliso Viejo, California for $13.1 million. To fund the transaction, the Trust issued $5.3 million in Shares to DDR and received an unsecured loan of $7.8 million from DDR. 3 6 - On December 11, 1998, the Trust purchased Winter Park Business Center, a 119,685 nrsf light industrial property located in Orlando, Florida for $9.2 million. To fund the transaction, the Trust issued $4.1 million in Shares to DDR and borrowed $5.1 million under its acquisition line of credit. - On December 30, 1998, the Trust purchased Washington Business Park, a 137,018 nrsf light industrial property located in Phoenix, Arizona for $9.3 million. To fund the transaction, the Trust issued $4.1 million in Shares to DDR and borrowed $5.2 million under its acquisition line of credit. - On January 15, 1999, the Trust purchased a portfolio of nine properties totaling 955,564 nrsf of one-and two-story office/industrial flex buildings located in northern California and Colorado. The properties were acquired from an institutional seller for a purchase price of $127.3 million. The purchase price was funded with $75.2 million in borrowings secured under a secured bridge loan with PSCC. The remainder of the purchase price was funded with $51.8 million in Shares issued to DDR. The Trust completed the following equity and/or financing transactions during the period January 1, 1998 through March 29, 1999: - On January 30, 1998, the Trust completed a $10 million private placement of Shares at $13.625 per Share. - In February 1998, two shareholders exercised their preemptive rights and acquired $8.7 million of Shares at $13.625 per Share. The shareholders preemptive rights have since expired. - On March 24, 1998, the Trust announced a dividend reinvestment and share purchase plan. Through December 31, 1998, 84,287 Shares were issued under the plan for proceeds of $945,072. - On April 15, 1998, the Trust completed a $24.7 million permanent refinancing of six properties under its secured acquisition line. Terms of the permanent financing include an interest rate of 7.28%, 25 year principal amortization and a maturity of June 2008. - On April 27, 1998, the Trust negotiated an increase in its secured acquisition line with PSCC from $35 million to $75 million. The variable interest rate was reduced from the 30 day LIBOR rate plus 2% to LIBOR plus 1.75% and the maturity was extended to April 1999. On March 26, 1999, the loan was extended to April 2000 and the interest rate was reduced to LIBOR plus 1.55%. The Trust currently has $68.5 million outstanding under this acquisition line. - In April 1998, the Trust obtained a $42.6 million secured bridge loan from PSCC. The bridge loan provides for a variable interest rate based on the 30 day LIBOR rate plus 1.75% and a maturity date of January 8, 1999 as extended. The loan was paid off on January 8, 1999 with the proceeds from a $41 million permanent financing (see below). - On August 3, 1998, the Trust entered into a definitive agreement providing for a strategic investment by DDR in the Trust. Under the terms of the Share Purchase Agreement (the "Agreement"), the transaction has three stages. The first stage, effective as of July 30, 1998, resulted in DDR acquiring 2,207,618 Shares at a price of $15.50 per Share. In the second stage, DDR is obligated to purchase 5,226,583 Shares for $15.50 per Share (for total consideration of approximately $81 million) to fund property acquisitions approved by the Trust's board. In the third stage, the Trust has the option to require DDR, under certain circumstances, to purchase additional Shares with a total purchase price not to exceed $200 million to fund property acquisitions. DDR's obligation to purchase Shares, the price of the Shares and the amount to be invested in the third stage are contingent upon several factors, including the trading prices of DDR and Trust Shares, the market capitalization of DDR and whether common or preferred shares are issued to DDR. As of March 29, 1999, DDR had purchased a total of 9,301,817 shares, representing 45.4% of the outstanding Shares of the Trust. 4 7 - In November 1998, shareholders of the Trust approved the issuance of up to 11,064,193 shares and 10,266,795 Series A Convertible Preferred Shares of Beneficial Interest of the Trust pursuant to (i) the Share Purchase Agreement, effective July 30, 1998, between the Trust and DDR, as amended on September 14, 1998, and (ii) the Agreement and Plan of Merger, dated as of July 30, 1998, among the Trust, DDR and DDR Office Flex Corporation. - On January 8, 1999, the Trust paid off the $42.7 million bridge loan with proceeds from a permanent financing of seven properties. Terms of the permanent financing include a principal amount of $41 million, a fixed rate of interest of 7.375%, a ten year term and 25 year principal amortization. - On January 19, 1999, the Trust refinanced existing indebtedness of approximately $1.8 million on a property acquired in October 1998 with proceeds from a new permanent financing of $7.6 million. Terms of the permanent financing include a fixed rate of interest of 7.33%, seven year term with a three year renewal option, and 30 year principal amortization. - On January 29, 1999, the Trust entered into a secured revolving credit agreement with Bank One, Texas, N.A ("Bank One"). The agreement contemplates a $150,000,000 credit line with an initial Bank One commitment of $25,000,000. The remainder of the credit line will be syndicated on a "best efforts" basis by Bank One. The credit line will be secured by mortgage liens on properties, provides for a graduated variable interest rate (depending on the Trust's overall leverage) of LIBOR plus 1.4% to LIBOR plus 2.0%, a maximum loan to value of 60%, and a maturity in January 2001. As of March 24, 1999, the Trust has $13.0 million outstanding under this credit line. - On March 26, 1999, the Trust negotiated an extension of the maturity of its acquisition credit line to April 2000 and a decrease in the interest rate to LIBOR plus 1.55%. On January 29, 1998, the Board of Trust Managers announced a reinstatement of quarterly distributions. A distribution of $0.18 per Share was paid on April 14, 1998 and a distribution of $0.20 was paid on July 14, 1998, October 14, 1998 and January 20, 1999. In addition, the Trust has declared a distribution of $0.20 per Share payable on April 15, 1999, to shareholders of record on April 5, 1999. On February 18, 1998, the Trust filed a Form S-3 shelf registration with the Securities and Exchange Commission which would provide for the issuance of up to $500 million in Shares, Preferred Shares of Beneficial Interest, and unsecured senior debt securities and/or warrants to purchase such securities in amounts, at prices and on terms to be determined by market conditions at the time of future offerings. The Trust anticipates utilization of this shelf registration in the future to fund acquisitions and growth of the Company. On March 5, 1998, the Trust announced a Share repurchase program, wherein the Trust was authorized to purchase up to 1,000,000 Shares over the following six months. Purchases were to be made in open market transactions, as price and market conditions allowed. During the program, the Trust purchased 123,783 Shares in the open market, for an aggregate cost of $1,598,000. These Shares are held in treasury. Under the terms of its agreement with DDR, the Trust is prohibited from purchasing its own Shares if such purchases would result in DDR owning in excess of 49.9% of the Trust's outstanding Shares. 5 8 REVENUE AND LOSS FROM OPERATIONS The breakdown of revenue and loss from operations for each of the years ended December 31, 1998, 1997 and 1996 is as follows (in thousands):
1998 1997 1996 -------- ------- ------- Property revenues: Industrial........................................... $ 27,013 $ 8,312 $ 7,374 Office............................................... 17,044 633 638 Retail............................................... 4,300 3,256 3,308 -------- ------- ------- Total........................................ 48,357 12,201 11,320 Property operating expenses............................ (16,046) (4,315) (4,022) -------- ------- ------- Income from property operations........................ 32,311 7,886 7,298 -------- ------- ------- Administrative expenses................................ (3,729) (2,504) (3,378) Depreciation and amortization.......................... (8,383) (3,157) (2,909) Interest income........................................ 705 546 158 Interest expense....................................... (15,139) (5,778) (5,901) Provisions for possible losses on real estate.......... (10,060) -- -- -------- ------- ------- Loss from operations................................... $ (4,295) $(3,007) $(4,732) ======== ======= =======
GEOGRAPHIC ANALYSIS OF REVENUE The breakdown of the Trust's property revenues, geographically and by reporting segment, for each of the years ended December 31, 1998, 1997, and 1996 is as follows (in thousands):
REGION 1998(A) 1997(B) 1996(C) ------ ------- ------- ------- WESTERN REGION Industrial............................................ $15,709 $ 5,147 $ 2,949 Office................................................ 13,341 633 638 Retail................................................ 3,186 3,256 3,308 EASTERN REGION Industrial............................................ 11,304 3,165 4,425 Office................................................ 3,703 -- -- Retail................................................ 1,114 -- -- ------- ------- ------- Total property revenues................................. $48,357 $12,201 $11,320 ======= ======= =======
- --------------- (a) For the year ended December 31, 1998, the Trust acquired 29 properties. There were no properties sold in 1998. (b) For the year ended December 31, 1997, the Trust acquired 15 properties. The Trust sold two properties in 1997. (c) For the year ended December 31, 1996, the Trust did not acquire any properties. The Trust sold two properties in 1996. COMPETITION The Trust owns properties in various markets and sub-markets in 13 states (See "ITEM 2. Properties"). The principal competitive factors in these markets are price, location, quality of space, and amenities. In each case, the Trust owns a small portion of the total similar space in the market and competes with owners of other space for tenants. Each of these markets is highly competitive, and other owners of property may have competitive advantages not available to the Trust. 6 9 EMPLOYEES The Trust currently employs 36 people on a full-time basis. Information regarding executive officers of the Trust is set forth in "ITEM 10. Trust Managers and Executive Officers of the Registrant" of Part III of this Form 10-K and is incorporated herein by reference. The Trust has begun the process to internalize the property management and leasing duties which are currently contracted out to third parties. The number of employees is expected to increase as more properties are acquired and as the Trust transitions to internal property management. No employees are presently covered by collective bargaining agreements. ITEM 2. PROPERTIES As of December 31, 1998, the Trust owned 65 real estate properties, excluding the one build-to-suit property, consisting of 52 light industrial developments, 11 office buildings, and 2 retail properties. The Trust's light industrial classification includes office showroom, service center and flex properties, low rise offices, and small bay distribution properties. In 1998, the Trust acquired 29 properties. There were no properties sold in 1998. The following tables set forth certain information about the light industrial, office, and retail properties owned as of December 31, 1998, without giving effect to the build-to-suit property or 1999 acquisitions. Based on annualized rental revenues in place as of December 31, 1998, no single tenant would have accounted for more than 10% of the Company's total annualized light industrial, office, and retail revenues for 1998. No individual property accounted for more than 10% of total revenues for the Trust for the twelve months ended December 31, 1998. PROPERTY INFORMATION
NET RENTABLE ACQUISITION YEAR NUMBER OF AREA PROPERTY LOCATION DATE CONSTRUCTED BUILDINGS (SQ. FT.) -------- -------- ----------- ----------- --------- --------- LIGHT INDUSTRIAL PROPERTIES 2121 Glenville Dallas, TX 1998 1984 1 20,645 Aerotech Colorado Springs, CO 1998 1985 2 75,892 Alumax Cleveland, OH 1998 1982 1 66,200 Avion Business Center Dallas, TX 1997 1985 3 70,784 Battlefield Business Park Manassas, VA 1998 1989 1 154,226 Black Canyon Tech Center Phoenix, AZ 1998 1983 2 100,000 Bowater Lakeland, FL 1997 1989 1 111,720 Broadbent Business Park IV Albuquerque, NM 1998 1989 2 59,269 Cameron Creek Bus Park Austin, TX 1998 1996 1 50,000 Carpenter Center Dallas, TX 1997 1983 1 44,114 Carrier Place Grand Prairie, TX 1997 1984 1 84,431 Central Park Office Tech Richardson, TX 1997 1984 2 74,459 Columbia Corporate Center Aliso Viejo, CA 1998 1988 4 128,122 Commerce Center Houston, TX 1997 1974 9 299,748 Commerce Park North Houston, TX 1985 1984 2 87,163 Continental Plastic Elk Grove Village, IL 1997 1963/68 2 208,290 Corporex Plaza I Tampa, FL 1997 1982 3 93,508 DFW North Grapevine, TX 1997 1985 2 76,217 Gateway 5 & 6 Irving, TX 1985 1985 2 79,669 Greenbrier Circle Corp Center Chesapeake, VA 1998 1981/83 2 228,690 Greenbrier Tech Center Chesapeake, VA 1998 1981 1 95,162 Hardline Services Bldg Cleveland, OH 1998 1974 1 236,225 Heritage Business I Cleveland, OH 1998 1990 1 35,555 Huntington Drive Monrovia, CA 1985 1985 2 62,218 Inverness Business Park Denver, CO 1997 1980 2 96,386
7 10
NET RENTABLE ACQUISITION YEAR NUMBER OF AREA PROPERTY LOCATION DATE CONSTRUCTED BUILDINGS (SQ. FT.) -------- -------- ----------- ----------- --------- --------- Kodak San Diego, CA 1997 1976 1 59,600 Meridian Street Warehouse Arlington, TX 1995 1981 1 72,000 Metro Business Park Phoenix, AZ 1998 1987 4 109,933 Norfolk Commerce Center Norfolk, VA 1998 1981/87 3 323,731 Northgate II Dallas, TX 1985 1983 4 237,039 Northgate III Dallas, TX 1997 1979/80/86 6 262,287 Northpointe B & C Sterling, VA 1998 1987/88 2 82,734 Northwest Business Pk Milwaukee, WI 1985 1983/85/86 3 143,120 Parkway Tech Center Plano, TX 1997 1984 1 69,561 Patapsco Industrial Center Linthicum Heights, MD 1985 1981/85 2 95,151 Plaza Southwest 1-5 Houston, TX 1985 1975 5 149,780 President's Plaza Tampa, FL 1997 1987 2 41,690 Shady Trail Business Center Dallas, TX 1997 1984 4 67,846 Skyway Business Center Irving, TX 1997 1981 1 67,150 Southeast Commercial Center Austin, TX 1998 1984 1 35,673 Steris Building Cleveland, OH 1998 1980 1 40,200 Summit Park Austin, TX 1998 1985 2 96,950 Tech Center 29 -- Phase I Silver Springs, MD 1998 1970 1 176,914 Tech Center 29 -- Phase II Silver Springs, MD 1998 1991 1 58,280 TechniPark 10 Service Center Houston, TX 1998 1983/84 2 71,635 Tucson Tech Tucson, AZ 1998 1986 1 115,030 Valley View Commerce Park Dallas, TX 1997 1986 4 144,896 Valwood II Business Center Carrollton, TX 1997 1984 1 52,452 VSA Bldg Cleveland, OH 1998 1989 1 85,800 Washington Bus. Park Phoenix, AZ 1998 1985 4 137,018 Westchase Park 1-2 Houston, TX 1985 1984 2 47,733 Winter Park Business Center Orlando, FL 1998 1981/83/85 6 119,685 --- --------- Total Light Industrial Properties 117 5,602,581 --- --------- OFFICE PROPERTIES 10505 Sorrento Valley San Diego, CA 1997 1982 1 54,094 1881 Pine Street St Louis, MO 1997 1987 1 111,047 Academy Point Atrium II Colorado Springs, CO 1998 1984 1 90,766 Apollo Drive Office Building(a) Chelmsford, MA 1997 1987 1 291,424 Beltline Business Center Dallas, TX 1985 1984 3 60,145 Gateway West Phoenix, AZ 1997 1964/69/74 3 155,487 Linear Technology Milpitas, CA 1997 1987 1 42,130 Manhattan Towers Manhattan Beach, CA 1997 1987 2 309,484 Northview Business Center Austin, TX 1998 1970 1 252,280 Spring Valley Business Park #6 Dallas, TX 1998 1980/98 3 92,631 Tech Center 29 -- Phase III Silver Springs, MD 1998 1988 1 55,797 --- --------- Total Office Properties 18 1,515,285 --- --------- RETAIL PROPERTIES Tamarac Square Mall Denver, CO 1985 1976/78 2 196,455 Volusia Daytona Beach, FL 1997 1984 1 76,579 --- --------- Total Retail Properties 3 273,034 --- --------- Total Light Industrial, Office, and Retail Properties 138 7,390,900 === =========
- --------------- (a) The Trust owns a 55.84% joint venture interest in the property. 8 11 TENANT INFORMATION
AVERAGE BASE PERCENT NUMBER RENTAL RATE ANNUALIZED PROPERTY LOCATION LEASED(A) TENANTS(A) PER SQ. FT.(A) BASE RENT(A) -------- -------- --------- ---------- -------------- ------------ (000) LIGHT INDUSTRIAL PROPERTIES 2121 Glenville Dallas, TX 100.0% 1 $10.00 $ 206 Aerotech Colorado Springs, CO 87.6% 4 14.26 948 Alumax Cleveland, OH 100.0% 1 4.49 297 Avion Business Center Dallas, TX 97.1% 9 10.08 693 Battlefield Business Park Manassas, VA 100.0% 1 7.00 1,080 Black Canyon Tech Center Phoenix, AZ 60.0% 1 8.40 504 Bowater Lakeland, FL 100.0% 1 4.10 458 Broadbent Business Park IV Albuquerque, NM 59.3% 2 10.08 354 Cameron Creek Bus Park Austin, TX 64.9% 3 7.60 247 Carpenter Center Dallas, TX 81.6% 7 4.69 169 Carrier Place Grand Prairie, TX 100.0% 17 4.70 397 Central Park Office Tech Richardson, TX 85.3% 8 8.25 524 Columbia Corporate Center Aliso Viejo, CA 100.0% 8 10.62 1,361 Commerce Center Houston, TX 81.5% 29 4.72 1,153 Commerce Park North Houston, TX 100.0% 11 5.71 498 Continental Plastic Elk Grove Village, IL 100.0% 2 3.60 750 Corporex Plaza I Tampa, FL 100.0% 23 6.12 572 DFW North Grapevine, TX 46.0% 6 5.98 210 Gateway 5 & 6 Irving, TX 100.0% 7 6.36 507 Greenbrier Circle Corp Center Chesapeake, VA 72.7% 20 15.08 2,507 Greenbrier Tech Center Chesapeake, VA 90.7% 10 8.68 749 Hardline Services Bldg Cleveland, OH 100.0% 1 3.15 744 Heritage Business I Cleveland, OH 100.0% 4 7.55 268 Huntington Drive Monrovia, CA 94.6% 5 15.33 902 Inverness Business Park Denver, CO 100.0% 9 8.09 780 Kodak San Diego, CA 100.0% 2 10.31 614 Meridian Street Warehouse Arlington, TX 100.0% 1 2.31 166 Metro Business Park Phoenix, AZ 100.0% 26 8.67 953 Norfolk Commerce Center Norfolk, VA 94.0% 34 9.53 2,900 Northgate II Dallas, TX 100.0% 13 3.27 775 Northgate III Dallas, TX 89.3% 19 4.64 1,087 Northpointe B & C Sterling, VA 100.0% 5 6.54 541 Northwest Business Pk Milwaukee, WI 63.0% 10 6.15 555 Parkway Tech Center Plano, TX 82.7% 6 4.64 267 Patapsco Industrial Center Linthicum Heights, MD 88.1% 21 6.72 563 Plaza Southwest 1-5 Houston, TX 93.3% 30 3.97 555 President's Plaza Tampa, FL 93.2% 12 7.85 305 Shady Trail Business Center Dallas, TX 83.5% 20 4.08 231 Skyway Business Center Irving, TX 100.0% 6 4.81 323 Southeast Commercial Center Austin, TX 49.4% 2 6.45 114 Steris Building Cleveland, OH 100.0% 1 5.90 237 Summit Park Austin, TX 100.0% 3 9.20 892 Tech Center 29 -- Phase I Silver Springs, MD 86.2% 14 9.58 1,461 Tech Center 29 -- Phase II Silver Springs, MD 100.0% 4 12.31 717 TechniPark 10 Service Center Houston, TX 100.0% 7 6.96 499 Tucson Tech Tucson, AZ 100.0% 1 3.96 456 Valley View Commerce Park Dallas, TX 90.6% 6 6.13 805 Valwood II Business Center Carrollton, TX 79.2% 1 6.50 270 VSA Bldg Cleveland, OH 100.0% 1 4.65 399
9 12
AVERAGE BASE PERCENT NUMBER RENTAL RATE ANNUALIZED PROPERTY LOCATION LEASED(A) TENANTS(A) PER SQ. FT.(A) BASE RENT(A) -------- -------- --------- ---------- -------------- ------------ (000) Washington Bus. Park Phoenix, AZ 99.6% 6 7.63 1,041 Westchase Park 1-2 Houston, TX 100.0% 10 5.54 264 Winter Park Business Center Orlando, FL 90.8% 34 11.33 1,231 ----- --- ------ ------- Total Light Industrial Properties 90.9% 485 6.89 35,099 ----- --- ------ ------- OFFICE PROPERTIES 10505 Sorrento Valley San Diego, CA 69.1% 5 13.80 516 1881 Pine Street St. Louis, MO 86.0% 3 12.69 1,212 Academy Point Atrium II Colorado Springs, CO 100.0% 15 14.03 1,273 Apollo Drive Office Building(b) Chelmsford, MA 100.0% 1 6.86 1,999 Beltline Business Center Dallas, TX 93.8% 26 7.00 395 Gateway West Phoenix, AZ 82.6% 2 16.09 2,066 Linear Technology Milpitas, CA 100.0% 1 9.00 379 Manhattan Towers Manhattan Beach, CA 100.0% 8 11.48 3,554 Northview Business Center Austin, TX 100.0% 7 10.87 2,742 Spring Valley Business Park #6 Dallas, TX 100.0% 3 11.96 1,108 Tech Center 29 -- Phase III Silver Springs, MD 100.0% 7 19.61 1,094 ----- --- ------ ------- Total Office Properties 95.8% 78 11.25 16,338 ----- --- ------ ------- RETAIL PROPERTIES Tamarac Square Mall(c) Denver, CO 83.8% 51 12.95 2,132 Volusia Daytona Beach, FL 98.5% 21 10.87 820 ----- --- ------ ------- Total Retail Properties 87.9% 72 12.29 2,952 ----- --- ------ ------- Total Light Industrial, Office, and Retail Properties 91.9% 635 $ 7.86 $54,389 ===== === ====== =======
- --------------- (a) Based on leases executed on or before December 31, 1998. (b) The Trust owns a 55.84% joint venture interest in the property. (c) The denominator of average base rental rate per square foot calculation for this property includes ground lease income. INFORMATION BY PROPERTY TYPE
NET RENTABLE SQUARE FEET ANNUALIZED BASE RENT(A) ------------------- -------------------------------- AMOUNT PERCENT AMOUNT PERCENT PSF --------- ------- ----------- ------- ------ Light Industrial................ 5,602,581 75.8% $35,099,000 64.5% $ 6.89 Office.......................... 1,515,285 20.5% 16,338,000 30.0% 11.25 Retail.......................... 273,034 3.7% 2,952,000 5.4% 12.29 --------- ----- ----------- ----- ------ Total................. 7,390,900 100.0% $54,389,000 100.0% $ 7.86 ========= ===== =========== ===== ======
- --------------- (a) Based on leased net rentable square footage as of December 31, 1998. Includes revenues from ground leases. 10 13 LEASE EXPIRATION DETAIL
PERCENTAGE OF TOTAL ANNUALIZED ANNUALIZED NO. OF SQUARE BASE RENT OF BASE RENT LEASES SQUARE FEET EXPIRING OF EXPIRING YEAR EXPIRING FEET AVAILABLE LEASES PERCENTAGE LEASES-PSF ---- -------- --------- ---------- ------------ ---------- ----------- 1999.................... 187 1,527,387 20.7% $10,734,431 19.3% $ 7.03 2000.................... 142 1,299,323 17.6% 9,686,321 17.4% 7.45 2001.................... 128 1,073,335 14.5% 8,680,622 15.6% 8.09 2002.................... 88 1,277,353 17.3% 12,496,778 22.5% 9.78 2003.................... 64 751,419 10.2% 6,232,764 11.2% 8.29 2004.................... 16 209,455 2.8% 1,456,597 2.6% 6.95 2005.................... 6 56,502 0.8% 432,301 0.8% 7.65 2006.................... 7 122,863 1.7% 1,237,473 2.2% 10.07 2007.................... 8 354,843 4.8% 4,506,042 8.1% 12.70 2008.................... 1 5,030 0.1% 92,602 0.2% 18.41 --- --------- ---- ----------- ----- ------ Total......... 647 6,677,510 90.5% $55,555,931 100.0% $ 8.32 === ========= ==== =========== ===== ======
SUMMARY TENANT INFORMATION
LEASED SPACE NO. OF SQUARE (SQUARE FEET) TENANTS FOOTAGE PERCENTAGE ------------- ------- --------- ---------- 0 - 5,000........................................ 347 935,303 12.7% 5,001 - 10,000........................................ 135 926,624 12.5% 10,001 - 20,000........................................ 76 1,066,027 14.4% 20,001 - 50,000........................................ 59 1,773,209 24.0% 50,001 - +............................................. 17 2,050,051 27.7% Vacant Space........................................... -- 639,686 8.7% --- --------- ----- Total........................................ 634 7,390,900 100.0% === ========= =====
MORTGAGE INDEBTEDNESS
PRINCIPAL INTEREST RATE AT MATURITY PRINCIPAL DUE PROPERTY BALANCE DECEMBER 31, 1998 DATE AT MATURITY -------- ------------ ----------------- -------- ------------- LIGHT INDUSTRIAL PROPERTIES Battlefield Business Park................ $ 8,071,487 7.70%(d) Oct-04 $ 7,525,563 Commerce Park North...................... 2,029,836 8.61%(d) Dec-03 1,796,333 Gateway 5 & 6............................ 2,754,777 8.61%(d) Dec-03 2,437,880 Greenbrier Circle Corp Center............ 7,202,186 8.13%(d) Jan-02 6,838,342 Greenbrier Tech.......................... 4,290,618 8.05%(d) Jul-07 3,960,554 Huntington Drive......................... 4,422,143 8.61%(d) Dec-03 3,913,439 Meridian Street Warehouse................ 1,123,659 8.61%(d) Dec-03 994,398 Northgate II............................. 5,002,096 8.61%(d) Dec-03 4,426,677 Northpointe B & C........................ 2,799,409 7.38%(d) Mar-16 2,602,284 Patapsco Industrial Center............... 3,008,507 8.61%(d) Dec-03 2,662,422 Plaza Southwest 1-5...................... 3,262,236 8.61%(d) Dec-03 2,886,963 Tech Center 29 Phase I................... 1,834,181 8.50%(d) Jul-03 1,451,414 Tech Center 29 Phase II.................. 3,879,866 9.05%(d) Sep-06 3,309,462 Westchase Park 1-2....................... 1,283,146 8.61%(d) Dec-03 1,135,539
11 14
PRINCIPAL INTEREST RATE AT MATURITY PRINCIPAL DUE PROPERTY BALANCE DECEMBER 31, 1998 DATE AT MATURITY -------- ------------ ----------------- -------- ------------- Mortgage Loan Secured by:................ 30,279,780 7.25%(d) Jan-08 26,416,613 Carpenter Center....................... Carrier Place.......................... Commerce Center........................ DFW North.............................. Northgate III.......................... Parkway Tech Center.................... Valley View Commerce Park.............. Valwood II Business Center............. Shady Trail Business Center............ Mortgage Loan Secured by:................ 24,484,164 7.28%(d) Jun-08 19,567,225 Corporex Plaza I....................... President's Plaza...................... Central Park Office Tech............... Skyway Business Center................. Avion Business Center.................. Inverness Business Park................ Acquisition Line Secured by: Bowater................................ 2,100,000 7.38%(e) Apr-99 2,100,000 Cameron Creek Business Park............ 1,416,000 7.38%(e) Apr-99 1,416,000 Kodak.................................. 3,360,000 7.38%(e) Apr-99 3,360,000 Metro Business Park.................... 6,200,000 7.38%(e) Apr-99 6,200,000 Norfolk Commerce Center................ 13,000,000 7.38%(e) Apr-99 13,000,000 Washington Business Park............... 5,190,000 7.38%(e) Apr-99 5,190,000 Winter Park Business Center............ 5,100,000 7.38%(e) Apr-99 5,100,000 Bridge Loan Secured by:.................. 27,152,769 7.38%(e) Apr-99 27,152,769 AeroTech............................... Black Canyon Technical Center.......... Broadbent Business Park IV............. Summit Park............................ Tucson Tech Center..................... Academy Point Atrium II(a)............. ------------ ------------ Total Light Industrial Properties................... 169,246,860 155,443,877 ------------ ------------ OFFICE PROPERTIES Apollo Drive Office Building(b).......... 14,922,279 9.13%(d) Aug-01 14,340,606 Beltline Business Ctr.................... 2,682,283 8.61%(d) Dec-03 2,373,725 Tech Center 29 -- Phase III.............. 4,442,964 8.58%(d) May-02 4,227,429 Acquisition Line Secured by: 1881 Pine Street.................... 3,641,235 7.38%(e) Apr-99 3,641,235 Linear Tech......................... 2,237,633 7.38%(e) Apr-99 2,237,633 Manhattan Towers.................... 20,300,000 7.38%(e) Apr-99 20,300,000 Gateway West........................ 5,978,007 7.38%(e) Apr-99 5,978,007 Bridge Loan Secured by: Northview Business Center.............. 15,497,512 7.38%(e) Apr-99 15,497,512 ------------ ------------ Total Office Properties........ 69,701,913 68,596,147 ------------ ------------
12 15
PRINCIPAL INTEREST RATE AT MATURITY PRINCIPAL DUE PROPERTY BALANCE DECEMBER 31, 1998 DATE AT MATURITY -------- ------------ ----------------- -------- ------------- RETAIL PROPERTIES Tamarac Square Mall...................... 11,573,973 8.40%(d) Dec-01 10,907,186 ------------ ------------ Total Retail Properties........ 11,573,973 10,907,186 ------------ ------------ Total Light Industrial, Office and Retail Properties........ 250,522,746 234,947,210 Debt Premiums(c)......................... 1,958,000 -- ------------ ------------ Total mortgage notes payable... $252,480,746 $234,947,210 ============ ============
- --------------- (a) Office property. (b) The Trust owns 55.84% joint venture interest in this property. (c) Represents the unamortized difference between mortgage debt assumed and fair value of such debt. (See Note 2 to Consolidated Financial Statements.) (d) Interest rate is fixed. (e) Interest rate is variable based on 30 day LIBOR rate plus 1.75%. ITEM 3. LEGAL PROCEEDINGS The Trust is currently named as a defendant in a lawsuit related to the Trust's merger with four real estate limited partnerships. The lawsuit purports to be both a class action and a derivative lawsuit against the defendants. The plaintiffs have asserted various claims, including breach of fiduciary duty and various securities law violations, against the parties to the merger and certain individuals and are seeking monetary damages. On April 13, 1998, the Trust was named as a defendant in an additional purported class action lawsuit related to the Trust's merger with the four real estate limited partnerships. The plaintiffs have asserted various claims, including breach of fiduciary and contractual duties and various securities law violations, against the parties to the merger and are seeking monetary damages. The Trust is also a defendant in a lawsuit over claims of breach of contract and civil conspiracy allegedly injuring a commercial tenant in a building sold by the Trust to Dallas Area Rapid Transit ("DART") under threat of eminent domain. DART has agreed to indemnify, defend and hold harmless the Trust from any and all losses and liabilities arising from obligations under this lease. The Trust intends to vigorously defend against these claims. The lawsuits described above are on-going, therefore, management cannot predict the outcome of such litigation, however, management believes the liabilities, if any, that may ultimately result from such legal actions are not expected to have a material adverse effect on the consolidated financial position or results of operations of the Trust. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS On May 27, 1998, an Annual Meeting of Shareholders was held for purposes of electing seven Trust Managers and to ratify the selection of independent auditors. Results of the items voted on are as follows: 1. Election of Trust Managers
FOR WITHHELD --------- -------- William H. Bricker.......................................... 8,643,578 59,151 T. Patrick Duncan........................................... 8,643,999 58,730 Robert E. Giles............................................. 8,645,829 56,900 Edward B. Kelley............................................ 8,641,043 61,686 Stanley J. Kraska, Jr. ..................................... 8,645,091 57,638 Russell C. Platt............................................ 8,644,990 57,739 Charles W. Wolcott.......................................... 8,644,361 58,368
13 16 2. Ratification of Ernst & Young LLP as Independent Auditors
FOR AGAINST ABSTAIN --- ------- ------- 8,649,770.. 28,499 24,460
On November 20, 1998, a Special Meeting of Shareholders was held for the approval of the issuance of up to 11,064,193 shares and 10,266,795 Series A Convertible Preferred Shares of Beneficial Interest pursuant to (i) the Share Purchase Agreement, effective July 30, 1998, between the Trust and DDR, as amended on September 14, 1998, and (ii) the Agreement and Plan of Merger, dated as of July 30, 1998, among the Trust, DDR and DDR Office Flex Corporation. This proposal was approved by the shareholders by the following vote: 10,378,429 for, 258,986 against and 108,222 abstained. PART II. ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The Trust's Shares are listed and traded on the New York Stock Exchange (the "NYSE") under the symbol "IND." The following table sets forth for the periods indicated the high and low closing sales price of the Trust's Shares, and the cash distributions declared per Share:
QUARTER ENDED HIGH LOW DISTRIBUTIONS ------------- ---- --- ------------- December 31, 1998......................................... $11 3/4 $11 3/16 $.20 September 30, 1998........................................ 10 1/16 9 7/8 .20 June 30, 1998............................................. 13 12 7/16 .20 March 31, 1998............................................ 13 7/8 13 1/4 .18 December 31, 1997......................................... 15 5/16 13 1/4 -- September 30, 1997(a)..................................... 15 15/16 14 3/8 -- June 30, 1997(a).......................................... 15 5/8 11 7/8 -- March 31, 1997(a)......................................... 13 3/4 11 1/4 .20
As of March 29, 1999, the closing sale price per Share on the NYSE was $11.00. On such date, there were 20,486,409 outstanding Shares held by 8,856 shareholders of record. On January 29, 1998, the Trust reinstated quarterly distributions to shareholders. A distribution of $0.18 per Share was paid on April 14, 1998 and a distribution of $0.20 was paid on July 14, 1998, October 14, 1998 and January 20, 1999. In addition, the Trust declared a distribution of $0.20 per Share payable on April 15, 1999 to shareholders of record on April 5, 1999. The Trust anticipates paying distributions for the foreseeable future. 14 17 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data for the Trust and its subsidiaries for each of the five years in the period ended December 31, 1998. This information should be read in conjunction with the discussion set forth in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements of the Trust and accompanying Notes included elsewhere in this Form 10-K.
YEAR ENDED DECEMBER 31, ------------------------------------------------- 1998 1997 1996 1995 1994 -------- -------- ------- ------- ------- (IN THOUSANDS EXCEPT PER SHARE DATA) OPERATING DATA: Property revenues..................... $ 48,357 $ 12,201 $11,320 $11,410 $11,080 Income from property operations....... 32,311 7,886 7,298 7,559 7,128 Net income (loss)(a).................. (10,070) 1,799 1,255 (4,584) (4,655) ======== ======== ======= ======= ======= Per share (Basic and Diluted):(b) Net income (loss)(a)............... $ (0.82) $ 0.54 $ 0.70 $ (2.55) $ (2.55) ======== ======== ======= ======= ======= Distributions declared............. 0.78 -- 0.20 0.20 -- ======== ======== ======= ======= ======= BALANCE SHEET DATA:(C) Total assets.......................... $500,330 $258,395 $78,936 $89,382 $92,550 ======== ======== ======= ======= ======= Total debt............................ 266,539 121,426 53,216 62,815 65,613 ======== ======== ======= ======= ======= Shareholders' equity.................. 205,579 121,771 22,683 19,248 24,196 ======== ======== ======= ======= =======
- --------------- (a) Net loss for 1998, 1995 and 1994 include provisions for possible losses on real estate of $10,060, $600 and $650, respectively. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of the Trust" for a discussion of extraordinary gains (losses) of $(5,803), $2,643 and $5,810 in 1998, 1997 and 1996, respectively. (b) Diluted earnings per share is the same as basic earnings per share as all outstanding options were anti-dilutive for each period presented. (c) The Trust acquired $237 million in assets in 1998 and incurred or assumed $150 million in net new debt during the year. Net proceeds from private placements of Shares totaled approximately $105 million in 1998. 15 18 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with "Item 6. Selected Financial Data" and the Consolidated Financial Statements of the Trust and accompanying Notes included elsewhere in this Form 10-K. The statements contained in this report that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may differ materially from those included in the forward-looking statements. These forward-looking statements involve risks and uncertainties including, but not limited to, changes in general economic conditions in the markets that could impact demand for the Trust's properties and changes in financial markets and interest rates impacting the Trust's ability to meet its financing needs and obligations. RESULTS OF OPERATIONS Comparison of 1998 to 1997 During 1998, the Trust completed acquisitions with an aggregate purchase price of $237 million. As a result of these acquisitions, the weighted average property square footage owned by the Trust increased to 5,453,000 in 1998 from 1,687,000 in 1997, an increase of 221%. Property revenues increased 296% to $48,357,000 in 1998 from $12,201,000 in 1997, and income from property operations (which is defined as property revenues less property operating expenses, excluding depreciation and amortization, interest expense, Trust administration and overhead expenses, or provision for possible losses on real estate) increased 310% to $32,311,000 in 1998 from $7,886,000 in 1997. On a same property basis, for properties owned as of January 1, 1997, property revenues increased to $9,916,000 in 1998 from $9,527,000, an increase of 4.1%, comprised of a 3.2% increase in revenue related to industrial properties, a 16.7% increase in revenue related to one office property and a 3.3% increase in revenue at the Trust's retail property in Denver, Colorado. These increases in revenue stemmed principally from an increase in rental rates and/or an increase in overall occupancy at a number of the properties. Overall leased occupancy of the Trust's portfolio was 91.9% at December 31, 1998 compared to 92.4% at December 31, 1997. On a same property basis, income from property operations increased to $6,073,000 in 1998 from $5,920,000 in 1997, an increase of 2.6%. This overall increase is a result of the increase in revenue explained above and is comprised of a 1.0% increase related to industrial properties, a 38.3% increase related to one office property and a 1.7% increase related to the Trust's retail properties. Same property operating expenses increased by 6.5%, primarily as a result of higher property taxes. Due to the small number of properties in the same property comparison, results can be unduly influenced by results from, or non-renewal of, a single large lease. Loss from operations increased to $4,295,000 in 1998 from $3,007,000 in 1997 as a result of the increase in income from property operations explained above, an increase in total interest expense of $9,361,000 due to an additional $145,100,000 in property financing in 1998 and a full year of interest expense on properties acquired in 1997 and a provision for losses on real estate of $10,060,000 (see below). In addition, Trust administration and overhead expenses increased $1,225,000 due to a 170% increase in full time employees, expensing internal acquisition department costs in accordance with Emerging Issues Task Force Consensus No. 97-11 ("EITF 97-11") and higher general costs due to the increased activity of the Trust in 1998. Depreciation and amortization increased $5,226,000 due to the acquisition of properties in 1998 and a full year of depreciation on properties acquired in 1997. In December 1998, the Trust recorded a provision for possible loss of $10,060,000 as a result of its decision to sell its retail property in Colorado in 1999. The Trust estimated the net sale proceeds to be received on such sale and recorded the provision. The estimate of net sale proceeds is based on subjective judgments. The actual proceeds to be received in the event of a sale will most likely differ from the estimated net sale proceeds and may differ substantially. The difference, if any, will be reflected as a gain or loss on sale of real estate at such time. 16 19 During 1998, the Trust recognized extraordinary losses totaling $5,803,000 ($0.47 per Share) comprised of loss on extinguishment of debt of $23,000 and costs related to a change in control of $5,780,000. The costs related to change in control include approximately $2,484,000 for payments made to the Trust's senior officers under severance and change in control agreements which were triggered when DDR's ownership position exceeded 33%, an accrual of $2,960,000 related to the fair market value of future payments through 2008 to the senior officers under previously granted dividend equivalent rights, approximately $300,000 related to vesting of restricted shares previously granted to the senior officers and $36,000 in payroll taxes associated with the payments to the senior officers. In 1997, the Trust recognized extraordinary gains on the extinguishment of debt of $2,643,000 ($0.80 per Share). During 1997, the Trust sold two properties for a total gain of $2,163,000 ($0.65 per Share). The Trust did not sell any properties in 1998. The Trust's emphasis in the light industrial sector is ideally suited for the entrepreneurial segment of the economy, which consistently leads the United States in job growth. This property type is attractive to technology companies, which typically prefer flexible property space. The majority of the Trust's properties are situated in markets that have a concentration of technology firms, such as San Francisco, San Diego, and Northern Virginia. Comparison of 1997 to 1996 During 1997, the Trust completed acquisitions with an aggregate purchase price of $166.7 million. The majority of these acquisitions occurred during the latter part of the fourth quarter of 1997 and, as a result, did not materially impact the results of operations for 1997. The Trust's weighted average property square footage increased to 1,687,000 in 1997 from 1,577,000 in 1996, an increase of 7.0%. Property revenues increased 7.8% to $12,201,000 in 1997 from $11,320,000 in 1996, and income from property operations increased 8.1% to $7,886,000 in 1997 from $7,298,000 in 1996 as a result of these acquisitions. On a same property basis, property revenues increased to $9,814,000 in 1997 from $9,422,000 in 1996, an increase of 4.2%, comprised of a 7.3% increase in revenue related to industrial properties and a 1.6% decrease in revenue at the Trust's retail property in Denver, Colorado. The decrease in revenue at the Trust's retail property stemmed principally from slower than anticipated leasing of vacancies and higher tenant rollover. The sale of two properties in 1997, one in the first quarter and one in the fourth quarter, resulted in a net decrease in 1997 combined property revenue of $229,000 and a net increase in income from property operations of $141,000 when compared to 1996. Overall leased occupancy of the Trust's portfolio was 92.4% at December 31, 1997 compared to 94.2% at December 31, 1996, reflecting lower occupancy rates of certain properties acquired during the fourth quarter of 1997. On a same property basis, income from property operations increased to $6,209,000 in 1997 from $5,987,000 in 1996, an increase of 3.7%. This overall increase is comprised of an 8.0% increase related to industrial properties and a 5.2% decrease related to the Trust's retail properties. The decrease in the Trust's retail properties is a result of the decrease in revenue explained above, as well as increase in expenses due to higher repairs and maintenance costs. Same property operating expenses increased by 4.9%, primarily as a result of higher property taxes. Loss from operations decreased to $3,007,000 in 1997 from $4,732,000 in 1996 as a result of the increase in income from property operations explained above, an increase in interest income of $388,000 (due to the private equity placements in 1997 of approximately $35 million), a decrease in total interest expense of $123,000 (due to the paydown of debt during late 1996 and 1997 as offset by an accrual of $1,022,000 of interest expense related to the conversion of certain debt to equity in December 1997), a decrease in Trust administration and overhead expenses of $874,000 (due to the conclusion of shareholder litigation in 1996 as offset by higher general costs due to the increased activity of the Trust in 1997), and an increase in depreciation and amortization of $248,000 (due to the acquisition of properties during the fourth quarter of 1997). During 1997 and 1996, the Trust recognized extraordinary gains on extinguishment of debt of $2,643,000 ($0.80 per Share) and $5,810,000 ($3.20 per Share), respectively, resulting from the settlement of litigation. 17 20 During 1997, the Trust sold two properties for a total gain of $2,163,000 ($0.65 per Share) compared to the sale of two properties for a total gain $177,000 ($0.10 per Share) in 1996. Analysis of Cash Flows COMPARISON OF 1998 TO 1997 Cash flow provided by operating activities in 1998 was $2,961,000. This results from the Trust's net loss of $10,070,000 offset by net non-cash charges totaling $21,984,000 related to change in control costs, provision for possible real estate losses, minority interests, depreciation and amortization and issuance of shares to Trust Managers. This is offset by an increase in restricted cash of $3,301,000 and other assets of $10,073,000. In addition, an increase in accounts payable, other liabilities and tenant security deposits of $3,213,000 and an increase in accrued interest of $1,208,000 further increased cash flow provided by operating activities. Cash flow used in investing activities in 1998 was $179,673,000, representing amounts expended on the acquisition of real estate and related working capital totaling $172,133,000 and capitalized expenditures of $7,540,000. Cash flow provided by financing activities in 1998 was $171,174,000. This amount reflects net proceeds from mortgage financings and notes payable of $153,273,000 and proceeds from the private placements of Shares for net proceeds of $28,578,000 offset by the payment of loan costs of $1,852,000, the repurchase of Shares totaling $1,600,000 and distributions to shareholders and limited partnership unit holders of $7,225,000. Cash flow used in operating activities in 1997 was $776,000. This is primarily the net result of property operations, interest expense, administrative expenses, and an increase in restricted cash as a result of the Trust's property acquisitions and financings in 1997. Other assets increased $1,318,000 and restricted cash increased $1,019,000 in 1997. In addition, administrative expenses includes $439,000 in litigation and proxy costs which management believes is of a non-recurring nature. Cash flow used in investing activities in 1997 was $61,898,000, representing proceeds from the sale of two properties of $7,129,000, amounts expended on the acquisition of real estate and related working capital totaling $67,116,000, and capitalized expenditures of $1,911,000. Cash flow provided by financing activities in 1997 was $70,347,000. This amount reflects proceeds from the mortgage financing on fifteen properties of $44,001,000, proceeds from the private placements of Shares in July 1997 and December 1997 for net proceeds of $33,481,000, the payment of loan costs of $169,000 and principal repayments on mortgage and notes payable totaling approximately $6,340,000. FUNDS FROM OPERATIONS The Board of Governors of the National Association of Real Estate Investment Trusts, Inc. ("NAREIT") defines Funds from Operations ("FFO") as net income (loss) computed in accordance with generally accepted accounting principles, excluding gains or losses from debt restructuring and sales of property, plus real estate related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. The Trust calculates FFO in a manner consistent with the NAREIT definition. In addition, NAREIT recommends that extraordinary items or significant non-recurring items that distort comparability should not be considered in arriving at FFO. Accordingly, the Trust does not include extraordinary items, provision for possible losses on real estate or the non-recurring interest accrual related to the conversion of the modified notes held by an affiliate into Shares. The Trust believes FFO is an appropriate measure of performance relative to other REITs. FFO provides investors with an understanding of the ability of the Trust to incur and service debt and make capital expenditures. There can be no assurance that FFO presented by the Trust is comparable to similarly titled measures of other REITs. While other REITs may not always use a similar definition, this information does add comparability to those which have adopted the NAREIT definition. FFO should not be considered as an alternative to net income or other measurements under generally accepted accounting principles as an indicator of the Trust's operating performance or to cash flows from operating, investing, or financing activities 18 21 as a measure of liquidity. FFO does not reflect working capital changes, cash expenditures for capital improvements, or principal payments on indebtedness. The following table shows the Trust's cash flows from its operating, investing and financing activities prepared in accordance with generally accepted accounting principles:
YEAR ENDED DECEMBER 31, ------------------------------ 1998 1997 1996 --------- -------- ------- (IN THOUSANDS) Net cash provided by (used in) operating activities......................................... $ 2,961 $ (776) $(4,764) ========= ======== ======= Net cash provided by (used in) investing activities......................................... (179,673) (61,898) 5,173 ========= ======== ======= Net cash provided by (used in) financing activities......................................... 171,174 70,347 (4,093) ========= ======== =======
The following table shows the Trust's calculation of FFO:
YEAR ENDED DECEMBER 31, ---------------------------------------- 1998 1997 1996 ------------ ----------- ----------- (IN THOUSANDS, EXCEPT NUMBER OF SHARES) Net Income (Loss)............................... $ (10,070) $ 1,799 $ 1,255 Exclude effects of: Extraordinary items: (Gain) loss on extinguishment of debt.... 23 (2,643) (5,810) Provision for change in control costs.... 5,780 -- -- Gain on sales of real estate............... -- (2,163) (177) Provision for possible losses on real estate................................... 10,060 -- -- Real estate depreciation and amortization............................. 8,108 3,144 2,890 Default rate interest...................... -- -- 369 Minority interest in operating partnerships............................. (188) -- -- Non-recurring interest accrual assuming future conversion of debt to equity...... -- 1,022 -- ----------- ---------- ---------- Funds from Operations........................... $ 13,713 $ 1,159 $ (1,473) =========== ========== ========== Weighted average Shares and operating partnership units outstanding(a).............. 12,484,472 3,317,004 $1,821,648 =========== ========== ==========
YEAR 2000 ISSUES Some older computer software was written using two digits rather than four to define the applicable year. As a result, those computer programs have time-sensitive programming software that recognize a date using "00" as the year 1900 rather than the year 2000. This could cause a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, create tenant statements, or engage in similar normal business activities. The Trust's plan to resolve Year 2000 issues involves the following four phases: assessment, remediation, testing and implementation. To date, the Trust has assessed all existing internally used hardware and systems (both information technology and non-information technology) that could be significantly affected by the Year 2000 issue. Based on these assessments, management believes that existing hardware and systems used by the Trust are Year 2000 compliant. Additionally, as of December 31, 1998, the Trust has successfully upgraded the existing network and property operations/accounting systems. These upgrades were instituted to meet current and future needs of the Trust, not as a result of our initial Year 2000 assessment. The Trust has taken precautions, including testing these systems prior to implementation, to insure that all upgrades and modifications are Year 2000 compliant. The Trust has queried and/or received disclosure statements from significant external service providers. To date, the Trust is not aware of any Year 2000 problems with these third parties that would materially impact the Trust's results of operations, liquidity or capital resources. However, the Trust has no means of ensuring that external service providers will be Year 2000 compliant. The inability of these service providers to complete their Year 2000 resolution processes in a timely manner could impact the Trust. The effect of non- 19 22 compliance by service providers is not determinable. The Trust is also reviewing all properties which may use date sensitive software in elevators, heating and cooling equipment and security systems to confirm no problem exists. Although a potential area of significant exposure to the Trust is the contracting to third parties of property management, accounting, and leasing services, the Trust generally utilizes thirty-day cancelable contracts and, should a material risk arise with respect to the Year 2000 problem, anticipates terminating the contract and hiring a new vendor. In addition, the Trust has initiated the transition to internal property management, accounting and leasing of its own properties, thereby significantly reducing the use of third parties in these areas. As noted above, the Trust has completed the initial assessment and believes the existing internal systems and upgrades are Year 2000 compliant. The Trust does not expect historical and future costs related to the Year 2000 issue to have a material effect on the consolidated financial position or results of operations of the Trust. Although management does not currently believe that the effect of the Year 2000 problem will have a material impact on the Trust, there is no guarantee that unforeseen circumstances will not arise which could cause a material adverse effect upon the Trust's operations. LIQUIDITY AND CAPITAL RESOURCES The principal sources of funds for the Trust's liquidity requirements are funds generated from operation of the Trust's real estate assets, equity offerings, debt financings and/or refinancings, and unrestricted cash reserves. In addition, the Trust may from time to time sell properties that do not compliment the Trust's property emphasis or geographic target markets. Proceeds from such sales could be used for working capital purposes, debt reduction or reinvested into other properties. As of December 31, 1998, the Trust had $6.1 million in unrestricted cash. During 1998, the Trust purchased $237 million in properties and, on January 15, 1999, the Trust purchased a $127 million portfolio. In order to fund this growth, the Trust entered into several equity transactions during 1998. In January 1998, the Trust completed a $10 million private placement of Shares at $13.625 per Share. In February 1998, two shareholders exercised their preemptive rights and acquired $8.7 million of Shares at $13.625 per Share. In August 1998, the Trust entered into a definitive agreement providing for a strategic investment by DDR in the Trust. Under the terms of the agreement, DDR was obligated to purchase $115 million of equity (Shares up to 49.9% ownership and preferred shares thereafter) and up to $200 million in additional equity, subject to certain conditions, to fund property acquisitions approved by the Trust's Board. From August 1998 through March 29, 1999, DDR purchased 9.3 million Shares for $143 million. Proceeds of these equity placements were used for property acquisitions. In addition to the equity raised, the Trust utilized both long term and short term secured financing to fund property acquisitions. The Trust has a $75 million secured acquisition line with PSCC which bears interest at a variable rate based on LIBOR plus 1.75%. The Trust currently has approximately $68.5 million outstanding under this line. In January 1999, the Trust initiated a secured acquisition credit facility with Bank One. The agreement contemplates a $150,000,000 credit line of which Bank One has committed to $25,000,000. The remainder of the credit line will be syndicated on a "best efforts" basis by Bank One. The credit line, which will be secured by mortgage liens on properties, provides for a graduated variable interest rate (depending on the Trust's overall leverage) of LIBOR plus 1.4% to LIBOR plus 2.0%, a maximum loan to value of 60%, and a maturity in January 2001. As of March 29, 1999, the Trust has $13.0 million outstanding under this credit line, which bears interest at LIBOR plus 1.75%, currently 6.7125%. At December 31, 1998, the Trust had $252.5 million in mortgage debt outstanding, of which approximately $141.3 million was represented by fixed rate debt with an effective weighted average interest rate of 7.44%, and $111.2 million was represented by variable rate debt with a weighted average interest rate of 6.95%. These weighted average interest rates represent an average of the applicable stated interest rate and do not include the amortization of deferred loan costs (or debt premiums) which will produce a higher (or lower) weighted average interest rate. The variable rate debt is comprised of $68.5 million borrowed under the Trust's secured acquisition line and $42.7 million borrowed under a bridge loan. The bridge loan was repaid with 20 23 proceeds from a permanent financing on January 8, 1999. The Trust also had $14.1 million of unsecured borrowings from DDR with an interest rate at December 31, 1998 of 10.25%. The unsecured borrowings from DDR were repaid in full in January 1999. At December 31, 1998, the Trust's total market capitalization (based upon a December 31, 1998 closing Share price of $11.69 per Share) was approximately $461.5 million. Based upon this amount, the Trust's debt to total market capitalization at December 31, 1998 was 56.3%. The Trust is currently operating at higher levels of leverage than it would foresee on a longer term basis. The Trust believes that the use of leverage is justified given existing acquisition prospects and the benefits of the Trust's transition to a larger entity. Although there is no assurance of ultimate availability, the Trust anticipates that equity will be raised in the future will serve to deleverage the Trust. On a long term basis, the Trust expects to meet liquidity requirements generated by property operating expenses, debt service, and future distributions with funds generated by the operations of its real properties. Should such funds not cover these needs, the possibility of future distributions may be reduced or eliminated. Although the Trust believes that its current leverage is justified, the risk of financial default could rise substantially if the Trust is unable to complete future equity offerings or if property operating results decline. The nature of the Trust's operating properties, which generally provide for leases with a term of between three and five years, results in an approximate annual turnover rate of 20% to 25% of the Trust's tenants and related revenue. Such turnover requires capital expenditures related to tenant improvements and leasing commissions, capital repairs and replacements, initial capital expenditures, (which are costs necessary to bring acquired properties to intended leasable condition at the time of acquisition), and expansions and renovations related to properties acquired in order to maintain or improve the Trust's occupancy levels. These costs were $7,540,000 in the year ended December 31, 1998, compared to $1,911,000 in the year ended December 31, 1997. These costs have historically been funded out of the Trust's operating cash flow and cash reserves. The Trust has made no commitments for additional capital expenditures beyond those related to normal leasing and releasing activities, related escrows and initial capital expenditures. The Trust initiated distributions during 1998 at $0.18 per Share for the first quarter and increased the distribution to $0.20 per Share for the second, third and fourth quarters. The Trust's distribution policy is to conserve capital by, over time, lowering its FFO payout ratio. During 1998, the Trust declared a total of $0.78 per share in dividends, which represents an FFO payout ratio of 71%. The Trust believes that the minimum FFO payout ratio in order to comply with the requirement to distribute 95% of taxable income, is approximately 50-55% based on the Trust's current capital structure. Future distributions will be at the discretion of the Board of Trust Managers. The Trust has approximately $34,301,000 in net operating loss carryforwards, a portion of which could be utilized to reduce the payout of 95% taxable income required by the Internal Revenue Code. On February 18, 1998, the Trust filed a Form S-3 shelf registration with the Securities and Exchange Commission which would provide for the issuance of up to $500 million in Shares, Preferred Shares of Beneficial Interest, unsecured senior debt securities and/or warrants to purchase such securities in amounts, at prices and on terms to be determined by market conditions at the time of future offerings. The Trust anticipates utilization of this shelf registration in the future to fund acquisitions and growth of the Company. On March 9, 1998, the Board of Trust Managers authorized a Share repurchase program allowing the Trust to purchase up to 1,000,000 shares from time to time in open market transactions, as price and market conditions allowed, over the following six months. Through August 31, 1998, the Trust had purchased 123,783 shares in the open market, for an aggregate cost of $1,598,000. These Shares are held in Treasury. Under the terms of its agreement with DDR, the Trust is prohibited from purchasing its own Shares if such purchases would result in DDR owning in excess of 49.9% of the Trust's outstanding Shares. 21 24 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The following discussion about the Trust's risk management includes forward-looking statements that involve risks and uncertainties. Actual results could differ materially from the results discussed in the forward-looking statements. The Trust's primary market risk exposure is to changes in interest rates. The Trust is exposed to market risk related to its secured acquisition line and secured bridge loan, with PSCC and the Bank One credit line as discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operation -- Liquidity and Capital Resources." The interest on the acquisition line, bridge loan and credit line are subject to fluctuations in the market. The Trust also uses long-term and medium-term secured debt as a source of capital. These debt instruments are typically issued at fixed interest rates. When these debt instruments mature, the Trust typically refinances such debt at then-existing market interest rates which may be more or less than the interest rates on the maturing debt. If the interest rate for variable rate debt was 100 basis points higher or lower during 1998, the Trust's interest expense would have been increased or decreased by approximately $700,000. There is no fixed rate debt maturing in 1999. The Trust historically has not hedged its exposure to fluctuations in interest rates and currently has no plans to do so in the future. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data are listed in the Index to Financial Statements and Financial Statement Schedule appearing on Page F-1 of this Form 10-K. ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 22 25 PART III. ITEM 10. TRUST MANAGERS AND EXECUTIVE OFFICERS OF THE REGISTRANT On July 30, 1998, in connection with the execution of a definitive agreement for an investment in the Trust by DDR, the Trust increased the number of Trust Managers on the Board of Trust Managers from seven to eleven and appointed DDR nominees Scott A. Wolstein, James A. Schoff, Robert H. Gidel and Albert T. Adams as Trust Managers. Mr. Wolstein was also elected to the position of Chairman of the Board of Trust Managers on July 30, 1998. The persons who serve as Trust Managers and executive officers of the Trust, their ages and their respective positions are as follows:
NAME AGE POSITION(S) AND OFFICE(S) HELD ---- --- ------------------------------ Scott A. Wolstein.................... 46 Chairman of the Board of Trust Managers Albert T. Adams...................... 48 Trust Manager William H. Bricker................... 67 Trust Manager T. Patrick Duncan.................... 50 Trust Manager Robert H. Gidel...................... 47 Trust Manager Robert E. Giles...................... 51 Trust Manager Edward B. Kelley..................... 58 Trust Manager Stanley J. Kraska, Jr. .............. 39 Trust Manager J. Timothy Morris.................... 32 Trust Manager James A. Schoff...................... 53 Trust Manager Charles W. Wolcott................... 46 Trust Manager, President and Chief Executive Officer Lewis D. Friedland................... 39 Executive Vice President and Chief Operating Officer Marc A. Simpson...................... 44 Senior Vice President and Chief Financial Officer, Secretary and Treasurer David B. Warner...................... 40 Senior Vice President -- Real Estate Operations
Scott A. Wolstein was appointed as a Trust Manager and as Chairman of the Board of Trust Managers on July 30, 1998. Mr. Wolstein became Chairman of DDR in February 1997, and has served as President and Chief Executive Officer of DDR since its organization in 1992 and February 1993 initial public offering. Mr. Wolstein was a principal and executive officer of DDR's predecessors prior to 1993. Mr. Wolstein is a graduate of the Wharton School at the University of Pennsylvania and of the University of Michigan Law School. Following his graduation from the University of Michigan Law School, Mr. Wolstein was associated with the Cleveland law firm of Thompson, Hine & Flory. He is currently a member of the Board of Trustees of the National Association of Real Estate Investment Trusts and the International Council of Shopping Centers and serves as the General Co-Chairman of the Cleveland Campaign for the State of Israel Bonds. He is also a member of the Young Presidents Organization, The Urban Land Institute, the National Realty Committee and the Wharton Real Estate Center. Albert T. Adams was appointed as a Trust Manager on July 30, 1998. Mr. Adams has been a partner with the law firm of Baker & Hostetler LLP in Cleveland, Ohio, since 1984, and has been affiliated with the firm since 1977. Mr. Adams is a graduate of Harvard College, Harvard Business School and Harvard Law School. He serves as a member of the Board of Trustees of the Greater Cleveland Roundtable and of the Western Reserve Historical Society and is a Vice President of the Harvard Business School Club of Northeastern Ohio. Mr. Adams also serves as a director of DDR, Associated Estates Realty Corporation, Boykin Lodging Company, Captec Net Lease Realty, Inc. and Dairy Mart Convenience Stores, Inc. William H. Bricker has served as a Trust Manager of the Trust since September 1985. Mr. Bricker has served as President of DS Energy Services Incorporated and has consulted in the energy field and on 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 23 26 Paralysis Foundation. He received his Bachelor of Science and Master of Science degrees from Michigan State University. T. Patrick Duncan has served as a Trust Manager since December 1996 Mr. Duncan joined USAA Real Estate Company ("Realco") in November 1986 as Chief Financial Officer. With over 24 years of experience, Mr. Duncan serves as Senior Vice President of Real Estate Operations with responsibilities which include the direction of all acquisitions, sales, management and leasing of real estate for USAA-affiliated companies. Mr. Duncan received degrees from the University of Arizona in Accounting and Finance. He is a Certified Public Accountant, Certified Commercial Investment Manager, and holds a Texas Real Estate Broker's License. Mr. Duncan is also a member of the Board of Directors of Meridian Industrial Trust and a member of the Board of Directors of USAA Equity Advisors, Inc. Robert H. Gidel was appointed as a Trust Manager on July 30, 1998. Mr. Gidel has been the managing partner of Liberty Partners, LP, an investment partnership formed to purchase securities interests in private and public real estate companies, since 1993. Prior to this, Mr. Gidel was a Managing Director and Member of the Board of Directors of Alex. Brown Kleinwort Benson Realty Advisors, a real estate investment management firm formed in 1990 as a merger of Alex. Brown Realty Advisors ("ABRA") and Financial Investment Advisors. Mr. Gidel had been President of ABRA since 1986. From 1981-1985, Mr. Gidel served in a wide range of positions at Heller Financial and its subsidiary, Abacus Real Estate Finance. He is a graduate of University of Florida's Warrington College of Business with a major in real estate. Mr. Gidel is currently the Chairman of the Real Estate Advisory Board at the College of Business and a Hoyt Fellow at the Homer Hoyt Institute. Robert E. Giles has served as a Trust Manager since March 1996. Mr. Giles is currently the owner and President of Robert E. Giles Interests, Inc., a real estate consulting and development firm based in Houston, Texas. Mr. Giles also serves as President of Title Network, Ltd., a national title insurance agency. Mr. Giles was a Vice President with the J.E. Robert Companies, Inc. from 1994 to 1995. From 1990 to 1994, Mr. Giles was President and a Director of National Loan Bank, a publicly-held company created through the merger of Chemical Bank and Texas Commerce Bank. Mr. Giles received his Bachelor of Arts degree from University of Texas -- Austin in 1970 and received a Master of Arts degree from University of Texas -- Arlington in 1973. Edward B. Kelley has served as a Trust Manager since December 1996. Mr. Kelley is President of Realco. He joined Realco in April 1989 as Executive Vice President and Chief Operating Officer before assuming his new title in August 1989. Mr. Kelley received his Bachelor of Business Administration degree from St. Mary's University in 1964 and a Masters in Business Administration from Southern Methodist University in 1967, and is a Member of the Appraisal Institute ("MAI"). Mr. Kelley is a member of the Board of Directors of USAA Equity Advisors, Inc. Stanley J. Kraska, Jr. has served as a Trust Manager since July 1997,when he was appointed as an independent Trust Manager at the request of ABKB/LaSalle Securities Limited Partnership ("ABKB") and LaSalle Advisors Capital Management, Inc. ("LaSalle Advisors") pursuant to the terms of the Common Share Purchase Agreements between the Trust and ABKB (as agent for the benefit of a particular client) dated as of July 3, 1997. Mr. Kraska has been employed by ABKB or its affiliates since February 1988. He currently serves as Managing Director, with responsibility for private placement investment. Mr. Kraska graduated from Dartmouth College in 1982 with a Bachelor of Arts degree and received a Master of Business Administration degree from Harvard University in 1986. J. Timothy Morris has served as a Trust Manager since January 15, 1999. Mr. Morris is a Principal at Morgan Stanley Dean Witter and head of Morgan Stanley's Real Estate Special Situations Program. Mr. Morris has over 11 years of experience at Morgan Stanley in the investment banking direct investment areas. Prior to heading up the Special Situations initiative, Mr. Morris spent five years in Hong Kong running Morgan Stanley's real estate business for Asia. Mr. Morris currently serves on the boards of Grove Property Trust and Tower Realty Trust, as well as on the boards of two private REITs. He is a graduate of Indiana University and holds a Bachelors degree in Finance. 24 27 James A. Schoff was appointed as a Trust Manager on July 30, 1998. Mr. Schoff is Vice Chairman of the Board and Chief Investment Officer of DDR. Prior to this promotion, Mr. Schoff served as DDR's Executive Vice President and Chief Operating Officer from the time of the DDR's initial public offering, and he was a principal and executive officer of DDR's predecessors. Mr. Schoff is a graduate of Hamilton College and Cornell University Law School. Mr. Schoff practiced law with the firm of Thompson, Hine and Flory where he specialized in the acquisition and syndication of real estate properties. Mr. Schoff currently serves as a member of the Executive Committee and Board of Trustees of the Western Reserve Historical Society and the National Committee for Community and Justice. Charles W. Wolcott currently serves as Trust Manager, President and Chief Executive Officer. Mr. Wolcott was hired as the President and Chief Executive Officer of the Trust in May 1993 and has served as a Trust Manager since August 1993. Mr. Wolcott was President and Chief Executive Officer for Trammell Crow Asset Services, a real estate asset and portfolio management affiliate of Trammell 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 Master of Business Administration degree from Harvard University in 1977. Lewis D. Friedland currently serves as Executive Vice President and Chief Operating Officer. He was hired as the Vice President and Chief Investment Officer of the Trust in 1997. Prior to joining the Trust, Mr. Friedland was a founding partner of Crimson Partners, an investment firm formed in 1992 that engaged in the acquisition and development of real estate assets. Prior to founding this firm, he was a Division Partner and Managing Director of Trammell Crow Company where he was responsible for that firm's development, leasing, and property management activities in Richmond, Va. Mr. Friedland graduated from the Wharton School of the University of Pennsylvania in 1981 with a Bachelor of Science Degree in Economics and received a Master of Business Administration degree from Harvard University in 1985. Marc A. Simpson currently serves as Senior Vice President and Chief Financial Officer, Secretary and Treasurer. Mr. Simpson was hired as the Vice President and Chief Financial Officer, Secretary and Treasurer of the Trust in March 1994. From November 1989 through March 1994, Mr. Simpson was a Manager in the Financial Advisory Services Group of Coopers & Lybrand L.L.P. Prior to that time, he served as Controller of Pacific Realty Corporation, a real estate development company. Mr. Simpson graduated with a Bachelor of Business Administration from Midwestern State University in 1978, and received a Master of Business Administration from Southern Methodist University in 1990. David B. Warner currently serves as Senior Vice President-Real Estate Operations. Mr. Warner was hired as Vice President and Chief Operating Officer of the Trust in May 1993. From 1989 through the date he accepted a position with the Trust, Mr. Warner was a 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 Texas at Austin in 1981 with a degree in finance and received a Master of Business Administration from the same institution in 1984. COMMITTEES OF THE TRUST MANAGERS AUDIT COMMITTEE. The Audit Committee of the Trust Managers met twice during the 1998 fiscal year. The Audit Committee reviews and approves the scope and results of any outside audit of the Trust, and the fees therefore, and makes recommendations to the Trust Managers or management concerning auditing and accounting matters and the efficacy of the Trust's internal control systems. The Audit Committee selects the Trust's independent auditors subject to shareholder ratification. During the 1998 fiscal year, Messrs. Bricker, Kelley and Giles served on the Audit Committee. Current members of the Audit Committee are Messrs. Bricker, Kelley and Giles. COMPENSATION COMMITTEE. The Compensation Committee met three times during the 1998 fiscal year. The Compensation Committee recommends to the Board of Trust Managers guidelines for compensation and 25 28 benefits of the executive officers of the Trust based upon achievement of objectives and other factors. The Compensation Committee is also responsible for acting upon all matters concerning, and exercising such authority as is delegated to it under the provisions of, any benefit, retirement or pension plan. During the 1998 fiscal year, Messrs. Bricker, Duncan and Giles served on the Compensation Committee. Current members of the Compensation Committee are Messrs. Bricker, Duncan and Giles. INVESTMENT COMMITTEE. The Investment Committee met three times during 1998 prior to being dissolved on July 29, 1998. The Investment Committee reviewed potential real property acquisitions and made recommendations to the Board of Trust Managers. During the 1998 fiscal year, Messrs. Duncan, Giles, Kraska and Wolcott served on the Investment Committee. EXECUTIVE COMMITTEE. The Executive Committee was formed on July 29, 1998 and granted the power to authorize acquisitions and dispositions not to exceed $50 million and to bind the Trust to capital raising transactions not to exceed $100 million. The Executive Committee met seven times during 1998. During the 1998 fiscal year, Messrs. Wolstein, Gidel, Duncan and Wolcott served on the Executive Committee. Current members of the Executive Committee are Messrs. Wolstein, Gidel, Duncan, Morris and Wolcott. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The members of the Compensation Committee are Messrs. Bricker, Duncan and Giles. No executive officer of the Trust served as a member of the Compensation Committee or as a director of any other entity, one of whose executive officers served on the Compensation Committee or as a Trust Manager of the Company. COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT Based solely upon a review of Forms 3, 4 and 5 (and any amendments thereto) furnished to the Trust with respect to the 1998 Fiscal Year or written representations from certain reporting persons that no forms were required, no person failed to disclose on a timely basis, as disclosed in such forms, reports required by Section 16(a) of the Exchange Act. ITEM 11. EXECUTIVE COMPENSATION The following table summarizes the compensation paid by the Trust to the executive officers of the Trust for the three years ended December 31, 1998: SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION ------------ ANNUAL COMPENSATION SECURITIES NAME AND -------------------------- ALL OTHER UNDERLYING PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION OPTIONS ------------------ ---- -------- -------- ------------ ------------ Charles W. Wolcott..................... 1998 $223,750 $152,375 $1,120,630(2) 250,000 President and CEO 1997 202,500 153,750 8,071(6) 50,000 1996 195,000 100,000 8,039(6) -- Lewis D. Friedland..................... 1998 178,750 122,563 816,680(3) 135,000 Executive Vice President and COO(7) 1997 102,462 72,000 5,168(6) 35,000 Marc A. Simpson........................ 1998 135,000 66,150 542,305(4) 70,000 Senior Vice President and CFO, 1997 117,500 72,000 8,071(6) 20,000 Secretary and Treasurer 1996 110,000 55,000 8,039(6) -- David B. Warner........................ 1998 131,250 63,788 525,430(5) 70,000 Senior Vice President 1997 117,500 72,000 8,071(6) 20,000 Real Estate Operations 1996 110,000 55,000 8,039(6) --
26 29 - --------------- (1) Represents bonus payments for current year paid in January of the following year. (2) Includes change of control payment ($862,500), payments made under fully vested dividend equivalent rights granted in April 1998 ($116,000), vesting of restricted shares ($135,100) pursuant to change in control and contribution to Retirement and Profit Sharing Plan ($7,030). (3) Includes change of control payment ($693,750), payments made under fully vested dividend equivalent rights granted in April 1998 ($58,000), vesting of restricted shares ($57,900) pursuant to change in control and contribution to Retirement and Profit Sharing Plan ($7,030). (4) Includes change of control payment ($472,500), payments made under fully vested dividend equivalent rights granted in April 1998 ($29,000), vesting of restricted shares ($33,775) pursuant to change in control and contribution to Retirement and Profit Sharing Plan ($7,030). (5) Includes change of control payment ($455,625), payments made under fully vested dividend equivalent rights granted in April 1998 ($29,000), vesting of restricted shares ($33,775) pursuant to change in control and contribution to Retirement and Profit Sharing Plan ($7,030). (6) Trust's contribution to the Retirement and Profit Sharing Plan for current year made in January of following year. (7) Hired in May 1997. SEVERANCE AND CHANGE IN CONTROL AGREEMENTS On April 29, 1998, the Trust entered into Severance and Change in Control Agreements with each of Messrs. Wolcott, Friedland, Simpson and Warner, which agreements replaced and superseded existing Bonus and Severance Agreements with such officers. Among other things, the agreements provide that, upon a Change in Control (as defined), the respective officer will receive an amount equal to 2.50 times such officer's annualized base salary rate plus targeted bonus amount for the fiscal year in which the first event constituting a Change in Control occurs. In addition, each such officer will receive certain employee benefits for, in general, a one-year period commencing on the date of a Change in Control. Each agreement also provides that (1) if any payment made by the Trust to the respective officer would be subject to the "golden parachute" excise tax imposed under Section 4999 of the Internal Revenue Code of 1986, as amended, the Trust will pay to such officer an additional amount to offset the effects of such excise tax, (2) the Trust agrees to pay certain attorneys' and related fees and expenses incurred by the respective officer to enforce his rights under the agreement, and (3) all deferred or unvested awards under the Trust's Employee and Trust Manager Incentive Share Plan shall immediately vest upon a Change in Control and the officer shall have the right to exercise any vested awards during the balance of the award's term. Each agreement commenced on April 29, 1998 and continues for a five-year term and shall automatically renew for one-year terms unless earlier terminated in accordance with the agreement. CHANGE IN CONTROL Per the Severance and Change in Control Agreements, the term "Change in Control" is defined, among other things, as an acquisition of over 33% of the Trust's securities. On December 10, 1998, a Change in Control occurred upon the filing by DDR of Amendment No. 3 to Schedule 13D. Accordingly, payments totaling $2,484,375 to Messrs. Wolcott, Friedland, Simpson and Warner were made. In addition, outstanding options to purchase shares held by these employees became immediately exercisable and the restrictions on any restricted shares held by these employees were lifted. 27 30 OPTION GRANTS The following table sets forth the share option grants made in the 1998 Fiscal Year to each of the Trust's executive officers. The table also sets forth the potential realizable value that would exist for the options at the end of their ten-year terms, assuming compound rates of stock appreciation of 5% and 10%. The actual future value of the options will depend on the market value of the Company's Common Shares. All option exercise prices are based on a price higher than the market price on the grant date.
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES NUMBER OF % OF TOTAL OF SHARE PRICE APPRECIATION SHARES OPTIONS AT END OF TEN YEAR UNDERLYING GRANTED TO OPTION TERMS(1) OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION --------------------------- NAME GRANTED(2) FISCAL 1998 PER SHARE DATE 5% 10% ---- ---------- ------------ -------------- ---------- ------------ ------------ Charles W. Wolcott......... 200,000 43% $13.625 4/1/08 $1,673,015 $4,278,105 Lewis D. Friedland......... 100,000 22% 13.625 4/1/08 836,508 2,139,052 Marc A. Simpson............ 50,000 11% 13.625 4/1/08 418,254 1,069,526 David B. Warner............ 50,000 11% 13.625 4/1/08 418,254 1,069,526
- --------------- (1) "Potential Realizable Value" is disclosed in response to Securities and Exchange Commission rules, which require such disclosure for illustrative purposes only, and is based on the difference between the potential market value of shares issuable (based upon assumed appreciation rates) upon exercise of such options and the exercise price of such options. The values disclosed are not intended to be, and should not be interpreted as, representations or projections of future value of the Trust's shares or of the share price. (2) Share option grants vest in equal increments on their date of grant and on each of the first four anniversaries of their date of grant. All share options were vested on December 10, 1998 pursuant to the Change in Control. OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES The following table sets forth certain information concerning the value of the unexercised options as of December 31, 1998 held by the Trust's executive officers. No options were exercised in the 1998 Fiscal Year by any of the executive officers. AGGREGATE OPTION EXERCISES IN FISCAL 1998 AND FISCAL 1998 YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS OPTIONS AT 12/31/98 AT 12/31/98 --------------------------- --------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- ------------- ----------- ------------- Charles. W. Wolcott............................ 250,000 0 (a) (a) Lewis D. Friedland............................. 135,000 0 (a) (a) Marc A. Simpson................................ 70,000 0 (a) (a) David B. Warner................................ 70,000 0 (a) (a)
- --------------- (a) The Trust's share price at December 31, 1998 was $11.6875, which is less than the option exercise prices of either $13.625 or $15.00 per share. Therefore, the value of unexercised in-the-money options at December 31, 1998 is zero. TRUST MANAGER COMPENSATION In fiscal year 1998, the Trust paid an annual retainer of $25,000 to non-employee Trust Managers plus $1,000 for each Trust Manager meeting attended in person, $500 for each Trust Manager meeting attended via teleconference, $500 for each committee meeting attended in person and $250 for each committee meeting attended via teleconference. Additionally, the Trust Managers are reimbursed for their expenses incurred in connection with their duties as Trust Managers. Each non-employee Trust Manager has the right to receive 28 31 his annual retainer in cash and/or Shares. In addition to the annual retainer, Mr. Bricker earned $14,750, Mr. Giles earned $13,750, Mr. Kelley earned $7,500, Mr. Duncan earned $12,750, Mr. Kraska earned $11,250, Mr. Wolstein earned $2,250, Mr. Schoff earned $1,500, Mr. Gidel earned $2,250 and Mr. Adams earned $1,500 in 1998 for attendance at Board of Trust Managers and committee meetings. In December 1998, the Trust adopted a deferred compensation plan for non-employee Trust Managers which will give Trust Managers the option to defer receipt of fees otherwise payable. Such deferred fees are credited to a deferral account in units representing Shares. The value of the units is increased or decreased as measured by the market value of Shares. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding the beneficial ownership of Common Shares by (i) each Trust Manager, (ii) the Trust's Chief Executive Officer and each executive officer of the Trust, (iii) all Trust Managers and executive officers of the Trust as a group, and (iv) to the Trust's knowledge, by any person owning beneficially more than 5% of the outstanding shares of such class, in each case at March 29, 1999. Except as otherwise noted, each person named in the table has sole voting and investment power with respect to all Common Shares shown as beneficially owned by such person.
AMOUNT AND NATURE OF BENEFICIAL PERCENTAGE BENEFICIAL OWNER OWNERSHIP OF CLASS - ---------------- ----------------- ---------- Albert T. Adams........................................ 1,000(1) * William H. Bricker..................................... 4,400(2) * T. Patrick Duncan...................................... 600 * Robert H. Gidel........................................ 9,000(1) * Robert E. Giles........................................ 7,012(2) * Edward B. Kelley....................................... 1,000 * Stanley J. Kraska, Jr. ................................ 4,000(2) * J. Timothy Morris...................................... 0 * James A. Schoff........................................ 1,000(1) * Charles W. Wolcott..................................... 336,000(3) 1.60% Scott A. Wolstein...................................... 1,006(1)(9) * Lewis D. Friedland..................................... 158,383(4) * Marc A. Simpson........................................ 90,434(5) * David B. Warner........................................ 78,700(5) * USAA Real Estate Company............................... 1,680,086(6) 7.99% 9830 Colonnade Boulevard, Suite 600 San Antonio, Texas 782302239 Morgan Stanley, Dean Witter, Discover & Co. The Morgan Stanley Real Estate Special Situations Fund II, L.P. Morgan Stanley Asset Management Inc.................. 1,999,653(7) 9.51% 1585 Broadway New York, New York 10036 ABKB/LaSalle Securities Limited Partnership and LaSalle Advisors Limited Partnership......................... 1,502,578(8) 7.15% 100 East Pratt Street Baltimore, MD 21202 Scott A. Wolstein and Developers Diversified Realty Corporation.......................................... 9,401,817(9) 44.71% 34555 Chagrin Boulevard Moreland Hills, OH 44022 All Trust Managers and executive officers as a group (11 persons)......................................... 692,535(1)(2)(3)(4)(5) 3.29%
29 32 - --------------- * Ownership is less than 1% of outstanding Common Shares. (1) Includes vested options to purchase 1,000 Common Shares. (2) Includes vested options to purchase 4,000 Common Shares. (3) Includes vested options to purchase 250,000 Common Shares. (4) Includes vested options to purchase 135,000 Common Shares. (5) Includes vested options to purchase 70,000 Common Shares. (6) Based upon Amendment No. 4 to Schedule 13D filed jointly by United Services Automobile Association ("USAA"), USAA Capital Corporation ("USAA CC"), and USAA Real Estate Company ("Realco") on August 6, 1998. USAA is the sole stockholder of USAA CC and USAA CC is the sole stockholder of Realco. Based upon these relationships, USAA, USAA CC, and Realco have shared voting and dispositive power over 1,680,086 Common Shares. (7) Based upon Amendment No. 1 to Schedule 13D filed jointly by Morgan Stanley, MSAM and Morgan Stanley Real Estate Special Situations Fund II, L.P. on March 17, 1998 (the "MSAM Schedule 13D"), Morgan Stanley has sole voting and dispositive power over 120,231 Common Shares and shared voting and dispositive power over 1,879,422 Common Shares held by the investors for whom MSAM acts as an investment advisor (the "MSAM Purchasers"). Pursuant to separate investment management agreements between MSAM and MSRE, MSAM has been granted voting and dispositive power with respect to the Common Shares held by MSRE. MSAM has shared voting and dispositive power over 1,879,422 Common Shares held by the MSAM Purchasers and the Morgan Stanley Real Estate Special Situations Fund II, L.P. has shared voting and dispositive power over 652,415 of such Common Shares. Pursuant to separate investment management agreements between MSAM and the MSAM Purchasers, MSAM has been granted voting and dispositive power with respect to the Common Shares held by each of the MSAM Purchasers. (8) Based upon Amendment No. 2 to Schedule 13D filed jointly by ABKB and LaSalle Advisors on February 10, 1998, (i) ABKB has sole voting and dispositive power over 480,213 Common Shares and shared voting and dispositive power with respect to 480,212 Common Shares; and (ii) LaSalle Advisors has shared dispositive power with respect to 542,153 Common Shares. (9) Based upon Amendment No. 5 to Schedule 13D filed jointly by Developers Diversified Realty Corporation and Scott A. Wolstein on January 19, 1999, DDR has sole voting and dispositive power over 9,401,817 Common Shares and Mr. Wolstein has sole voting and dispositive power over 6 Common Shares. Mr. Wolstein, as Chairman of the Board, President and Chief Executive Officer of DDR, may be deemed to beneficially own all shares held by DDR. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS During the fiscal year 1998, the Trust on occasion entered into unsecured borrowings with DDR. Such borrowings bear a fixed rate of interest of 10.25%, provide for quarterly payments of interest and are due thirty days after demand. The highest amount outstanding under such borrowings from DDR during 1998 was $23,510,000. The total amount of interest on such borrowings during 1998 was $661,000 and the balance outstanding at December 31, 1998 was $14,058,000. Effective October 8, 1998, DDR acquired an 89% limited partnership interest and a 1% general partnership interest in DDR/Tech 29 Limited Partnership, a limited partnership whose assets consist of two light industrial properties and one office property totaling 290,991 nrsf located in Silver Springs, Maryland. Several selling entities and affiliates thereof acquired the remaining partnership interests. These partnership interests are convertible into DDR common shares. As of November 20, 1998, the Trust acquired 88.5% of DDR's limited partnership interest and, in consideration therefor, issued approximately $16.1 million in Shares to DDR. The acquisition was deemed to be effective as of October 8, 1998 and the purchase price included interest accrued from such date. To date, an Equalization Agreement, which provides, among other things, that DDR shall reimburse the Trust for certain dividend-based distributions to the holders of 30 33 partnership interests has not been executed. It is anticipated that the Equalization Agreement will have an effective date in January 1999. On November 20, 1998, the Trust purchased undeveloped land from DDR in the amount of $2.3 million plus interest. The purchase was accomplished through the issuance of shares to DDR in accordance with the Share Purchase Agreement dated July 30, 1998. This land was then contributed by the Trust to a development joint venture with a third party. DDR also provided real estate management services. DDR is paid a competitive rate for the management services, including, but not limited to, tenant finish, leasing and reporting. For the year ended December 31, 1998 the Trust paid $19,000 for such management services. Certain real estate investments are managed by Quorum Real Estate Services Corporation ("Quorum") an affiliate of a major shareholder of the Trust. Quorum is paid competitive rates, for services, including, but not limited to, construction, tenant finish, leasing and management. For the year ended December 31, 1998, management fees and leasing commissions paid by the Trust to Quorum were $548,000 and $24,000, respectively. No such fees were paid by the Trust in 1997. The Trust currently leases space to an individual serving as a Trust Manager at competitive market rates. For the year ended December 31, 1998, this Trust Manager paid $9,800 in lease payments to the Trust. PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a) (1) and (2) Financial Statements and Financial Statement Schedule: See Index to Consolidated Financial Statements and Financial Statement Schedule appearing on page F-1 of this Form 10-K (3) Exhibits:
EXHIBIT NO. DOCUMENT ------- -------- 2.1 -- Form of Amended and Restated Agreement and Plan of Merger, dated as of June 30, 1997, by and between the Trust and each of USAA Real Estate Income Investments I, a California Limited Partnership, USAA Real Estate Income Investments II Limited Partnership, USAA Income Properties III Limited Partnership and USAA Income Properties IV Limited Partnership (included as Annex I to the Joint Proxy Statement/Prospectus of the Trust included in Form S-4, Registration No. 333-31823) 2.2 -- Purchase Agreement dated as of July 2, 1997 between Shidler West Investment Corporation, as Purchaser, and Merit Industrial Properties Limited Partnership, as Seller, as amended by (i) First Amendment to Purchase Agreement dated as of July 30, 1997, (ii) Second Amendment to Purchase Agreement dated as of July 31, 1997, (iii) Third Amendment to Purchase Agreement dated as of August 8, 1997, (iv) Fourth Amendment to Purchase Agreement dated as of August 12, 1997, and (v) Fifth Amendment to Purchase Agreement dated as of October 2, 1997 (incorporated herein by reference from Exhibit 2.1 to Form 8-K of the Trust dated October 3, 1997)
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EXHIBIT NO. DOCUMENT ------- -------- 2.3 -- Purchase Agreement dated as of July 2, 1997 between Shidler West Investment Corporation, as Purchaser, and Merit 1995 Industrial Portfolio Limited Partnership, as Seller, as amended by (i) First Amendment to Purchase Agreement dated as of July 30, 1997, (ii) Second Amendment to Purchase Agreement dated as of July 31, 1997, (iii) Third Amendment to Purchase Agreement dated as of August 8, 1997, and (iv) Fourth Amendment to Purchase Agreement dated as of August 12, 1997 (incorporated herein by reference from Exhibit 2.2 to Form 8-K of the Trust dated October 3, 1997) 2.4 -- Purchase Agreement dated as of July 2, 1997 between Shidler West Investment Corporation, as Purchaser, and Merit VV 1995 Industrial Portfolio Limited Partnership, as Seller, as amended by (i) First Amendment to Purchase Agreement dated as of July 30, 1997, (ii) Second Amendment to Purchase Agreement dated as of July 31, 1997, (iii) Third Amendment to Purchase Agreement dated as of July 31, 1997, (iv) Fourth Amendment to Purchase Agreement dated as of August 12, 1997, and (v) Fifth Amendment to Purchase Agreement dated as of October 2, 1997 (incorporated herein by reference from Exhibit 2.3 to Form 8-K of the Trust dated October 3, 1997) 2.5 -- Purchase Agreement dated as of June 30, 1997 between Shidler West Investment Corporation, as Purchaser, and Merit VV Land 1995 Industrial Portfolio Limited Partnership, as Seller, as amended by (i) First Amendment to Purchase Agreement dated as of July 30, 1997, (ii) Second Amendment to Purchase Agreement dated as of July 31, 1997, (iii) Third Amendment to Purchase Agreement dated as of July 31, 1997, and (iv) Fourth Amendment to Purchase Agreement dated as of August 12, 1997 (incorporated herein by reference from Exhibit 2.4 to Form 8-K of the Trust dated October 3, 1997) 2.6 -- Purchase and Sale Agreement dated as of September 24, 1997 by and between Midway/Commerce Center Limited Partnership, as Seller, and the Trust, as Buyer (incorporated herein by reference from Exhibit 2.1 to Form 8-K of the Trust dated October 3, 1997) 2.7 -- First Amendment to Purchase and Sale Agreement dated as of October 22, 1997 by and between Midway/Commerce Center Limited Partnership and the Trust (incorporated herein by reference from Exhibit 2.2 to Form 8-K of the Trust dated November 13, 1997) 2.8 -- Second Amendment to Purchase and Sale Agreement dated as of October 31, 1997 by and between Midway/Commerce Center Limited Partnership and the Trust (incorporated herein by reference from Exhibit 2.3 to Form 8-K of the Trust dated November 13, 1997) 2.9 -- Amended and Restated Agreement and Plan of Merger dated as of June 30, 1998 between the Trust and USAA Real Estate Income Investments I, a California Limited Partnership (incorporated herein by reference from Exhibit 2.1 to Form 8-K of the Trust dated January 20, 1998) 2.10 -- Amended and Restated Agreement and Plan of Merger dated as of June 30, 1998 between the Trust and USAA Real Estate Income Investments II Limited Partnership (incorporated herein by reference from Exhibit 2.2 to Form 8-K of the Trust dated January 20, 1998) 2.11 -- Amended and Restated Agreement and Plan of Merger dated as of June 30, 1998 between the Trust and USAA Real Estate Income Investments III Limited Partnership (incorporated herein by reference from Exhibit 2.3 to Form 8-K of the Trust dated January 20, 1998)
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EXHIBIT NO. DOCUMENT ------- -------- 2.12 -- Amended and Restated Agreement and Plan of Merger dated as of June 30, 1998 between the Trust and USAA Real Estate Income Investments IV Limited Partnership (incorporated herein by reference from Exhibit 2.4 to Form 8-K of the Trust dated January 20, 1998) 2.13 -- Agreement and Plan of Merger by and among the Trust, Developers Diversified Realty Corporation ("DDR") and DDR Office Flex Corporation ("DDR Flex") dated July 30, 1998 (incorporated herein by reference from Exhibit 2.1 to Form 8-K of the Trust dated July 30, 1998) *3.1 -- Third Amended and Restated Declaration of Trust *3.2 -- First Amendment to the Third Amended and Restated Declaration of Trust *3.3 -- Second Amendment to the Third Amended and Restated Declaration of Trust *3.4 -- Third Amendment to the Third Amended and Restated Declaration of Trust *3.5 -- Fifth Amended and Restated Bylaws *3.6 -- Amendment to the Fifth Amended and Restated Bylaws 3.7 -- Statement of Designation of Series A Preferred Shares of Beneficial Interest of the Trust dated July 30, 1998 (incorporated herein by reference from Exhibit 3.1 to Form 8-K of the Trust dated July 30, 1998) 4.1 -- Indenture dated November 15, 1985, by and between the Trust and IBJ Schroder Bank & Trust Company (incorporated herein by reference from Exhibit 10.4 to Form S-4 of American Industrial Properties REIT, Inc. ("AIP Inc.") dated March 16, 1994; Registration No. 33-74292) 4.2 -- Form of Common Share Certificate (incorporated herein by reference from Exhibit 4.2 to Amendment No. 3 to Form S-4 of the Trust filed October 28, 1997; Registration No. 333-31823) 10.1 -- Form of Indemnification Agreement (incorporated by reference from Exhibit 10.1 to Form S-4 of the Trust dated July 22, 1997; Registration No. 333-31823) 10.2 -- Employee and Trust Manager Incentive Share Plan (incorporated by reference from Exhibit 10.2 to Form S-4 of the Trust dated July 22, 1997; Registration No. 333-31823) 10.3 -- Common Share Purchase Agreement dated as of July 3, 1997, by and between the Trust and ABKB/LaSalle Securities Limited Partnership ("ABKB") as Agent for and for the benefit of a particular client (incorporated herein by reference from Exhibit 10.7 to Form 8-K of the Trust dated July 22, 1997) 10.4 -- Common Share Purchase Agreement dated as of July 3, 1997, by and between the Trust and ABKB as Agent for and for the benefit of a particular client (incorporated herein by reference from Exhibit 10.8 to Form 8-K of the Trust dated July 22, 1997) 10.5 -- Common Share Purchase Agreement dated as of July 3, 1997, by and between the Trust and ABKB/LaSalle Advisors Limited Partnership ("LaSalle") as Agent for and for the benefit of a particular client (incorporated herein by reference from Exhibit 10.9 to Form 8-K of the Trust dated July 22, 1997) 10.6 -- Registration Rights Agreement dated as of July 10, 1997, by and between the Trust, ABKB as Agent for and for the benefit of particular clients and LaSalle Advisors Limited Partnership as Agent for and for the benefit of a particular client (incorporated herein by reference from Exhibit 10.6 to Form 8-K of the Trust dated July 22, 1997)
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EXHIBIT NO. DOCUMENT ------- -------- 10.7 -- Common Share Purchase Agreement dated as of June 20, 1997, by and among the Trust, MS Real Estate Special Situations, Inc. ("MSRE") and Morgan Stanley Asset Management, Inc. ("MSAM") as agent and attorney-in-fact for specified clients (the "MSAM") (incorporated herein by reference from Exhibit 10.5 to Form 8-K of the Trust dated July 22, 1997) 10.8 -- Registration Rights Agreement dated as of June 20, 1997, by and among the Trust, MSRE and MSAM on behalf of the MSAM Purchaser (incorporated herein by reference from Exhibit 10.6 to the Trust's Form 8-K dated July 22, 1997) 10.9 -- Renewal, Extension, Modification and Amendment Agreement dated February 26, 1997, executed by the Trust in favor of USAA Real Estate Company ("Realco") (incorporated herein by reference from Exhibit 10.1 to Form 8-K of the Trust dated March 4, 1997) 10.10 -- Share Purchase Agreement dated as of December 20, 1996, by and among the Trust, Realco and AIP Inc. (incorporated herein by reference from Exhibit 99.7 to Form 8-K of the Trust dated December 23, 1996) 10.11 -- Share Purchase Agreement dated as of December 13, 1996, by and between the Trust and Realco (incorporated herein be reference from Exhibit 99.4 to Form 8-K of the Trust dated December 23, 1996) 10.12 -- Registration Rights Agreement dated as of December 20, 1996, by and between the Trust and Realco, as amended (incorporated herein by reference from Exhibit 99.9 to Form 8-K of the Trust dated December 23, 1996) 10.13 -- Registration Rights Agreement dated as of December 19, 1996, by and between the Trust and Realco (incorporated herein by reference from Exhibit 99.8 to Form 8-K of the Trust dated December 23, 1996) 10.14 -- 401(k) Retirement and Profit Sharing Plan (incorporated herein by reference from Exhibit 10.5 to Amendment No. 1 to Form S-4 of AIP Inc. dated March 4, 1994; Registration No. 33-74292) 10.15 -- Amendments to 401(k) Retirement and Profit Sharing Plan (incorporated herein by reference from Exhibit 10.4 to Form 10-K of the Trust dated March 27, 1995) 10.16 -- Settlement Agreement by and between the Trust, Patapsco #1 Limited Partnership, Patapsco #2 Limited Partnership, The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company (U.S.A.) dated as of May 22, 1996 (incorporated herein by reference from Exhibit 99.1 to Form 8-K of the Trust dated May 22, 1996) 10.17 -- Agreement and Assignment of Partnership Interest, Amended and Restated Agreement and Certificate of Limited Partnership and Security Agreement for Patapsco Center -- Linthicum Heights, Maryland (incorporated herein by reference from Exhibit 10.8 to Amendment No. 2 to Form S-4 of AIP Inc. dated March 4, 1994; Registration No. 33-74292) 10.18 -- Note dated November 15, 1994 in the original principal amount of $12,250,000 with AIP Properties #1 L.P. as Maker and AMRESCO Capital Corporation as Payee (incorporated herein by reference from Exhibit 99.1 to Form 8-K of the Trust dated November 22, 1994) 10.19 -- Mortgage, Deed of Trust and Security Agreement dated November 15, 1994 between AIP Properties #1 L.P. and AMRESCO Capital Corporation (incorporated herein by reference from Exhibit 99.20 Form 8-K of the Trust dated November 22, 1994)
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EXHIBIT NO. DOCUMENT ------- -------- 10.20 -- Loan Modification Agreement modifying the Note dated November 15, 1994 in the original principal amount of $12,250,000 (incorporated herein by reference from Exhibit 99.2 to Form 8-K of the Trust dated June 23, 1995) 10.21 -- Note dated November 15, 1994 in the original principal amount of $2,150,000 with AIP Properties #2 L.P. as Maker and AMRESCO Capital Corporation as Payee (incorporated herein by reference from Exhibit 99.3 to Form 8-K of the Trust dated November 22, 1994) 10.22 -- Mortgage, Deed of Trust and Security Agreement dated November 15, 1994 between AIP Properties #2 L.P. and AMRESCO Capital Corporation (incorporated herein by reference from Exhibit 99.4 to Form 8-K of the Trust dated November 22, 1994) 10.23 -- Loan Modification Agreement modifying the Note dated November 15, 1994 in the original principal amount of $2,250,000 (incorporated herein by reference from Exhibit 99.1 to Form 8-K of the Trust dated June 23, 1995) 10.24 -- Promissory Note dated November 25, 1996, by and between AIP Inc. and Realco (incorporated herein by reference from Exhibit No. 99.5 to Form 8-K of the Trust dated December 23, 1996) 10.25 -- Deed of Trust and Security Agreement dated November 15, 1996 between AIP Properties #3, L.P. and Life Investors Insurance Company of America (Huntington Drive Center) (incorporated herein by reference from Exhibit 99.1 to Form 8-K of the Trust dated November 20, 1996) 10.26 -- Note dated November 15, 1996 in the original principal amount of $4,575,000 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Huntington Drive Center ) (incorporated herein by reference from Exhibit 99.2 to Form 8-K of the Trust dated November 20, 1996) 10.27 -- Deed of Trust and Security Agreement dated November 15, 1996 between AIP Properties #3, L.P. and Life Investors Insurance Company of America (Patapsco Industrial Center) (incorporated herein by reference from Exhibit 99.3 to Form 8-K of the Trust dated November 20, 1996) 10.28 -- Note dated November 15, 1996 in the original principal amount of $3,112,500 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Patapsco Industrial Center) (incorporated herein by reference from Exhibit 99.4 to Form 8-K of the Trust dated November 20, 1996) 10.29 -- Deed of Trust and Security Agreement dated November 15, 1996 between AIP Properties #3, L.P. and Life Investors Insurance Company of America (Woodlake Distribution Center) (incorporated herein by reference from Exhibit 99.5 to Form 8-K of the Trust dated November 20, 1996) 10.30 -- Note dated November 15, 1996 in the original principal amount of $1,537,500 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Woodlake Distribution Center) (incorporated herein by reference from Exhibit 99.6 to Form 8-K of the Trust dated November 20, 1996) 10.31 -- Deed of Trust and Security Agreement dated November 15, 1996 between AIP Properties #3, L.P. and Life Investors Insurance Company of America (all Texas properties except Woodlake) (incorporated herein by reference from Exhibit 99.7 to Form 8-K of the Trust dated November 20, 1996)
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EXHIBIT NO. DOCUMENT ------- -------- 10.32 -- Note dated November 15, 1996 in the original principal amount of $1,162,500 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Meridian Street Warehouse) (incorporated herein by reference from Exhibit 99.8 to Form 8-K of the Trust dated November 20, 1996) 10.33 -- Note dated November 15, 1996 in the original principal amount of $2,775,000 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Beltline Business Center) (incorporated herein by reference from Exhibit 99.9 to Form 8-K of the Trust dated November 20, 1996) 10.34 -- Note dated November 15, 1996 in the original principal amount of $3,375,000 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Plaza South) (incorporated herein by reference from Exhibit 99.10 to Form 8-K of the Trust dated November 20, 1996) 10.35 -- Note dated November 15, 1996 in the original principal amount of $2,100,000 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Commerce North Park) (incorporated herein by reference from Exhibit 99.11 to Form 8-K of the Trust dated November 20, 1996) 10.36 -- Note dated November 15, 1996 in the original principal amount of $2,850,000 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Gateway 5 & 6) (incorporated herein by reference from Exhibit 99.12 to Form 8-K of the Trust dated November 20, 1996) 10.37 -- Note dated November 15, 1996 in the original principal amount of $5,175,000 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Northgate II) (incorporated herein by reference from Exhibit 99.13 to Form 8-K of the Trust dated November 20, 1996) 10.38 -- Note dated November 15, 1996 in the original principal amount of $1,327,500 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Westchase Park) (incorporated herein by reference from Exhibit 99.4 to Form 8-K of the Trust dated November 20, 1996) 10.39 -- Bonus and Severance Agreement dated March 13, 1996, by and between the Trust and Charles W. Wolcott (incorporated herein by reference from Exhibit 10.12 to Form 10-K of the Trust for the year ended December 31, 1996) 10.40 -- Bonus and Severance Agreement dated March 13, 1996, by and between the Trust and Marc A. Simpson (incorporated herein by reference from Exhibit 10.13 to Form 10-K of the Trust for the year ended December 31, 1996) 10.41 -- Bonus and Severance Agreement dated March 13, 1996, by and between the Trust and David B. Warner (incorporated herein by reference from Exhibit 10.14 to Form 10-K of the Trust for the year ended December 31, 1996) 10.42 -- Amendment No. 1 to Share Purchase Agreement dated as of December 13, 1996 by and between the Trust and Realco (incorporated herein by reference from Exhibit 10.2 to Form 8-K of the Trust dated March 4, 1997) 10.44 -- Common Share Purchase Agreement dated as of January 29, 1998, by and between the Trust and Praedium II Industrial Associates LLC ("Praedium") (incorporated herein by reference from Exhibit 10.1 to Form 8-K of the Trust dated January 29, 1998) 10.45 -- Registration Rights Agreement dated as of January 29, 1998, by and between the Trust and Praedium (incorporated herein by reference from Exhibit 10.2 to Form 8-K of the Trust dated January 29, 1998)
36 39
EXHIBIT NO. DOCUMENT ------- -------- 10.46 -- Agreement dated as of January 29, 1998, by and among the Trust, Realco, ABKB (as Agent for and for the benefit of particular clients), MSRE and MSAM (incorporated herein by reference from Exhibit 10.3 to Form 8-K of the Trust dated January 29, 1998) 10.47 -- Contribution and Exchange Agreement dated as of September 25, 1997 among Shidler West Investment Corporation, AIP-SWAG Operating Partnership, L.P. and the Trust (incorporated herein by reference from Exhibit 99.1 to Form 8-K of the Trust dated October 3, 1997) 10.48 -- Assignment and Assumption of Purchase Agreements dated as of October 3, 1997 between Shidler West Investment Corporation and AIP-SWAG Operating Partnership, L.P. (incorporated herein by reference from Exhibit 99.2 to Form 8-K of the Trust dated October 3, 1997) 10.49 -- Amended and Restated Agreement of Limited Partnership of AIP-SWAG Operating Partnership, L.P. dated as of October 3, 1997 (incorporated herein by reference from Exhibit 99.3 to Form 8-K of the Trust dated October 3, 1997) 10.50 -- Warrant Agreement dated as of October 3, 1997 between the Trust and Shidler West Acquisition Company, LLC (incorporated herein by reference from Exhibit 99.4 to Form 8-K of the Trust dated October 3, 1997) 10.51 -- Warrant Agreement dated as of October 3, 1997 between the Trust and AG Industrial Investors, L.P. (incorporated herein by reference from Exhibit 99.5 to Form 8-K of the Trust dated October 3, 1997) 10.52 -- Registration Rights Agreement dated as of October 3, 1997 between the Trust and Shidler West Acquisition Company, LLC (incorporated herein by reference from Exhibit 99.6 to Form 8-K of the Trust dated October 3, 1997) 10.53 -- Registration Rights Agreement dated as of October 3, 1997 between the Trust and AG Industrial Investors, L.P. (incorporated herein by reference from Exhibit 99.7 to Form 8-K of the Trust dated October 3, 1997) 10.54 -- Credit Agreement dated as of October 3, 1997 between the Trust and AIP-SWAG Operating Partnership, L.P., as Borrower, and Prudential Securities Credit Corporation, as Lender (incorporated herein by reference from Exhibit 99.9 to Form 8-K of the Trust dated October 3, 1997) 10.55 -- Credit Agreement dated as of October 3, 1997 between the Trust and AIP-SWAG Operating Partnership, L.P., as Borrower, and Prudential Securities Credit Corporation, as Lender (incorporated herein by reference from Exhibit 99.8 to Form 8-K of the Trust dated October 3, 1997) 10.56 -- Common Share Purchase dated as of January 29, 1998, by and between the Trust and Praedium (incorporated herein by reference from Exhibit 10.1 to Form 8-K of the Trust dated January 29, 1998) 10.57 -- Registration Rights Agreement dated as of January 29, 1998, by and between the Trust and Praedium (incorporated herein by reference from Exhibit 10.2 to Form 8-K of the Trust dated January 29, 1998) 10.58 -- Agreement dated as of January 29, 1998, by and among the Trust, Realco, ABKB (as Agent for and for the benefit of particular clients), MSRE and MSAM (incorporated herein by reference from Exhibit 10.3 to Form 8-K dated January 29, 1998)
37 40
EXHIBIT NO. DOCUMENT ------- -------- 10.59 -- Contract of Sale by and between Nationwide Life Insurance Company and ALCU Investments, Inc. (incorporated herein by reference from Exhibit 10.1 to Form 8-K/A of the Trust dated February 11, 1998) 10.60 -- Assignment of Contract of Sale dated as of February 11, 1998, by and among ALCU Investments, Ltd., AIP Operating, L.P. and the Trust (incorporated herein by reference from Exhibit 10.2 to Form 8-K/A of the Trust dated February 11, 1998) 10.61 -- Contribution and Exchange Agreement dated as of January 29, 1998, by and among ALCU Investments, Ltd., AIP Operating, L.P., and the Trust (incorporated herein by reference from Exhibit 10.3 to Form 8-K/A of the Trust dated February 11, 1998) 10.62 -- Amended and Restated Agreement of Limited Partnership of AIP Operating, L.P. dated as of February 11, 1998, by and among the Trust, General Electric Capital Corporation, and ALCU Investments, Ltd. (incorporated herein by reference from Exhibit 10.4 to Form 8-K/A of the Trust dated February 11, 1998) 10.63 -- Promissory Note by and among the Trust, AIP Operating, L.P., and Prudential Securities Credit Corporation (incorporated herein by reference from Exhibit 10.5 to Form 8-K/A of the Trust dated February 11, 1998) 10.64 -- First Amendment to Credit Agreement dated as of February 11, 1998, by and among the Trust, AIP Operating, L.P., and Prudential Securities Credit Corporation (incorporated herein by reference from Exhibit 10.6 to Form 8-K/A of the Trust dated February 11, 1998) *10.65 -- Industrial Property Portfolio Agreement of Purchase and Sale by and between Spieker Northwest, Inc. and the Trust *10.66 -- Purchase and Sale Agreement by and between North Austin Office, Ltd. and the Trust 10.67 -- Purchase and Sale Agreement and Joint Escrow Instructions by and between CM Property Management, Inc. and the Trust dated July 15, 1997 (incorporated herein by reference from Exhibit 10.1 to Form 8-K/A of the Trust dated March 23, 1998) 10.68 -- Purchase and Sale Agreement and Escrow Instructions by and between Corporex Properties of Tampa, Inc., CFX-Westshore Corporation, and the Trust (incorporated herein by reference from Exhibit 10.2 to From 8-K/A of the Trust dated March 23, 1998) 10.69 -- Amendment to Purchase and Sale Agreement and Escrow Instructions by and between Corporex Properties of Tampa, Inc., CPX-Westshore Corporation, and the Trust (incorporated herein by reference from Exhibit 10.3 to Form 8-K/A of the Trust dated March 23, 1998) 10.70 -- Purchase and Sale Agreement between the Equitable Life Assurance Society of the United States and the Trust (incorporated herein by reference from Exhibit 10.4 to Form 8-K/A of the Trust dated March 23, 1998) 10.71 -- Purchase and Sale Agreement between Nanook Partners, L.P. and the Trust (incorporated herein by reference from Exhibit 10.5 to Form 8-K/A of the Trust dated March 23, 1998) 10.72 -- Severance and Change in Control Agreement dated as of April 29, 1998, by and between Charles W. Wolcott and the Trust (incorporated herein by reference from Exhibit 10.1 to Form 8-K of the Trust dated April 29, 1998)
38 41
EXHIBIT NO. DOCUMENT ------- -------- 10.73 -- Severance and Change in Control Agreement dated as of April 29, 1998, by and between Marc A. Simpson and the Trust (incorporated herein by reference from Exhibit 10.2 to Form 8-K of the Trust dated April 29, 1998) 10.74 -- Severance and Change in Control Agreement dated as of April 29, 1998, by and between David B. Warner and the Trust (incorporated herein by reference from Exhibit 10.3 to Form 8-K of the Trust dated April 29, 1998) 10.75 -- Severance and Change in Control Agreement dated as of April 29, 1998, by and between Lewis D. Friedland and the Trust (incorporated herein be reference from Exhibit 10.4 to Form 8-K of the Trust dated April 29, 1998) 10.76 -- Amendments to the Trust's Employee and Trust Manager Incentive Share Plan (incorporated herein by reference from Exhibit 10.5 to Form 8-K of the Trust dated April 29, 1998) 10.77 -- Share Purchase Agreement by and between the Trust and DDR dated July 30, 1998 (incorporated herein by reference from Exhibit 10.1 to Form 8-K of the Trust dated July 30, 1998) 10.78 -- Demand Promissory Note dated July 30, 1998 (incorporated herein by reference from Exhibit 10.2 to Form 8-K of the Trust dated July 30, 1998) 10.79 -- Second Amended and Restated Registration Rights Agreement by and among the Trust, MSRE and MSAM dated July 30, 1998 (incorporated herein by reference from Exhibit 10.3 to Form 8-K of the Trust dated July 30, 1998) 10.80 -- Second Amended and Restated Registration Rights Agreement by and between the Trust and Realco July 30, 1998 (incorporated herein by reference from Exhibit 10.4 to Form 8-K of the Trust dated July 30, 1998) 10.81 -- Registration Rights Agreement by and between the Trust and DDR dated July 30, 1998 (incorporated herein by reference from Exhibit 10.5 to Form 8-K of the Trust dated July 30, 1998) 10.82 -- First Amended and Restated Registration Rights Agreement by and between the Trust and Praedium dated July 30, 1998 (incorporated herein by reference from Exhibit 10.6 to Form 8-K of the Trust dated July 30, 1998) 10.83 -- Second Amended and Restated Registration Rights Agreement by and between the Trust, ABKB and LaSalle dated July 30, 1998 (incorporated herein by reference from Exhibit 10.7 to Form 8-K of the Trust dated July 30, 1998) 10.84 -- Letter Agreement by and between MSRE/MSAM and DDR dated July 30, 1998 (incorporated herein by reference from Exhibit 10.8 to Form 8-K of the Trust dated July 30, 1998) 10.85 -- Letter Agreement by and between ABKB, LaSalle and DDR dated July 30, 1998 (incorporated herein by reference from Exhibit 10.9 to Form 8-K of the Trust dated July 30, 1998) 10.86 -- Letter Agreement by and between Praedium and DDR dated July 30, 1998 (incorporated herein by reference from Exhibit 10.10 to Form 8-K of the Trust dated July 30, 1998) 10.87 -- Letter Agreement by and between Realco and DDR dated July 30, 1998 (incorporated herein by reference from Exhibit 10.11 to Form 8-K of the Trust dated July 30, 1998)
39 42
EXHIBIT NO. DOCUMENT ------- -------- 10.88 -- Amendment No. One, dated as of September 14, 1998, to the Share Purchase Agreement, dated as of July 30, 1998, between the Trust and DDR (incorporated herein by reference from Exhibit 10.1 to Form 8-K of the Trust dated September 16, 1998) 10.89 -- Purchase and Sale Agreement, dated as of April 3, 1998, by and between the Norfolk Commerce Center Limited Partnership and DDR (incorporated herein by reference from Exhibit 10.1 to Form 8-K of the Trust dated July 30, 1998 and filed October 23, 1998) 10.90 -- Amendment to Purchase and Sale Agreement dated June 19, 1998, by and between the Norfolk Commerce Center Limited Partnership and DDR (incorporated herein by reference from Exhibit 10.2 to Form 8-K of the Trust dated July 30, 1998 and filed October 23, 1998) 10.91 -- Purchase and Sale Agreement, dated as of May 10, 1998, by and between A&A Greenbrier, Inc., A&A Northpointe B, Inc., A&A Northpointe C, Inc. and A&A Greenbrier Tech, Inc. and DDR Flex (incorporated herein by reference from Exhibit 10.1 to Form 8-K of the Trust dated October 14, 1998) 10.92 -- Purchase and Sale Agreement, dated as of May 10, 1998, by and between Battlefield/Virginia, Inc. and DDR Flex (incorporated herein by reference from Exhibit 10.2 to Form 8-K of the Trust dated October 14, 1998) 10.93 -- Amendment to Purchase and Sale Agreement dated July 8, 1998 by and between A&A Greenbrier, Inc., A&A Northpointe B, Inc., A&A Northpointe C, Inc. and A&A Greenbrier Tech, Inc. and DDR Flex (incorporated herein by reference from Exhibit 10.3 to Form 8-K of the Trust dated October 14, 1998) 10.94 -- Amendment to Purchase and Sale Agreement dated July 8, 1998, by and between Battlefield/Virginia, Inc., and DDR Flex (incorporated herein by reference from Exhibit 10.4 to Form 8-K of the Trust dated October 14, 1998) 10.95 -- Second Amendment to Purchase and Sale Agreement dated September 30, 1998 by and between A&A Greenbrier, Inc., A&A Northpointe B, Inc., A&A Northpointe C, Inc. and A&A Greenbrier Tech, Inc. and DDR Flex (incorporated herein by reference from Exhibit 10.5 to Form 8-K of the Trust dated October 14, 1998) 10.96 -- Second Amendment to Purchase and Sale Agreement dated September 30, 1998, by and between Battlefield/Virginia, Inc. and DDR Flex (incorporated herein by reference from Exhibit 10.6 to Form 8-K of the Trust dated October 14, 1998) 10.97 -- Special Warranty Deed, dated as of October 14, 1998, by and between A&A Greenbrier, Inc. and the Trust (incorporated herein by reference from Exhibit 10.7 to Form 8-K of the Trust dated October 14, 1998) 10.98 -- Special Warranty Deed, dated as of October 14, 1998, by and between A&A Northpointe B, Inc. and the Trust (incorporated herein by reference from Exhibit 10.8 to Form 8-K of the Trust dated October 14, 1998) 10.99 -- Special Warranty Deed, dated as of October 14, 1998, by and between A&A Northpointe C, Inc. and the Trust (incorporated herein by reference from Exhibit 10.9 to Form 8-K of the Trust dated October 14, 1998) 10.100 -- Special Warranty Deed, dated as of October 14, 1998, by and between A&A Greenbrier Tech, Inc. and the Trust (incorporated herein by reference from Exhibit 10.10 to Form 8-K of the Trust dated October 14, 1998) *21.1 -- Listing of Subsidiaries
40 43
EXHIBIT NO. DOCUMENT ------- -------- *23.1 -- Consent of Ernst & Young LLP *24.1 -- Power of Attorney (Included on signature page hereto) *27.1 -- Financial Data Schedule
- --------------- * Filed herewith (b) Reports on Form 8-K: The following information summarizes the events reported on Form 8-K during the quarter ended December 31, 1998: (1) Current Report on Form 8-K/A filed with the Commission on October 2, 1998 amending Form 8-K filed with the Commission on August 5, 1998; (2) Current Report on Form 8-K filed with the Commission on October 23, 1998; (3) Current Report on Form 8-K filed with the Commission on October 29, 1998; (4) Current Report on Form 8-K filed with the Commission on November 24, 1998; (5) Current Report on Form 8-K/A filed with the Commission on December 28, 1998 amending Form 8-K filed with the Commission on October 29, 1998. 41 44 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 30, 1999. AMERICAN INDUSTRIAL PROPERTIES REIT /s/ CHARLES W. WOLCOTT -------------------------------------- Charles W. Wolcott, Trust Manager, President and Chief Executive Officer POWER OF ATTORNEY Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Each of the undersigned officers and Trust Managers of the registrant hereby appoints Charles W. Wolcott or Marc A. Simpson, either of whom may act, his true and lawful attorneys-in-fact with full power to sign for him and in his name in the capacities indicated below and to file any and all amendments to the registration statement filed herewith, making such changes in the registration statement as the registrant deems appropriate, and generally to do all such things in his name and behalf in his capacity as an officer and director to enable the registrant to comply with the provisions of the Securities Act of 1934 and all requirements of the Securities and Exchange Commission.
SIGNATURES TITLE DATE ---------- ----- ---- /s/ ALBERT T. ADAMS Trust Manager March 30, 1999 - ----------------------------------------------------- Albert T. Adams /s/ WILLIAM H. BRICKER Trust Manager March 30, 1999 - ----------------------------------------------------- William H. Bricker /s/ T. PATRICK DUNCAN Trust Manager March 30, 1999 - ----------------------------------------------------- T. Patrick Duncan /s/ ROBERT E. GILES Trust Manager March 30, 1999 - ----------------------------------------------------- Robert E. Giles /s/ EDWARD B. KELLEY Trust Manager March 30, 1999 - ----------------------------------------------------- Edward B. Kelley /s/ J. TIMOTHY MORRIS Trust Manager March 30, 1999 - ----------------------------------------------------- J. Timothy Morris
42 45
SIGNATURES TITLE DATE ---------- ----- ---- /s/ CHARLES W. WOLCOTT Trust Manager, President and March 30, 1999 - ----------------------------------------------------- Chief Executive Officer Charles W. Wolcott (Principal Executive Officer) /s/ MARC A. SIMPSON Senior Vice President and March 30, 1999 - ----------------------------------------------------- Chief Financial Officer, Marc A. Simpson Secretary and Treasurer (Principal Accounting and Financial Officer)
43 46 AMERICAN INDUSTRIAL PROPERTIES REIT INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
PAGE ---- Report of Independent Auditors.............................. F-2 Consolidated Financial Statements: Consolidated Statements of Operations for the years ended December 31, 1998, 1997, and 1996...................... F-3 Consolidated Balance Sheets as of December 31, 1998 and 1997................................................... F-4 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 1998, 1997 and 1996... F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996....................... F-6 Notes to Consolidated Financial Statements................ F-8 Financial Statement Schedule: Schedule III -- Consolidated Real Estate and Accumulated Depreciation........................................... F-25 Notes to Schedule III..................................... F-28
All other financial statements and schedules not listed have been omitted because the required information is either included in the Consolidated Financial Statements and the Notes thereto as included herein or is not applicable or required. F-1 47 REPORT OF INDEPENDENT AUDITORS Trust Managers and Shareholders American Industrial Properties REIT: We have audited the accompanying consolidated balance sheets of American Industrial Properties REIT (the "Trust") as of December 31, 1998 and 1997, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1998. Our audits also included the financial statement schedule listed in the Index at Item 14(a)(2). 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 are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Industrial Properties REIT at December 31, 1998 and 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ ERNST & YOUNG LLP Dallas, Texas February 10, 1999, except for Note 19, as to which the date is March 26, 1999 F-2 48 AMERICAN INDUSTRIAL PROPERTIES REIT CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
YEAR ENDED DECEMBER 31, --------------------------------------- 1998 1997 1996 ----------- ---------- ---------- Property Revenues Rents............................................... $ 39,559 $ 9,367 $ 8,592 Tenant Reimbursements............................... 8,798 2,834 2,728 ----------- ---------- ---------- Total Property Revenues..................... 48,357 12,201 11,320 ----------- ---------- ---------- Property Expenses Property taxes...................................... 4,980 1,607 1,421 Property management fees............................ 1,474 418 430 Utilities........................................... 2,673 480 476 General operating................................... 2,489 891 849 Repairs and maintenance............................. 2,218 524 529 Other property operating expenses................... 2,212 395 317 ----------- ---------- ---------- Total Property Expenses..................... 16,046 4,315 4,022 ----------- ---------- ---------- Income from Property Operations.................. 32,311 7,886 7,298 Administrative expenses: Trust administration and overhead................ (3,729) (2,065) (1,830) Litigation, refinancing and proxy costs.......... -- (439) (1,548) Depreciation........................................ (7,928) (2,774) (2,577) Amortization........................................ (455) (383) (332) Interest Income..................................... 705 546 158 Interest on notes payable........................... (869) (1,462) (4,003) Interest on mortgages payable....................... (14,270) (4,316) (1,898) Provision for possible losses on real estate........ (10,060) -- -- ----------- ---------- ---------- Loss from operations................................ (4,295) (3,007) (4,732) Minority interests in consolidated subsidiaries..... 28 -- -- Gain on sales of real estate........................ -- 2,163 177 ----------- ---------- ---------- Loss before extraordinary items..................... (4,267) (844) (4,555) Extraordinary items: Gain (loss) on extinguishment of debt............ (23) 2,643 5,810 Provision for change in control costs............ (5,780) -- -- ----------- ---------- ---------- NET INCOME (LOSS)..................................... $ (10,070) $ 1,799 $ 1,255 =========== ========== ========== PER SHARE DATA (BASIC AND DILUTED) Loss before extraordinary items..................... $ (0.35) $ (0.26) $ (2.50) Extraordinary gain (loss)........................... (0.47) 0.80 3.20 ----------- ---------- ---------- Net income (loss)................................... $ (0.82) $ 0.54 $ 0.70 =========== ========== ========== Distributions paid.................................. $ 0.78 $ -- $ 0.20 =========== ========== ========== Weighted average Shares outstanding................. 12,251,591 3,316,788 1,821,648 =========== ========== ==========
The accompanying notes are an integral part of these financial statements. F-3 49 AMERICAN INDUSTRIAL PROPERTIES REIT CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) ASSETS
DECEMBER 31, ------------------- 1998 1997 -------- -------- Real estate: Held for investment....................................... $476,641 $265,312 Held for sale............................................. 28,491 -- -------- -------- Total real estate......................................... 505,132 265,312 Accumulated depreciation.................................. (33,449) (25,521) -------- -------- Net real estate........................................... 471,683 239,791 Cash and cash equivalents: Unrestricted.............................................. 6,145 11,683 Restricted................................................ 5,422 2,121 -------- -------- Total cash and cash equivalents........................... 11,567 13,804 Other assets, net........................................... 17,080 4,800 -------- -------- Total Assets.............................................. $500,330 $258,395 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Mortgage notes payable.................................... $252,481 $114,226 Unsecured notes payable to related parties................ 14,058 7,200 Accrued interest.......................................... 1,477 269 Accounts payable, accrued expenses and other liabilities............................................ 17,651 7,231 Tenant security deposits.................................. 2,138 1,254 -------- -------- Total Liabilities................................. 287,805 130,180 -------- -------- Minority interests.......................................... 6,946 6,444 Shareholders' Equity: Shares of beneficial interest, $0.10 par value; authorized 500,000,000 Shares; issued and outstanding 17,201,591 shares at 1998 and 9,817,171 Shares at 1997............................................ 1,721 982 Additional paid-in capital................................ 330,031 224,989 Less 165,886 shares in treasury at 1998 and 42,103 shares at 1997, at cost....................................... (2,226) (626) Accumulated distributions................................. (68,756) (58,456) Accumulated deficit....................................... (55,191) (45,118) -------- -------- Total Shareholders' Equity........................ 205,579 121,771 -------- -------- Total Liabilities and Shareholders' Equity........ $500,330 $258,395 ======== ========
The accompanying notes are an integral part of these financial statements. F-4 50 AMERICAN INDUSTRIAL PROPERTIES REIT CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (IN THOUSANDS, EXCEPT NUMBER OF SHARES)
SHARES OF BENEFICIAL INTEREST ADDITIONAL RETAINED TREASURY STOCK --------------------- PAID-IN EARNINGS ------------------- NUMBER(A) AMOUNT CAPITAL (DEFICIT) NUMBER(A) AMOUNT TOTAL ----------- ------- ---------- --------- --------- ------- -------- Balance at January 1, 1996................... 1,815,080 $ 182 $125,331 $(106,265) -- $ -- $ 19,248 Issuance of additional Shares.............. 184,920 18 2,525 -- -- -- 2,543 Net income............. -- -- -- 1,255 -- -- 1,255 Distributions to shareholders........ -- -- -- (363) -- -- (363) ---------- ------ -------- --------- ------- ------- -------- Balance at December 31, 1996................... 2,000,000 200 127,856 (105,373) -- -- 22,683 Issuance of additional Shares.............. 7,817,171 782 97,133 -- -- -- 97,915 Repurchase of Shares... -- -- -- -- 42,103 (626) (626) Net income............. -- -- -- 1,799 -- -- 1,799 ---------- ------ -------- --------- ------- ------- -------- Balance at December 31, 1997................... 9,817,171 982 224,989 (103,574) 42,103 (626) 121,771 Issuance of additional Shares.............. 7,384,420 739 105,042 -- -- -- 105,781 Repurchase of Shares... -- -- -- -- 123,783 (1,600) (1,600) Net income............. -- -- -- (10,070) -- -- (10,070) Distributions to shareholders........ -- -- -- (10,303) -- -- (10,303) ---------- ------ -------- --------- ------- ------- -------- Balance at December 31, 1998................... 17,201,591 $1,721 $330,031 $(123,947) 165,886 $(2,226) $205,579 ========== ====== ======== ========= ======= ======= ========
The accompanying notes are an integral part of these financial statements. F-5 51 AMERICAN INDUSTRIAL PROPERTIES REIT CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ------------------------------ 1998 1997 1996 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)......................................... $(10,070) $ 1,799 $ 1,255 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Gains on extinguishment of debt........................ -- (2,643) (5,810) Change in control costs................................ 2,960 -- -- Losses on sales of real estate......................... -- (2,163) (177) Provisions for possible losses on real estate.......... 10,060 -- -- Minority interest in consolidated subsidiaries......... (28) -- -- Depreciation........................................... 7,928 2,774 2,577 Amortization of deferred financing costs............... 584 195 70 Other amortization..................................... 168 383 332 Issuance of shares to Trust Managers................... 312 115 -- Interest accrued assuming future conversion of debt to equity............................................... -- 1,022 -- Changes in operating assets and liabilities: Other assets and restricted cash..................... (13,374) (2,337) (376) Accounts payable, other liabilities and tenant security deposits................................. 3,213 147 351 Accrued interest..................................... 1,208 (68) (2,986) -------- -------- -------- Net Cash Provided By (Used In) Operating Activities...................................... 2,961 (776) (4,764) -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Net proceeds from sales of real estate.................... -- 7,129 6,545 Capitalized expenditures.................................. (7,540) (1,911) (1,372) Acquisition of real estate and related working capital.... (172,133) (67,116) -- -------- -------- -------- Net Cash Provided By (Used In) Investing Activities...................................... (179,673) (61,898) 5,173 -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal repayments on mortgage notes payable............ (49,163) (6,340) (31,832) Proceeds from mortgage financing.......................... 202,436 44,001 26,453 Payment of deferred loan costs............................ (1,852) (169) (894) Proceeds from sale of shares.............................. 28,578 33,481 2,543 Purchase of treasury shares............................... (1,600) (626) -- Distributions to shareholders............................. (6,880) -- (363) Distributions to limited partnership unit holders......... (345) -- -- -------- -------- -------- Net Cash (Used In) Provided By Financing Activities......... 171,174 70,347 (4,093) -------- -------- -------- Net (Decrease) Increase in Cash and Cash Equivalents........ (5,538) 7,673 (3,684) Cash and Cash Equivalents at Beginning of Year.............. 11,683 4,010 7,694 -------- -------- -------- Cash and Cash Equivalents at End of Year.................... $ 6,145 $ 11,683 $ 4,010 ======== ======== ======== Cash Paid for Interest...................................... $ 13,634 $ 4,629 $ 8,817 ======== ======== ========
The accompanying notes are an integral part of these financial statements. F-6 52 NON-CASH INVESTING AND FINANCING ACTIVITIES: Property Operations. During 1998, the Trust acquired six properties from DDR in exchange for 2,207,618 shares valued at $34.2 million. In addition, with the acquisition of other properties, the Trust issued $0.9 million in limited partnership units and assumed $34.9 million in mortgage notes payable. During 1997, in connection with the merger with four real estate limited partnerships, the Trust issued Shares valued at $57.9 million and $3.7 million in limited partnership units. The Trust also assumed $31.2 million in mortgage notes payable and $7.2 million in unsecured notes payable. In addition, with the acquisition of other properties, the Trust issued $2.7 million in limited partnership units. Debt Conversion. During 1998, the Trust issued $42.7 million of Shares to DDR in exchange for unsecured notes payable to DDR. During 1997, the Trust issued $5.5 million of Shares to Realco in exchange for unsecured notes payable to Realco. F-7 53 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES: General. American Industrial Properties REIT (the "Trust") is a self-administered Texas real estate investment trust which, as of December 31, 1998, directly or indirectly owns and operates 65 commercial real estate properties consisting of 52 industrial properties, 11 office buildings and 2 retail properties. The Trust currently has one industrial property under development. The Trust was formed September 26, 1985 and commenced operations on November 27, 1985. Principles of Consolidation. The consolidated financial statements of the Trust include the accounts of American Industrial Properties REIT and its wholly-owned subsidiaries and controlled subsidiaries. Significant intercompany balances and transactions have been eliminated in consolidation. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ significantly from such estimates and assumptions. Real Estate. The Trust carries its real estate held for investment at depreciated cost unless the asset is determined to be impaired. Real estate classified as held for sale is carried at lower of depreciated cost or fair value less costs to sell. The Trust records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the expected undiscounted cash flows estimated to be generated by those assets are less than the related carrying amounts. If an asset held for investment is determined to be impaired, the impairment would be measured based upon the excess of the asset's carrying value over the fair value. In addition, the Trust records impairment losses on assets held for sale when the estimated sales proceeds, after estimated selling costs, are less than the carrying value of the related asset (see Note 2). Property improvements which extend the useful life 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 the lease term, but not to exceed ten years. Interest is capitalized during the period in which real estate assets are undergoing construction or major renovation. For the year ended December 31, 1998 the Trust capitalized $78,000 in interest. Cash and Cash Equivalents. Cash equivalents include demand deposits and all highly liquid instruments purchased with an original maturity of three months or less. Restricted cash amounts reflect escrow deposits held by third parties for the payment of taxes and insurance and reserves held by third parties for property repairs or tenant improvements. Other Assets. Other assets primarily consist of direct costs related to potential property acquisitions, deferred rents receivable, deferred commissions and loan fees. Potential property acquisition costs are capitalized and depreciated on a straight-line basis over the life of the asset when the asset is acquired. Leasing commissions are capitalized and amortized on a straight-line basis over the life of the lease. Loan fees are capitalized and amortized to interest expense on a level yield basis over the term of the related loan. Rents and Tenant Reimbursements. Rental income, including contractual rent increases or delayed rent starts, is recognized on a straight-line basis over the lease term. The Trust has recorded deferred rent receivable (representing the excess of rental revenue recognized on a straight-line basis over actual rents received under the applicable lease provisions) of $1,398,000 and $525,000 at December 31, 1998 and 1997, respectively. F-8 54 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Several tenants in the Trust's retail properties are also required to pay as rent a percentage of their gross sales volume, to the extent such percentage rent exceeds their base rents. Such percentage rents amounted to $172,000, $94,000 and $154,000 for the years ended December 31, 1998, 1997, and 1996, respectively. 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 amount. 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 distributions paid during the year. The Trust had taxable income for the year ended December 31, 1997, a taxable loss for the year ended December 31, 1996 and expects to report taxable income for the year ending December 31, 1998. The Trust has a net operating loss carryforward from 1997 and prior years of approximately $34,301,000. The net operating losses are subject to restrictions on their use due to an ownership change occurring in 1997, and as such, can only be used against approximately $1,200,000 of taxable income per year. 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. Earnings and profits, which will determine the taxability of distributions 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. Earnings Per Share. Basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. The computation of diluted earnings per share does not include common share equivalents where the inclusion of such does not result in dilution (based upon application of the "treasury stock" method) or, in periods where there is a net loss from operations, is anti-dilutive. Share Compensation. The Trust accounts for its share compensation arrangements using the intrinsic value method. Concentrations. The Trust owns 65 real estate properties, excluding the one build-to-suit property, in 13 states. The Trust's industrial properties are concentrated in the Texas market with 23 of the 52 properties located in the Dallas, Houston and Austin areas. The office buildings are primarily located in the west with three of the eleven located in California. The two retail properties are located in Colorado and Florida. The principal competitive factors in these markets are price, location, quality of space, and amenities. In each case, the Trust owns a small portion of the total similar space in the market and competes with owners of other space for tenants. Each of these markets is highly competitive, and other owners of property may have competitive advantages not available to the Trust. Segment Reporting. The Trust has adopted the provisions of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" for fiscal year 1998. This statement establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. Where applicable, it also establishes standards for related disclosures about products and services, geographic areas, and major tenants. See Note 16 for the Trust's segment disclosures. Reclassification. Certain amounts in prior years financial statements have been reclassified to conform with the current year presentation. F-9 55 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 2 -- REAL ESTATE AND PROVISIONS FOR POSSIBLE LOSSES ON REAL ESTATE: At December 31, 1998 and 1997, real estate was comprised of the following:
1998 1997 ------------ ------------ Held for investment: Land................................................... $102,891,000 $ 56,315,000 Buildings and improvements............................. 373,750,000 208,997,000 ------------ ------------ 476,641,000 265,312,000 ------------ ------------ Held for sale: Land................................................... 6,000,000 -- Buildings and improvements............................. 22,491,000 -- ------------ ------------ 28,491,000 -- ------------ ------------ Total.......................................... $505,132,000 $265,312,000 ============ ============
During 1998, the Trust acquired 29 real estate properties for approximately $237 million. To fund these acquisitions, the Trust paid approximately $37.8 million in cash, obtained $28.3 million and $42.7 million of financing under its acquisition line of credit and secured bridge loan, respectively, assumed approximately $32.7 million in mortgage debt with a fair value of $34.9 million, obtained $47.2 million of financing through unsecured borrowings with DDR, issued $0.9 million of limited partnership units and issued $47.7 million in Shares to DDR (see Note 8). The difference between the assumed amount and the fair value of the mortgage debt assumed was recorded as debt premium. At December 31, 1998, the Trust recorded a $10.1 million writedown of its retail property in Denver, Colorado and reclassified the property from held for investment to held for sale. The Trust's current intent is to sell this property in 1999, thereby allowing the Trust to continue its focus on the light industrial sector of the real estate market. This property is included in the "Retail" operating segment and reported a net operating loss of $0.3 million for the year ended December 31, 1998. The Trust did not sell any properties in 1998. Effective December 31, 1997, the Trust acquired, via a merger, four real estate limited partnerships. The partnerships were affiliated with Realco, a significant shareholder of the Trust. As a result of the merger, the Trust acquired ownership of seven office properties, including a 55.84% interest in a joint venture owning an office property. The Trust also acquired two industrial properties and one retail property. The total purchase price was approximately $93.1 million, inclusive of costs of the merger. Of this amount, approximately $38.4 million was assumed in debt, $57.9 million was issued in Shares to the former partners and $3.8 million was received in cash, relating to the net working capital received. The $38.4 million in debt includes $15 million due to Las Colinas Management Company, an affiliate of Realco, $7.2 million of unsecured debt owed to Realco, and $16.2 million due to third party lenders. The acquisition was accounted for on the purchase method of accounting. F-10 56 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A reconciliation of the purchase price of the four real estate limited partnerships is as follows: Real estate................................................. $100,206,000 Other assets................................................ 3,916,000 Less: Mortgage notes payable......................... (31,178,000) Unsecured notes payable.............................. (7,200,000) Other liabilities.................................... (4,194,000) Minority interests................................... (3,704,000) ------------ Value of Shares issued...................................... $ 57,846,000 ============
From August 29, 1997 through December 31, 1997, exclusive of the merger, the Trust acquired an additional 15 real estate properties for approximately $73.5 million. To fund these acquisitions, the Trust paid approximately $30.5 million in cash, incurred approximately $23.5 million of permanent financing, obtained $16.7 million of financing under the acquisition line of credit and issued $2.8 million of limited partnership units. In addition, the limited partners received warrants to purchase 40,000 shares at $17.50 per Share. During 1997, the Trust sold two industrial properties, including one of the two properties classified as held for sale at December 31, 1996. Net proceeds from this sale totaled $2.0 million resulting in a gain on sale of $0.3 million. Net proceeds received from the sale of the second property sold in 1997 totaled $5.1 million resulting in a gain on sale of $1.9 million. The Trust reclassified the second held for sale property to held for investment in 1997. There were no properties classified as held for sale at December 31, 1997. In accordance with EITF 97-11, the Trust has changed its capitalization policy with respect to internal acquisition costs. On March 19, 1998, the Trust ceased the capitalization of costs related to its internal acquisition department. The Trust capitalized $160,000 through March 19, 1998 and $401,000 for the year ended December 31, 1997. NOTE 3 -- MORTGAGE NOTES PAYABLE: At December 31, 1998, 51 of the Trust's 65 properties were subject to liens securing mortgage notes payable with principal balances totaling $252,481,000, including $1,958,000 of debt premiums (see Note 2). Of this amount, approximately $141,308,000 was represented by mortgage notes with stated fixed interest rates ranging from 7.25% to 9.13%, a stated weighted average interest rate of 8.01% and maturity dates in 2001 to 2016. Mortgage notes payable with variable interest rates consisted of $68,523,000 and $42,650,000 under the Trust's secured acquisition credit line and secured bridge loan, respectively. The acquisition credit line and bridge loan bear interest at the 30 day LIBOR rate plus 1.75% and mature in April 1999 and January 1999 as extended, respectively. The interest rate on these loans at December 31, 1998 was 7.38%. Debt premiums are amortized into interest expense over the terms of the related mortgages using the effective interest method. As of December 31, 1998, the unamortized debt premiums were $1,958,000. Certain of the mortgage notes payable contain cross default and cross collateralization provisions whereby a default under one note can trigger a default under other notes. Certain of the mortgage notes payable, including the acquisition credit line and bridge loan, also contain various borrowing restrictions and operating performance covenants. The Trust is in compliance with all such restrictions and covenants as of December 31, 1998. The unused commitment under the acquisition credit line at December 31, 1998 is $4,195,000, subject to certain restrictions and provisions. Principal payments during each of the next five years are as follows: $113,331,000 in 1999, $2,338,000 in 2000, $30,183,000 in 2001, $16,877,000 in 2002, $25,893,000 in 2003, and $61,900,000 thereafter. Of the amount due in 1999, $68,523,000 and $42,650,000 are due under the Trust's acquisition credit line and secured bridge loan, respectively. The bridge loan was paid off on January 8, 1999 with proceeds from a F-11 57 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) permanent financing of seven properties. Terms of the permanent financing include a principal amount of $41.0 million, a fixed rate of interest of 7.375%, a ten year term and 25 year principal amortization (See Note 19). The Trust is currently negotiating an extension of the maturity date of the acquisition credit line (see Note 19). During 1998 the Trust recognized extraordinary loss on extinguishment of debt of $23,000 resulting from prepayment penalties on the early retirement of $1.2 million of mortgage debt. At December 31, 1997, 29 of the Trust's 36 properties were subject to liens securing mortgage notes payable totaling $114,226,000. Of this amount, approximately $97,501,000 was represented by mortgage notes ($15,000,000 with a related party) with fixed interest rates ranging from 7.25% to 11.0% and a weighted average interest rate of 8.47%. Approximately $16,725,000 represented borrowings under the Trust's acquisition credit line. The acquisition credit line bears interest at the 30 day LIBOR rate plus 2% and matures in December 1998. The interest rate on this acquisition credit line at December 31, 1997 was 7.72%. NOTE 4 -- UNSECURED NOTES PAYABLE -- RELATED PARTY: During 1998, the Trust obtained unsecured loans from DDR to finance acquisitions. The notes are payable on demand and bear interest at 10.25%. At December 31, 1998, the Trust had three unsecured notes outstanding totaling $14,058,000. The notes were repaid in full in January 1999 (see Note 19). The Trust paid interest of $660,850 to DDR for the period ended December 31, 1998. As a result of the merger with four real estate limited partnerships, effective December 31, 1997, (see Note 2), the Trust assumed an unsecured indebtedness of $7,200,000 payable to Realco. The note was paid off in April 1998. NOTE 5 -- ZERO COUPON NOTES: As part of its original capitalization in 1985, the Trust issued $179,698,000 (face amount at maturity) of Zero Coupon Notes due 1997 (the "Notes"). These Notes, which were collateralized by first and second mortgage liens on each of the Trust's real estate properties, accreted at 12%, compounded semiannually. In 1991, the Trust began a program to retire the outstanding Notes, resulting in a reduction of the outstanding Notes to $19,491,000 (face amount at maturity) at December 31, 1993. On December 31, 1993, the Trust effected a partial in-substance defeasance on $12,696,000 (face amount at maturity) of the Notes and recorded an extraordinary loss of $2,530,000. In November 1994, the Trust completed a partial in-substance defeasance on $3,669,000 (face amount at maturity) of Notes and recorded an extraordinary loss of $344,000. In December 1994, the Trust purchased the remaining non-defeased Notes outstanding in the open market and submitted the Notes to the Trustee for cancellation. The legal defeasance of the Notes resulted in the release of the Zero Coupon Note mortgage liens which encumbered each of the Trust's properties. In November 1997, the Notes were retired. NOTE 6 -- COMMITMENTS AND CONTINGENCIES: Environmental Matters The Trust has been notified of the existence of limited underground petroleum based contamination at a portion of Tamarac Square, the Trust's Denver retail property. The source of the contamination is apparently related to underground storage tanks ("USTs") located on adjacent property. The owner of the adjacent property has agreed to remediate the property to comply with state standards and has indemnified the Trust against costs related to its sampling activity. The responsible party for the adjacent USTs has submitted a corrective Action Plan to the Colorado Department of Public Health and Environment. Implementation of the plan is ongoing. The responsible party is negotiating to obtain access agreements from impacted landowners, including the Trust. F-12 58 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Trust has been notified of the existence limited cleaning solvents ("mineral spirits") contamination at Tech Center 29 Phase I. The contamination is the apparent result of a service center operated on the property until 1996. The tenant's primary operations consisted of the distribution of parts, cleaning equipment and cleaning solvents to industrial customers. Two USTs used in the operation were removed in 1996. The former tenant has been working with the Maryland Department of the Environment since the onset and has issued a letter of credit and standby trust agreement as financial assurance for remediation of the site. With the exception of Tamarac Square and Tech 29 Phase I, the Trust has not been notified, 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 currently named as a defendant in a lawsuit related to the Trust's merger with four real estate limited partnerships. The lawsuit purports to be both a class action and a derivative lawsuit against the defendants. The plaintiffs have asserted various claims, including breach of fiduciary duty and various securities law violations, against the parties to the merger and certain individuals and are seeking monetary damages. On April 13, 1998, the Trust was named as a defendant in an additional purported class action lawsuit related to the Trust's merger with the four real estate limited partnerships. The plaintiffs have asserted various claims, including breach of fiduciary and contractual duties and various securities law violations, against the parties to the merger and are seeking monetary damages. The Trust is also a defendant in a lawsuit over claims of breach of contract and civil conspiracy allegedly injuring a commercial tenant in a building sold by the Trust to DART under threat of eminent domain. DART has agreed to indemnify, defend and hold harmless the Trust from any and all losses and liabilities arising from obligations under this lease. The Trust intends to vigorously defend against these claims. The lawsuits described above are on-going, therefore, management cannot predict the outcome of such litigation, however, management believes the liabilities, if any, that may ultimately result from such legal actions are not expected to have a material adverse effect on the consolidated financial position or results of operations of the Trust. NOTE 7 -- MINORITY INTEREST: Operating Partnerships. AIP-SWAG Operating L.P. and AIP Operating, L.P. have 179,085 and 58,333 limited partnership units outstanding, respectively, as of December 31, 1998 (excluding limited partnership units held by the Trust). Pursuant to the limited partnership agreement for each partnership, the limited partners received rights (the "Redemption Rights") that enable them to cause the partnership to redeem each limited partnership unit for cash equal to the value, as determined in accordance with the partnership agreement, of a Share (or, at the Trust's election, the Trust may purchase each limited partnership unit offered for redemption for one Share). The Redemption Rights generally may be exercised at any time after one year following the issuance of the limited partnership units. The number of Shares issuable upon exercise of the Redemption Rights will be adjusted for share splits, mergers, consolidations or similar pro rata transactions, which would have the effect of diluting the ownership interests of the limited partners or the shareholders of the Trust. The limited partners' interest in each partnership is reflected as minority interest in the accompanying consolidated financial statements. Other Partnerships. In connection with the merger of four real estate limited partnerships, effective December 31, 1997, the Trust acquired a 55.84% interest in Chelmsford Associates LLC, formerly Chelmsford Associates Joint Venture, a joint venture owning one office property. The remaining 44.16% interest is owned by a significant shareholder of the Trust. The financial position and results of operations of F-13 59 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the joint venture is included in the consolidated financial statements of the Trust. The other venturer's interest in the partnership is reflected as minority interest in the accompanying consolidated financial statements. NOTE 8 -- SHAREHOLDERS' EQUITY: Capital Stock. The Trust is authorized to issue up to 500,000,000 Shares. The Shares have dividend, distribution, liquidation and other rights as disclosed in the Declaration of the Trust. As of December 31, 1998, 17,035,705 shares are issued and outstanding. The Trust is authorized to issue up to 50,000,000 Preferred Shares of Beneficial Interest in one or more series. The number of shares in each series and the designation, powers, preferences and rights of each such series and the qualifications, limitations or restrictions thereof have not been established. As of December 31, 1998, no Preferred Shares of Beneficial Interest were issued. On March 9, 1998, the Board of Trust Managers authorized a Share repurchase program allowing the Trust to purchase up to 1,000,000 Shares from time to time in open market transactions, as price and market conditions allow, over the following six months. This program resulted in the Trust purchasing 123,783 Shares in the open market, for an aggregate cost of $1,598,000. These Shares are held in Treasury. As a result of the one-for-five reverse Share split and the odd lot redemption program, effective on October 15, 1997, the Trust repurchased 42,103 Shares which are held in treasury. Private Placement. On January 30, 1998, the Trust completed a $10 million private equity placement at $13.625 per Share. In February 1998, two investment groups exercised their preemptive rights (which subsequently expired) and acquired $5 million and $3.75 million, respectively, of Shares at $13.625 per Share. The Shares are of the same class as the Trust's existing Shares and are entitled to the same voting and distribution rights as all Shares, subject to certain restrictions on the resale of the Shares. On August 3, 1998, the Trust entered into a definitive agreement providing for a strategic investment by DDR in the Trust. Under the terms of the Share Purchase Agreement, the transaction has three stages. The first stage of equity investment, effective as of July 30, 1998, resulted in DDR acquiring 2,207,618 Shares at a price of $15.50 per share in exchange for consideration valued at approximately $34.2 million. As of December 31, 1998, the Trust has issued an additional 3,683,578 Shares related to the second stage of the Agreement at a price of $15.50 per Share to fund property acquisitions. The Shares issued in the first and second stages are of the same class as the Trust's existing Shares and are entitled to the same voting and distribution rights as all Shares, subject to certain restrictions on the resale of the Shares. The remainder of the second stage, 1,543,005 Shares at $15.50 per Share, and the entire third stage, $200 million of equity investment, have not occurred as of December 31, 1998. (See Note 11). In July 1997, the Trust completed a $35 million private equity placement of 2,857,143 Shares at $12.25 per Share (of which approximately $32.6 million was funded in July 1997 and $2.4 million in December 1997). The shares are of the same class as the Trust's existing shares and are entitled to the same voting and distribution rights as all Shares, subject to certain restrictions on the resale of the shares. Share Incentive Plans. The Trust adopted the Employee and Trust Managers Incentive Share Plan (the "Plan") for the purpose of (i) attracting and retaining employees, directors and others, (ii) providing incentives to those deemed important to the success of the Trust, and (iii) associating the interests of these individuals with the interests of the Trust and its shareholders through opportunities for increased share ownership. All awards under the Plan are determined by the Compensation Committee of the Board of Directors and a maximum limit of 10% of the total number of Shares outstanding at any time on a fully-diluted basis may be issued under the Plan. F-14 60 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Under the terms of the Plan, any person who is a full-time employee or a Trust Manager of the Trust or of an affiliate (as defined in the Plan) of the Trust or a person designated by the Compensation Committee as eligible because such person performs bona fide consulting or advisory services for the Trust or an affiliate of the Trust (other than services in connection with the offer or sale of securities in a capital-raising transaction) and has a direct and significant effect on the financial development of the Trust or an affiliate of the Trust, shall be eligible to receive awards under the Plan. Share Option Awards. In connection with the Agreement with DDR, on July 29, 1998, the Trust granted share options to purchase 100,000 shares to the Chairman of the Board of Trust Managers, who, in accordance with DDR's request, transferred the options to his employer, DDR. The exercise price of the options was $12.625 (the market price of the Trust's Shares on the date of the grant) and the fair value of the options was $221,000. The options vested on November 20, 1998. The Trust granted to each non-employee Trust Manager an option to purchase 2,000 shares on June 30, 1997. On an annual basis beginning in 1997, each non-employee Trust Manager shall receive a non-qualified share option to purchase 1,000 Shares. Each of these non-employee Trust Manager options is fully exercisable upon the date of grant and generally terminates (unless sooner terminated under the terms of the Plan) ten years after the date of grant. The exercise price is determined by the Compensation Committee and must have an exercise price equal to not less than 100% of the fair market value of a Share on the date of grant. On December 31, 1998 and 1997, 10,000 Shares and 7,000 Shares, respectively, were granted. During 1998, pursuant to the plan, the Trust Managers granted share options to purchase 460,000 Shares to 12 members of management. The exercise price of the options granted is $13.625. The option to purchase shares vest annually over a period of five years, beginning April 1, 1998. In addition, the Board approved the award of 27,000 restricted shares to the Trust's senior officers. The restricted shares vest annually beginning on the first anniversary date of the date of grant. During 1997, pursuant to the Plan, the Trust Managers granted share options to purchase 125,000 Shares to the Trust's officers. The exercise price of the options granted to the officers is $15.00 (the market price of the Trust's Shares on the date of the grant, June 30, 1997). The options to purchase Shares vest annually over a period of five years, beginning on June 30, 1997. As of December 31, 1998, no options had been exercised. Pursuant to agreements between the Trust and four senior officers, a Change in Control (as defined) occurred on December 10, 1998 when DDR's ownership position exceeded 33% of the Trust's voting shares. As a result, all options held by these officers became fully vested and the restrictions on 27,000 restricted shares held by these officers were lifted. A total of 395,000 previously unvested options became vested on this date. The Trust has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25") and related Interpretations in accounting for its employee share options because, as discussed below, the alternative fair value accounting provided for under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("Statement 123") requires use of option valuation models that were not developed for use in valuing employee share options. Under APB 25, because the exercise price of the Trust's employee share options equals the market price of the underlying shares on the date of grant, no compensation expense is recognized. At December 31, 1998, 716,000 options are outstanding of which 668,000 are fully vested. The remaining 48,000 options vest annually through April 2002. The term of these options range from June 2007 through December 2008. Pro forma information regarding net income and earnings per share is required by Statement 123. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with F-15 61 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the following weighted-average assumptions for 1998: risk-free interest rates of 4.80% to 6.50%; a dividend yield of 4.96% to 5.50%; volatility factors of the expected market price of the Trust's Shares of .275 to .283; and a weighted-average expected life of the options of 7 years. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1997: risk-free interest rates of 5.98% to 6.50%; a dividend yield of 5.5%; volatility factors of the expected market price of the Trust's Shares of .283; and a weighted-average expected life of the options of 7 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Trust's employee share options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee share options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Trust's pro forma information follows (in thousands except for earnings per Share information):
1998 1997 ----------------------- ----------------------- AS REPORTED PRO FORMA AS REPORTED PRO FORMA ----------- --------- ----------- --------- Pro forma net income..................... $(10,070) $(10,350) $1,799 $1,749 ======== ======== ====== ====== Pro forma earnings/(loss) per Share Basic and diluted...................... $ (0.82) $ (0.84) $ 0.54 $ 0.53 ======== ======== ====== ======
A summary of the Trust's share option activity, and related information for the year ended December 31 follows:
1998 1997 -------------------------- -------------------------- WEIGHTED-AVERAGE WEIGHTED-AVERAGE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE ------- ---------------- ------- ---------------- (000) (000) Outstanding-beginning of year........ 139 $14.99 -- $ -- Granted.............................. 577 13.42 139 14.99 Exercised............................ -- -- -- -- Forfeited............................ -- -- -- -- ----- ------ ----- ------ Outstanding-end of year.............. 716 $13.71 139 $14.99 ===== ====== ===== ====== Exercisable at end of year........... 668 $14.85 39 $14.97 ===== ====== ===== ====== Weighted-average fair value of options granted during the year.... $2.74 $3.10 ===== =====
The options outstanding at December 31, 1998 have exercise prices ranging from $11.6875 to $15.00 per share and have a weighted average contractual remaining life of 9.16 years. At December 31, 1998, there were 1,004,200 options that have not been granted under the Plan. The limited partners of AIP-SWAG Operating Partnership L.P. received warrants to purchase 40,000 Shares at $17.50 per Share. The warrants expire on October 3, 2000 (See Note 2). F-16 62 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 9 -- DISTRIBUTIONS: On January 29, 1998, the Board of Trust Managers announced a reinstatement of quarterly distributions. A distribution of $0.18 per Share was paid on April 14, 1998 and a distribution of $0.20 was paid on July 14, 1998 and October 14, 1998. On October 29, 1998 the Trust declared a distribution of $0.20 per Share, payable on January 20, 1999 to shareholders of record on January 7, 1999. There were no distributions paid during 1997. The Trust has declared a distribution of $0.20 per Share payable on April 15, 1999, to shareholders of record on April 5, 1999 (see Note 19). NOTE 10 -- OPERATING LEASES: The Trust's properties are leased to others under operating leases with expiration dates ranging from 1999 to 2011. Future minimum rentals on noncancellable tenant leases at December 31, 1998 are as follows:
YEAR AMOUNT ---- ------------ 1999........................................................ $ 51,662,000 2000........................................................ 43,299,000 2001........................................................ 33,938,000 2002........................................................ 23,472,000 2003........................................................ 13,912,000 Thereafter.................................................. 29,950,000 ------------ $196,233,000 ============
NOTE 11 -- TRANSACTIONS WITH RELATED PARTIES: During the fiscal year 1998, the Trust on occasion entered into unsecured borrowings with DDR. Such borrowings bear a fixed rate of interest of 10.25%, provide for quarterly payments of interest and are due thirty days after demand. The highest amount outstanding under such borrowings from DDR during 1998 was $23,510,000. The total amount of interest on such borrowings during 1998 was $661,000 and the balance outstanding at December 31, 1998 was $14,058,000. Effective October 8, 1998, DDR acquired an 89% limited partnership interest and a 1% general partnership interest in DDR/Tech 29 Limited Partnership, a limited partnership whose assets consist of two light industrial properties and one office property totaling 290,991 nrsf located in Silver Springs, Maryland. Several selling entities and affiliates thereof acquired the remaining partnership interests. These partnership interests are convertible into DDR common shares. As of November 20, 1998, the Trust acquired 88.5% of DDR's limited partnership interest and, in consideration therefor, issued approximately $16.1 million in Shares to DDR. The acquisition was deemed to be effective as of October 8, 1998 and the purchase price included interest accrued from such date. To date, an Equalization Agreement, which provides, among other things, that DDR shall reimburse the Trust for certain dividend-based distributions to the holders of partnership interests has not been executed. It is anticipated that the Equalization Agreement will have an effective date in January 1999. On November 20, 1998, the Trust purchased undeveloped land from DDR in the amount of $2.3 million plus interest. The purchase was accomplished through the issuance of shares to DDR in accordance with the Share Purchase Agreement dated July 30, 1998. This land was then contributed by the Trust to a development joint venture with a third party. In addition to DDR's equity investment (see Note 8) and the items noted above, DDR also provided real estate management services and interim financing for real estate acquisitions. DDR is paid a competitive rate F-17 63 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) for the management services, including, but not limited to, tenant finish, leasing and reporting. For the year ended December 31, 1998 the Trust paid $19,000 for management services. Certain real estate investments are managed by Quorum Real Estate Services Corporation ("Quorum") an affiliate of a major shareholder of the Trust. Quorum is paid competitive rates, for services, including, but not limited to, construction, tenant finish, leasing and management. For the year ended December 31, 1998, management fees and leasing commissions paid by the Trust to Quorum were $548,000 and $24,000, respectively. No such fees were paid by the Trust in 1997. The Trust currently leases space to an individual serving as a Trust Manager at competitive market rates. For the year ended December 31, 1998, this Trust Manager paid $9,800 in lease payments to the Trust. At December 31, 1998, DDR and Realco owned approximately 34.6% and 9.8% of the Shares outstanding, respectively. NOTE 12 -- 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 month of service are eligible to participate in the plan. Subject to certain limitations, employees may contribute up to 15% of their salary. The Trust may make annual discretionary contributions to the plan. Contributions by the Trust related to the years ended December 31, 1998, 1997 and 1996 were $70,000, $40,000 and $30,000, respectively. NOTE 13 -- CHANGE IN CONTROL COSTS: During 1998, the Trust recognized costs related to a change in control of $5,780,000. The costs related to change in control include approximately $2,484,000 for payments made to the Trust's senior officers under severance and change in control agreements which were triggered when DDR's ownership position exceeded 33%, an accrual of $2,960,000 related to the future payments through 2008 to the senior officers under previously granted dividend equivalent rights, approximately $300,000 related to vesting of restricted shares previously granted to the senior officers and $36,000 in payroll taxes associated with the payments to the senior officers. NOTE 14 -- PER SHARE DATA: The following table sets forth the computation of basic and diluted earnings per share:
FOR THE YEAR ENDED DECEMBER 31, --------------------------------------- 1998 1997 1996 ------------ ---------- ----------- Basic and diluted earnings per share: Numerator: Loss before extraordinary items............. $ (4,267,000) $ (844,000) $(4,555,000) Extraordinary items......................... (5,803,000) 2,643,000 5,810,000 ------------ ---------- ----------- Net income/(loss)................... $(10,070,000) $1,799,000 $ 1,255,000 ============ ========== =========== Denominator: Weighted average shares..................... 12,251,591 3,316,788 1,821,648 ------------ ---------- ----------- Basic and diluted earnings per share: Loss before extraordinary items............. $ (0.35) $ (0.26) $ (2.50) Extraordinary items......................... (0.47) 0.80 3.20 ------------ ---------- ----------- Net income/(loss)................... $ (0.82) $ 0.54 $ 0.70 ============ ========== ===========
F-18 64 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Options to purchase 716,000 shares at prices ranging from $11.6875 to $15.00 per Share were outstanding at December 31, 1998 and options to purchase 139,000 shares at prices ranging from $13.625 to $15.00 were outstanding at December 31, 1997. These options were not included in a computation of diluted earnings per share because the options' exercise price was greater than the average market price of the Shares and, therefore, the effect would be antidilutive. The Trust had no options outstanding during 1996. At December 31, 1998, 40,000 warrants were outstanding. The warrants have an exercise price of $17.50 per Share and expire in October 2000. Because the warrants exercise price was greater than the average market price of the Shares the effect would be antidilutive. In January and February 1999, the Trust issued 3,445,709 Shares (see Note 19). NOTE 15 -- FAIR VALUE OF FINANCIAL INSTRUMENTS: Accounts receivable, accounts payable and accrued expenses and other liabilities are carried at amounts that reasonably approximate their fair values. The fair values of the Trust's mortgage notes payable are estimated using discounted cash flow analyses, based on the Trust's incremental borrowing rates for similar types of borrowing arrangements. The carrying values of such mortgage notes payable reasonably approximate their fair values. NOTE 16 -- SEGMENT REPORTING The Trust classifies its reportable segments by property type: light industrial, office, and retail. Light industrial represents 56% of property revenue. Office and retail represent 35% and 9%, respectively. The Trust's emphasis is in the light industrial sector, which is characterized as office showroom, service center and flex properties, low rise offices, and small bay distribution properties. Based on net rentable square feet, as of December 31, 1998, approximately 76% of the Trust's portfolio is represented by light industrial properties, 20% of the portfolio is represented by office properties and 4% of the portfolio is represented by retail properties. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Senior management evaluates performance based on net operating income from the combined properties in each segment. The Trust's reportable segments are a consolidation of related properties which offer different products. They are managed separately because each segment requires different operating, pricing and leasing strategies. All of the properties have been acquired separately and are incorporated into the applicable segment. F-19 65 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1998 ------------------------------------------------------------ LIGHT OFFICE CORPORATE INDUSTRIAL BUILDINGS RETAIL AND OTHER CONSOLIDATED ---------- --------- -------- --------- ------------ Property revenues...................... $ 27,013 $ 17,044 $ 4,300 $ -- $ 48,357 Property expenses...................... 7,908 6,362 1,776 -- 16,046 -------- -------- -------- -------- -------- Income from property operations........ 19,105 10,682 2,524 -- 32,311 Administrative expenses................ -- -- -- (3,729) (3,729) Depreciation and amortization.......... -- -- -- (8,383) (8,383) Other income........................... -- -- -- 705 705 Interest expense....................... -- -- -- (15,139) (15,139) Provision for possible losses on real estate............................... -- -- (10,060) -- (10,060) -------- -------- -------- -------- -------- Loss from operations................... 19,105 10,682 (7,536) (26,546) (4,295) Minority interests in consolidated subsidiaries......................... -- -- -- 28 28 Extraordinary items.................... -- -- -- (5,803) (5,803) -------- -------- -------- -------- -------- Net income (loss)...................... $ 19,105 $ 10,682 $ (7,536) $(32,321) $(10,070) ======== ======== ======== ======== ======== Total real estate............ $334,503 $133,643 $ 35,769 $ 1,217 $505,132 ======== ======== ======== ======== ========
1997 ----------------------------------------------------------- LIGHT OFFICE CORPORATE INDUSTRIAL BUILDINGS RETAIL AND OTHER CONSOLIDATED ---------- --------- ------- --------- ------------ Property revenues........................ $ 8,312 $ 633 $ 3,256 $ -- $ 12,201 Property expenses........................ 2,496 399 1,420 -- 4,315 -------- ------- ------- -------- -------- Income from property operations.......... 5,816 234 1,836 -- 7,886 Administrative expenses.................. -- -- -- (2,504) (2,504) Depreciation and amortization............ -- -- -- (3,157) (3,157) Other income............................. -- -- -- 546 546 Interest expense......................... -- -- -- (5,778) (5,778) -------- ------- ------- -------- -------- Loss from operations..................... 5,830 234 1,836 (10,893) (3,007) Gain on sales of real estate............. -- -- -- 2,163 2,163 Extraordinary items...................... -- -- -- 2,643 2,643 -------- ------- ------- -------- -------- Net income (loss)........................ $ 5,830 $ 234 $ 1,836 $ (6,087) $ 1,799 ======== ======= ======= ======== ======== Total real estate.............. $136,103 $83,352 $45,592 $ 265 $265,312 ======== ======= ======= ======== ========
F-20 66 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The breakdown of the Trust's property revenues, geographically and by reporting segment, for each of the years ended December 31, 1998, 1997, and 1996 is as follows (in thousands):
REGION 1998 1997 1996 ------ ------- ------- ------- WESTERN REGION Industrial............................................ $15,709 $ 5,147 $ 2,949 Office................................................ 13,341 633 638 Retail................................................ 3,186 3,256 3,308 EASTERN REGION Industrial............................................ 11,304 3,165 4,425 Office................................................ 3,703 -- -- Retail................................................ 1,114 -- -- ------- ------- ------- Total property revenues....................... $48,357 $12,201 $11,320 ======= ======= =======
F-21 67 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 17 -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following table sets forth the quarterly results of operations for the years ended December 31, 1998 and 1997 (in thousands, except per Share amounts):
THREE MONTHS ENDED ------------------------------------------------------ DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31 ----------- ------------ ----------- ----------- 1998 Revenues......................... $ 16,740 $ 12,521 $ 11,075 $ 8,726 Income (loss) before extraordinary items(a)......... (7,755) 1,289 1,101 1,098 Extraordinary gain/(loss)........ (5,780) (23) -- -- ----------- ----------- ----------- ----------- Net income....................... $ (13,535) $ 1,266 $ 1,101 $ 1,098 =========== =========== =========== =========== Per Share Data (Basic and Diluted) Income/(loss) before extraordinary items......... $ (0.52) $ 0.10 $ 0.10 $ 0.10 Extraordinary gain/(loss)...... (0.39) -- -- -- ----------- ----------- ----------- ----------- Net income..................... $ (0.91) $ 0.10 $ 0.10 $ 0.10 =========== =========== =========== =========== Weighted average number of shares outstanding: Basic.......................... 14,783,824 12,470,471 11,080,452 10,617,617 =========== =========== =========== =========== Diluted........................ 14,783,824 12,497,471 11,107,452 10,617,617 =========== =========== =========== =========== 1997 Revenues......................... $ 4,524 $ 2,971 $ 2,586 $ 2,666 Gain of sale of real estate...... 1,851 -- -- 312 Income/(loss) before extraordinary items............ 1,258 (341) (1,054) (707) Extraordinary gain/(loss)........ -- -- -- 2,643 ----------- ----------- ----------- ----------- Net income....................... 1,258 (341) (1,054) 1,936 =========== =========== =========== =========== Per Share Data (Basic and Diluted) Income/(loss) before extraordinary items......... $ 0.26 $ (0.08) $ (0.55) $ (0.35) Extraordinary gain/(loss)...... -- -- -- 1.32 ----------- ----------- ----------- ----------- Net income..................... $ 0.26 $ (0.08) $ (0.55) $ 0.97 =========== =========== =========== =========== Weighted average number of shares outstanding: Basic and diluted.............. 4,912,775 4,354,378 2,000,000 2,000,000 =========== =========== =========== ===========
- --------------- (a) In the fourth quarter of 1998 the Trust recognized a $10,060,000 provision for real estate losses for a property held for sale. NOTE 18 -- PRO FORMA FINANCIAL INFORMATION (UNAUDITED) The unaudited pro forma condensed consolidated statements of operations of the Trust are presented as if (i) the merger with four real estate limited partnerships in 1997; (ii) the acquisition of 15 industrial properties in 1997; (iii) the disposition of two properties during 1997; (iv) the acquisition of 28 properties in 1998, and (v) the conversion of $42.7 million in notes payable to DDR into Shares had occurred at the beginning of each period presented. These unaudited pro forma condensed consolidated statements of operations are not necessarily indicative of what actual results of operations of the Trust would have been assuming such F-22 68 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) transactions had been completed as of the beginning of each period presented, nor do they purport to represent the results of operations for future periods. Further the pro forma statements of operations do not include the effects of extraordinary items or provision for possible losses on real estate.
YEAR ENDED DECEMBER 31, ------------------------ 1998 1997 --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME Rents and tenant reimbursements............................. $66,896 $58,594 Interest and other income................................... 739 516 ------- ------- 67,635 59,110 EXPENSES Property operating expenses................................. 20,659 20,054 Depreciation and amortization............................... 11,297 10,831 Interest expense............................................ 19,539 20,130 General and administrative.................................. 3,942 4,216 ------- ------- Total expenses.................................... 55,437 55,231 ------- ------- Income (loss) before minority interests..................... 12,198 3,879 Minority interests.......................................... 28 208 ------- ------- Income (loss) from operations............................... $12,226 $ 4,087 ======= ======= Income (loss) from operations per share..................... $ 0.71 $ 0.24 ======= ======= Weighted average number of common shares outstanding........ 17,292 17,271 ======= =======
NOTE 19 -- SUBSEQUENT EVENTS: On January 8, 1999, the Trust retired a $42.6 million bridge loan with proceeds from a permanent financing of seven properties. Terms of the permanent financing include a principal amount of $41 million, a fixed rate of interest of 7.375%, a ten year term and 25 year principal amortization. On January 15, 1999, the Trust acquired a nine-property portfolio for approximately $127 million, consisting of almost 1 million square feet of one and two story office/flex properties located in northern California and Colorado. The acquisition cost was funded with a $75.2 million secured bridge loan from PSCC and with $51.8 million of common equity issued to DDR. Terms of the bridge loan include a maturity of July 15, 1999 and a variable rate of interest equal to the 30 day LIBOR rate plus 1.75%. The equity was issued to DDR pursuant to the Agreement dated July 30, 1998, as amended and resulted in 3,410,615 Shares delivered to DDR. On January 19, 1999, the Trust refinanced existing indebtedness of approximately $1.8 million on a property acquired in October 1998 with proceeds from a new permanent financing of $7.6 million. Terms of the permanent financing include a fixed rate of interest of 7.33%, seven year term with a three year renewal option, and 30 year principal amortization. On January 29, 1999, the Trust entered into a secured revolving credit agreement with Bank One. The agreement contemplates a $150,000,000 credit line of which Bank One has committed to $25,000,000. The remainder of the credit line will be syndicated on a "best efforts" basis by Bank One. The credit line will be secured by mortgage liens on properties, provides for a graduated variable interest rate (depending on the Trust's overall leverage) of LIBOR plus 1.4% to LIBOR plus 2.0%, a maximum loan to value of 60%, and a maturity in January 2001. As of March 24, 1999, the Trust has $13.0 million outstanding under this credit line, which bears interest at LIBOR plus 1.75%. F-23 69 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On February 23, 1999, the Trust declared a distribution of $0.20 per Share payable on April 15, 1999, to shareholders of record on April 5, 1999. On March 26, 1999, the Trust negotiated an extension of the maturity of its acquisition credit line to April 2000 and a decrease in the interest rate to LIBOR plus 1.55%. F-24 70 SCHEDULE III AMERICAN INDUSTRIAL PROPERTIES REIT CONSOLIDATED REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION DECEMBER 31, 1998 (DOLLARS IN THOUSANDS)
GROSS AMOUNT COSTS CAPITALIZED CARRIED AT SUBSEQUENT TO DECEMBER 31, 1998 INITIAL COSTS ACQUISITION OF ----------------------- ----------------------- LAND, BUILDINGS, RETIREMENTS BUILDINGS, BUILDINGS FURNITURE, WRITEDOWNS FURNITURE, AND FIXTURES AND AND FIXTURES AND LAND IMPROVEMENTS EQUIPMENT ALLOWANCES LAND EQUIPMENT TOTAL -------- ------------ ----------------- ----------- -------- ------------ -------- LIGHT INDUSTRIAL PROPERTIES 2121 Glenville.................. $ 426 $ 1,392 $ -- $ 426 $ 1,392 $ 1,818 Aerotech........................ 914 5,735 12 914 5,747 6,661 Alumax.......................... 260 2,820 -- 260 2,820 3,080 Avion........................... 770 4,006 30 -- 770 4,036 4,806 Battlefield..................... 2,020 11,635 -- 2,020 11,635 13,655 Ben White....................... 303 1,515 110 303 1,625 1,928 Black Canyon Tech............... 1,052 6,846 5 1,052 6,851 7,903 Bowater......................... 581 2,535 -- -- 581 2,535 3,116 Broadbent Business Park......... 700 4,595 42 700 4,637 5,337 Broadbent Land.................. 2,075 -- -- 2,075 -- 2,075 Cameron Creek................... 524 3,379 3 524 3,382 3,906 Cameron Creek Land.............. 840 -- -- -- 840 -- 840 Carpenter Center................ 650 1,354 61 -- 650 1,415 2,065 Carrier Place................... 560 2,682 182 -- 560 2,864 3,424 Central Park.................... 839 3,361 43 -- 839 3,404 4,243 Columbia Corporate Ctr.......... 6,500 6,623 -- 6,500 6,623 13,123 Commerce Center................. 4,420 6,328 1,064 -- 4,420 7,392 11,812 Commerce Park North............. 1,108 4,431 558 (2,014) 705 3,378 4,083 Continental Plastic............. 2,350 5,128 5 -- 2,350 5,133 7,483 Corporex Plaza I................ 998 4,130 254 -- 998 4,384 5,382 Corporex Presidents Plaza....... 491 1,932 189 -- 491 2,121 2,612 DFW IV.......................... 470 3,364 74 -- 470 3,438 3,908 Gateway 5 & 6................... 935 3,741 907 (1,861) 563 3,159 3,722 Greenbrier Circle............... 1,930 12,787 -- 1,930 12,787 14,717 Greenbrier Tech................. 1,060 6,293 -- 1,060 6,293 7,353 Hardline........................ 1,040 6,935 45 1,040 6,980 8,020 Heritage Business Ctr........... 360 2,141 -- 360 2,141 2,501 Heritage VSA.................... 205 3,928 -- 205 3,928 4,133 ACCUMULATED YEAR ACQ. ENCUM- DEPRECIATION CONSTRUCTED DATE BRANCES ------------ ----------- ---- ------- LIGHT INDUSTRIAL PROPERTIES 2121 Glenville.................. $ (12) 1984 1998 $ -- Aerotech........................ (96) 1985 1998 4,210 Alumax.......................... (29) 1982 1998 Avion........................... (102) 1984 1997 (b) Battlefield..................... (71) 1989 1998 8,334 Ben White....................... (30) 1984 1998 Black Canyon Tech............... (114) 1983 1998 5,887 Bowater......................... (63) 1989 1997 2,100 Broadbent Business Park......... (79) 1989 1998 1,782 Broadbent Land.................. -- -- 1998 Cameron Creek................... (63) 1996 1998 1,416 Cameron Creek Land.............. -- -- 1998 Carpenter Center................ (48) 1983 1997 (a) Carrier Place................... (101) 1984 1997 (a) Central Park.................... (113) 1984 1997 (b) Columbia Corporate Ctr.......... (14) 1988 1998 Commerce Center................. (115) 1971/74 1997 (a) Commerce Park North............. (1,407) 1984 1985 2,030 Continental Plastic............. (128) 1963/96 1997 Corporex Plaza I................ (131) 1982 1997 (b) Corporex Presidents Plaza....... (68) 1987 1997 (b) DFW IV.......................... (112) 1985 1997 (a) Gateway 5 & 6................... (1,469) 1984/85 1985 2,755 Greenbrier Circle............... (78) 1981/83 1998 7,422 Greenbrier Tech................. (38) 1981 1998 4,428 Hardline........................ (73) 1974 1998 Heritage Business Ctr........... (22) 1990 1998 Heritage VSA.................... (41) 1989 1998
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SCHEDULE III -- (CONTINUED) AMERICAN INDUSTRIAL PROPERTIES REIT CONSOLIDATED REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION -- (CONTINUED) DECEMBER 31, 1998 (DOLLARS IN THOUSANDS) COSTS CAPITALIZED SUBSEQUENT TO INITIAL COSTS ACQUISITION OF ----------------------- LAND, BUILDINGS, RETIREMENTS BUILDINGS FURNITURE, WRITEDOWNS AND FIXTURES AND LAND IMPROVEMENTS AND EQUIPMENT ALLOWANCES -------- ------------ ----------------- ----------- Huntington Drive................ 1,559 6,237 821 -- Inverness....................... 1,532 6,054 304 -- Kodak........................... 1,749 2,998 332 -- Meridian........................ 262 1,047 1 -- Metro Business Park............. 2,050 7,957 -- -- Norfolk Commerce................ 2,400 19,093 -- -- Northgate II.................... 2,153 8,612 784 (4,122) Northgate III................... 1,280 10,013 208 -- Northpointe B & C............... 640 5,252 -- -- Northwest Business Park......... 1,296 5,184 773 (131) Parkway Tech.................... 440 2,795 49 -- Patapsco........................ 1,147 4,588 475 (1,250) Plaza SW........................ 1,312 5,248 1,302 -- Skyway.......................... 444 1,778 68 -- Steris.......................... 300 2,251 -- -- Summit Park..................... 2,232 5,734 80 -- Summit Park Land................ 732 -- -- -- Tech 29 Bldg I.................. 3,900 6,968 -- -- Tech 29 Bldg II................. 2,000 5,998 -- -- Technipark 10................... 920 3,211 -- -- Tucson Tech..................... 663 3,518 -- -- Valley View..................... 1,460 6,648 24 -- Valley View Land................ 1,024 -- -- -- Valwood II...................... 420 2,021 117 -- Shady Trail..................... 530 1,738 56 -- Washington Business Park........ 1,850 7,453 -- -- Westchase....................... 697 2,787 327 (1,232) Winter Park..................... 2,000 7,198 -- -- -------- -------- ------- -------- Total Light Industrial............ $ 71,373 $261,997 $ 9,305 $(10,610) SCHEDULE III -- (CONTINUED) AMER AMERICAN INDUSTRIAL PROPERTIES REIT CONSOLIDATED REAL ESTATE IN CONSOLIDATED REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION -- (CONTINUED) DECEMBER 31, 1998 (DOLLARS IN THOUSANDS) GROSS AMOUNT CARRIED AT DECEMBER 31, 1998 ----------------------- BUILDINGS, FURNITURE, FIXTURES AND ACCUMULATED YEAR ACQ. ENCUM- LAND EQUIPMENT TOTAL DEPRECIATION CONSTRUCTED DATE BRANCES -------- ------------ -------- ------------ ----------- ---- ------- Huntington Drive................ 1,559 7,058 8,617 (2,459) 1984/85 1985 4,422 Inverness....................... 1,532 6,358 7,890 (159) 1980 1997 (b) Kodak........................... 1,749 3,330 5,079 (104) 1987 1997 3,360 Meridian........................ 262 1,048 1,310 (87) 1981 1995 1,124 Metro Business Park............. 2,050 7,957 10,007 (50) 1987 1998 6,200 Norfolk Commerce................ 2,400 19,093 21,493 (199) 1981/87 1998 13,000 Northgate II.................... 1,329 6,098 7,427 (2,692) 1982/83 1985 5,002 Northgate III................... 1,280 10,221 11,501 (248) 1979/86 1997 (a) Northpointe B & C............... 640 5,252 5,892 (22) 1987/88 1998 2,820 Northwest Business Park......... 1,296 5,826 7,122 (2,043) 1983/86 1986 Parkway Tech.................... 440 2,844 3,284 (91) 1984 1997 (a) Patapsco........................ 897 4,063 4,960 (1,400) 1980/84 1985 3,008 Plaza SW........................ 1,312 6,550 7,862 (2,206) 1970/74 1985 3,262 Skyway.......................... 444 1,846 2,290 (61) 1981 1997 (b) Steris.......................... 300 2,251 2,551 (23) 1980 1998 Summit Park..................... 2,232 5,814 8,046 (101) 1985 1998 6,150 Summit Park Land................ 732 -- 732 -- -- 1998 Tech 29 Bldg I.................. 3,900 6,968 10,868 (44) 1970 1998 1,834 Tech 29 Bldg II................. 2,000 5,998 7,998 (35) 1991 1998 4,327 Technipark 10................... 920 3,211 4,131 (20) 1983/84 1998 Tucson Tech..................... 663 3,518 4,181 (59) 1986 1998 2,772 Valley View..................... 1,460 6,672 8,132 (128) 1986 1997 (a) Valley View Land................ 1,024 -- 1,024 -- 1986 1997 (a) Valwood II...................... 420 2,138 2,558 (66) 1983 1997 (a) Shady Trail..................... 530 1,794 2,324 (58) 1984 1997 (a) Washington Business Park........ 1,850 7,453 9,303 -- 1985 1998 5,190 Westchase....................... 465 2,114 2,579 (903) 1983 1985 1,283 Winter Park..................... 2,000 7,198 9,198 (15) 1981/83/85 1998 5,100 -------- -------- -------- -------- Total Light Industrial............ $ 69,292 $262,773 $332,065 $(17,890)
F-26 72
SCHEDULE III -- (CONTINUED) AMERICAN INDUSTRIAL PROPERTIES REIT CONSOLIDATED REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION -- (CONTINUED) DECEMBER 31, 1998 (DOLLARS IN THOUSANDS) COSTS CAPITALIZED SUBSEQUENT TO INITIAL COSTS ACQUISITION OF ----------------------- LAND, BUILDINGS, RETIREMENTS BUILDINGS FURNITURE, WRITEDOWNS AND FIXTURES AND LAND IMPROVEMENTS AND EQUIPMENT ALLOWANCES -------- ------------ ----------------- ----------- OFFICE PROPERTIES 1881 PineStreet................. $ 776 $ 5,924 $ 121 $ -- Academy Point................... 881 7,832 62 -- Apollo Computer................. 6,106 17,901 972 -- BeltlineBusiness Ctr............ 1,303 5,213 699 (3,521) Linear Tech..................... 1,235 3,231 -- -- Manhattan....................... 5,156 23,053 1,350 -- Skygate......................... 1,923 8,451 328 -- Spring Valley................... 959 8,362 27 -- Systech (10505 Sorrento)........ 879 3,691 13 -- Tech 29 Bldg III................ 1,600 6,840 -- -- Northview Business Center....... 7,600 14,676 -- -- -------- -------- ------- -------- Total Office Properties............ $ 28,418 $105,174 $ 3,572 $ (3,521) RETAIL PROPERTIES Tamarac......................... $ 6,799 $ 27,194 $ 4,558 $(10,060) Volusia......................... 3,445 3,826 7 -- -------- -------- ------- -------- Total Retail Properties............ $ 10,244 $ 31,020 $ 4,565 $(10,060) DEVELOPMENT PROPERTY Post Office Land................ 2,438 -- -- -- -------- -------- ------- -------- Total Development Property.............. 2,438 -- -- -- Trust........................... -- -- 265 -- -------- -------- ------- -------- TOTAL ALL PROPERTIES.... $112,473 $398,191 $17,707 $(24,191) SCHEDULE III -- (CONTINUED) AMER AMERICAN INDUSTRIAL PROPERTIES REIT CONSOLIDATED REAL ESTATE IN CONSOLIDATED REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION -- (CONTINUED) DECEMBER 31, 1998 (DOLLARS IN THOUSANDS) GROSS AMOUNT CARRIED AT DECEMBER 31, 1998 ----------------------- BUILDINGS, FURNITURE, FIXTURES AND ACCUMULATED YEAR ACQ. ENCUM- LAND EQUIPMENT TOTAL DEPRECIATION CONSTRUCTED DATE BRANCES -------- ------------ -------- ------------ ----------- ---- ------- OFFICE PROPERTIES 1881 PineStreet................. $ 776 $ 6,045 $ 6,821 $ (160) 1987 1997 $ 3,641 Academy Point................... 881 7,894 8,775 (135) 1984 1998 6,352 Apollo Computer................. 6,106 18,873 24,979 (456) 1987 1997 15,587 BeltlineBusiness Ctr............ 600 3,094 3,694 (1,530) 1984 1985 2,682 Linear Tech..................... 1,235 3,231 4,466 (81) 1986 1997 2,238 Manhattan....................... 5,156 24,403 29,559 (711) 1985 1997 20,300 Skygate......................... 1,923 8,779 10,702 (219) 1964/73 1997 5,978 Spring Valley................... 959 8,389 9,348 (184) 1980/98 1998 (b) Systech (10505 Sorrento)........ 879 3,704 4,583 (93) 1982 1997 Tech 29 Bldg III................ 1,600 6,840 8,440 (41) 1988 1998 4,650 Northview Business Center....... 7,600 14,676 22,276 (245) 1970 1998 15,497 -------- -------- -------- -------- Total Office Properties............ $ 27,715 $105,928 $133,643 $ (3,855) RETAIL PROPERTIES Tamarac......................... $ 6,000 $ 22,491 $ 28,491 $(11,491) 1976/79 1985 11,574 Volusia......................... 3,445 3,833 7,278 (96) 1984 1997 -------- -------- -------- -------- Total Retail Properties............ $ 9,445 $ 26,324 $ 35,769 $(11,587) DEVELOPMENT PROPERTY Post Office Land................ 2,438 -- 2,438 -- -- 1998 -------- -------- -------- -------- ---------- Total Development Property.............. 2,438 -- 2,438 -- -- Trust........................... -- 1,217 1,217 (117) -------- -------- -------- -------- TOTAL ALL PROPERTIES.... $108,890 $396,242 $505,132 $(33,449)
- --------------- (a) Property encumbered by a first mortgage loan of $30,280 at December 31, 1998. (b) Property encumbered by a first mortgage loan of $24,484 at December 31, 1998. F-27 73 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO SCHEDULE III DECEMBER 31, 1997 (IN THOUSANDS) RECONCILIATION OF REAL ESTATE:
1998 1997 1996 -------- -------- -------- Balance at beginning of year................................ $265,312 $ 94,472 $101,897 Additions during period: Improvements.............................................. 6,659 1,366 982 Acquisitions.............................................. 243,231 175,469 -- -------- -------- -------- 515,202 271,307 102,879 Deductions during period: Dispositions.............................................. -- 5,995 8,407 Writedowns................................................ 10,060 -- -- Asset retirements...................................... 10 -- -- -------- -------- -------- Balance at end of year...................................... $505,132 $265,312 $ 94,472 ======== ======== ========
RECONCILIATION OF ACCUMULATED DEPRECIATION:
1998 1997 1996 -------- -------- -------- Balance at beginning of year................................ $ 25,521 $ 23,973 $ 23,441 Additions during period: Depreciation expense for period........................... 7,928 2,774 2,577 -------- -------- -------- 33,449 26,747 26,018 Deductions during period: Accumulated depreciation of real estate sold.............. -- 1,226 2,045 Asset retirements...................................... -- -- -- -------- -------- -------- Balance at end of year...................................... $ 33,449 $ 25,521 $ 23,973 ======== ======== ========
TAX BASIS: The income tax basis of real estate, net of accumulated tax depreciation, is approximately $495,232 at December 31, 1998. DEPRECIABLE LIFE: Depreciation is provided by the straight-line method over the estimated useful lives which are as follows: Buildings and capital improvements: 40 years Tenant improvements: Term of the lease not to exceed 10 years
F-28 74 INDEX TO EXHIBITS
EXHIBIT NO. DOCUMENT ------- -------- 2.1 -- Form of Amended and Restated Agreement and Plan of Merger, dated as of June 30, 1997, by and between the Trust and each of USAA Real Estate Income Investments I, a California Limited Partnership, USAA Real Estate Income Investments II Limited Partnership, USAA Income Properties III Limited Partnership and USAA Income Properties IV Limited Partnership (included as Annex I to the Joint Proxy Statement/Prospectus of the Trust included in Form S-4, Registration No. 333-31823) 2.2 -- Purchase Agreement dated as of July 2, 1997 between Shidler West Investment Corporation, as Purchaser, and Merit Industrial Properties Limited Partnership, as Seller, as amended by (i) First Amendment to Purchase Agreement dated as of July 30, 1997, (ii) Second Amendment to Purchase Agreement dated as of July 31, 1997, (iii) Third Amendment to Purchase Agreement dated as of August 8, 1997, (iv) Fourth Amendment to Purchase Agreement dated as of August 12, 1997, and (v) Fifth Amendment to Purchase Agreement dated as of October 2, 1997 (incorporated herein by reference from Exhibit 2.1 to Form 8-K of the Trust dated October 3, 1997) 2.3 -- Purchase Agreement dated as of July 2, 1997 between Shidler West Investment Corporation, as Purchaser, and Merit 1995 Industrial Portfolio Limited Partnership, as Seller, as amended by (i) First Amendment to Purchase Agreement dated as of July 30, 1997, (ii) Second Amendment to Purchase Agreement dated as of July 31, 1997, (iii) Third Amendment to Purchase Agreement dated as of August 8, 1997, and (iv) Fourth Amendment to Purchase Agreement dated as of August 12, 1997 (incorporated herein by reference from Exhibit 2.2 to Form 8-K of the Trust dated October 3, 1997) 2.4 -- Purchase Agreement dated as of July 2, 1997 between Shidler West Investment Corporation, as Purchaser, and Merit VV 1995 Industrial Portfolio Limited Partnership, as Seller, as amended by (i) First Amendment to Purchase Agreement dated as of July 30, 1997, (ii) Second Amendment to Purchase Agreement dated as of July 31, 1997, (iii) Third Amendment to Purchase Agreement dated as of July 31, 1997, (iv) Fourth Amendment to Purchase Agreement dated as of August 12, 1997, and (v) Fifth Amendment to Purchase Agreement dated as of October 2, 1997 (incorporated herein by reference from Exhibit 2.3 to Form 8-K of the Trust dated October 3, 1997) 2.5 -- Purchase Agreement dated as of June 30, 1997 between Shidler West Investment Corporation, as Purchaser, and Merit VV Land 1995 Industrial Portfolio Limited Partnership, as Seller, as amended by (i) First Amendment to Purchase Agreement dated as of July 30, 1997, (ii) Second Amendment to Purchase Agreement dated as of July 31, 1997, (iii) Third Amendment to Purchase Agreement dated as of July 31, 1997, and (iv) Fourth Amendment to Purchase Agreement dated as of August 12, 1997 (incorporated herein by reference from Exhibit 2.4 to Form 8-K of the Trust dated October 3, 1997) 2.6 -- Purchase and Sale Agreement dated as of September 24, 1997 by and between Midway/Commerce Center Limited Partnership, as Seller, and the Trust, as Buyer (incorporated herein by reference from Exhibit 2.1 to Form 8-K of the Trust dated October 3, 1997)
75
EXHIBIT NO. DOCUMENT ------- -------- 2.7 -- First Amendment to Purchase and Sale Agreement dated as of October 22, 1997 by and between Midway/Commerce Center Limited Partnership and the Trust (incorporated herein by reference from Exhibit 2.2 to Form 8-K of the Trust dated November 13, 1997) 2.8 -- Second Amendment to Purchase and Sale Agreement dated as of October 31, 1997 by and between Midway/Commerce Center Limited Partnership and the Trust (incorporated herein by reference from Exhibit 2.3 to Form 8-K of the Trust dated November 13, 1997) 2.9 -- Amended and Restated Agreement and Plan of Merger dated as of June 30, 1998 between the Trust and USAA Real Estate Income Investments I, a California Limited Partnership (incorporated herein by reference from Exhibit 2.1 to Form 8-K of the Trust dated January 20, 1998) 2.10 -- Amended and Restated Agreement and Plan of Merger dated as of June 30, 1998 between the Trust and USAA Real Estate Income Investments II Limited Partnership (incorporated herein by reference from Exhibit 2.2 to Form 8-K of the Trust dated January 20, 1998) 2.11 -- Amended and Restated Agreement and Plan of Merger dated as of June 30, 1998 between the Trust and USAA Real Estate Income Investments III Limited Partnership (incorporated herein by reference from Exhibit 2.3 to Form 8-K of the Trust dated January 20, 1998) 2.12 -- Amended and Restated Agreement and Plan of Merger dated as of June 30, 1998 between the Trust and USAA Real Estate Income Investments IV Limited Partnership (incorporated herein by reference from Exhibit 2.4 to Form 8-K of the Trust dated January 20, 1998) 2.13 -- Agreement and Plan of Merger by and among the Trust, Developers Diversified Realty Corporation ("DDR") and DDR Office Flex Corporation ("DDR Flex") dated July 30, 1998 (incorporated herein by reference from Exhibit 2.1 to Form 8-K of the Trust dated July 30, 1998) *3.1 -- Third Amended and Restated Declaration of Trust *3.2 -- First Amendment to the Third Amended and Restated Declaration of Trust *3.3 -- Second Amendment to the Third Amended and Restated Declaration of Trust *3.4 -- Third Amendment to the Third Amended and Restated Declaration of Trust *3.5 -- Fifth Amended and Restated Bylaws *3.6 -- Amendment to the Fifth Amended and Restated Bylaws 3.7 -- Statement of Designation of Series A Preferred Shares of Beneficial Interest of the Trust dated July 30, 1998 (incorporated herein by reference from Exhibit 3.1 to Form 8-K of the Trust dated July 30, 1998) 4.1 -- Indenture dated November 15, 1985, by and between the Trust and IBJ Schroder Bank & Trust Company (incorporated herein by reference from Exhibit 10.4 to Form S-4 of American Industrial Properties REIT, Inc. ("AIP Inc.") dated March 16, 1994; Registration No. 33-74292) 4.2 -- Form of Common Share Certificate (incorporated herein by reference from Exhibit 4.2 to Amendment No. 3 to Form S-4 of the Trust filed October 28, 1997; Registration No. 333-31823) 10.1 -- Form of Indemnification Agreement (incorporated by reference from Exhibit 10.1 to Form S-4 of the Trust dated July 22, 1997; Registration No. 333-31823)
76
EXHIBIT NO. DOCUMENT ------- -------- 10.2 -- Employee and Trust Manager Incentive Share Plan (incorporated by reference from Exhibit 10.2 to Form S-4 of the Trust dated July 22, 1997; Registration No. 333-31823) 10.3 -- Common Share Purchase Agreement dated as of July 3, 1997, by and between the Trust and ABKB/LaSalle Securities Limited Partnership ("ABKB") as Agent for and for the benefit of a particular client (incorporated herein by reference from Exhibit 10.7 to Form 8-K of the Trust dated July 22, 1997) 10.4 -- Common Share Purchase Agreement dated as of July 3, 1997, by and between the Trust and ABKB as Agent for and for the benefit of a particular client (incorporated herein by reference from Exhibit 10.8 to Form 8-K of the Trust dated July 22, 1997) 10.5 -- Common Share Purchase Agreement dated as of July 3, 1997, by and between the Trust and ABKB/LaSalle Advisors Limited Partnership ("LaSalle") as Agent for and for the benefit of a particular client (incorporated herein by reference from Exhibit 10.9 to Form 8-K of the Trust dated July 22, 1997) 10.6 -- Registration Rights Agreement dated as of July 10, 1997, by and between the Trust, ABKB as Agent for and for the benefit of particular clients and LaSalle Advisors Limited Partnership as Agent for and for the benefit of a particular client (incorporated herein by reference from Exhibit 10.6 to Form 8-K of the Trust dated July 22, 1997) 10.7 -- Common Share Purchase Agreement dated as of June 20, 1997, by and among the Trust, MS Real Estate Special Situations, Inc. ("MSRE") and Morgan Stanley Asset Management, Inc. ("MSAM") as agent and attorney-in-fact for specified clients (the "MSAM") (incorporated herein by reference from Exhibit 10.5 to Form 8-K of the Trust dated July 22, 1997) 10.8 -- Registration Rights Agreement dated as of June 20, 1997, by and among the Trust, MSRE and MSAM on behalf of the MSAM Purchaser (incorporated herein by reference from Exhibit 10.6 to the Trust's Form 8-K dated July 22, 1997) 10.9 -- Renewal, Extension, Modification and Amendment Agreement dated February 26, 1997, executed by the Trust in favor of USAA Real Estate Company ("Realco") (incorporated herein by reference from Exhibit 10.1 to Form 8-K of the Trust dated March 4, 1997) 10.10 -- Share Purchase Agreement dated as of December 20, 1996, by and among the Trust, Realco and AIP Inc. (incorporated herein by reference from Exhibit 99.7 to Form 8-K of the Trust dated December 23, 1996) 10.11 -- Share Purchase Agreement dated as of December 13, 1996, by and between the Trust and Realco (incorporated herein be reference from Exhibit 99.4 to Form 8-K of the Trust dated December 23, 1996) 10.12 -- Registration Rights Agreement dated as of December 20, 1996, by and between the Trust and Realco, as amended (incorporated herein by reference from Exhibit 99.9 to Form 8-K of the Trust dated December 23, 1996) 10.13 -- Registration Rights Agreement dated as of December 19, 1996, by and between the Trust and Realco (incorporated herein by reference from Exhibit 99.8 to Form 8-K of the Trust dated December 23, 1996) 10.14 -- 401(k) Retirement and Profit Sharing Plan (incorporated herein by reference from Exhibit 10.5 to Amendment No. 1 to Form S-4 of AIP Inc. dated March 4, 1994; Registration No. 33-74292)
77
EXHIBIT NO. DOCUMENT ------- -------- 10.15 -- Amendments to 401(k) Retirement and Profit Sharing Plan (incorporated herein by reference from Exhibit 10.4 to Form 10-K of the Trust dated March 27, 1995) 10.16 -- Settlement Agreement by and between the Trust, Patapsco #1 Limited Partnership, Patapsco #2 Limited Partnership, The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company (U.S.A.) dated as of May 22, 1996 (incorporated herein by reference from Exhibit 99.1 to Form 8-K of the Trust dated May 22, 1996) 10.17 -- Agreement and Assignment of Partnership Interest, Amended and Restated Agreement and Certificate of Limited Partnership and Security Agreement for Patapsco Center -- Linthicum Heights, Maryland (incorporated herein by reference from Exhibit 10.8 to Amendment No. 2 to Form S-4 of AIP Inc. dated March 4, 1994; Registration No. 33-74292) 10.18 -- Note dated November 15, 1994 in the original principal amount of $12,250,000 with AIP Properties #1 L.P. as Maker and AMRESCO Capital Corporation as Payee (incorporated herein by reference from Exhibit 99.1 to Form 8-K of the Trust dated November 22, 1994) 10.19 -- Mortgage, Deed of Trust and Security Agreement dated November 15, 1994 between AIP Properties #1 L.P. and AMRESCO Capital Corporation (incorporated herein by reference from Exhibit 99.20 Form 8-K of the Trust dated November 22, 1994) 10.20 -- Loan Modification Agreement modifying the Note dated November 15, 1994 in the original principal amount of $12,250,000 (incorporated herein by reference from Exhibit 99.2 to Form 8-K of the Trust dated June 23, 1995) 10.21 -- Note dated November 15, 1994 in the original principal amount of $2,150,000 with AIP Properties #2 L.P. as Maker and AMRESCO Capital Corporation as Payee (incorporated herein by reference from Exhibit 99.3 to Form 8-K of the Trust dated November 22, 1994) 10.22 -- Mortgage, Deed of Trust and Security Agreement dated November 15, 1994 between AIP Properties #2 L.P. and AMRESCO Capital Corporation (incorporated herein by reference from Exhibit 99.4 to Form 8-K of the Trust dated November 22, 1994) 10.23 -- Loan Modification Agreement modifying the Note dated November 15, 1994 in the original principal amount of $2,250,000 (incorporated herein by reference from Exhibit 99.1 to Form 8-K of the Trust dated June 23, 1995) 10.24 -- Promissory Note dated November 25, 1996, by and between AIP Inc. and Realco (incorporated herein by reference from Exhibit No. 99.5 to Form 8-K of the Trust dated December 23, 1996) 10.25 -- Deed of Trust and Security Agreement dated November 15, 1996 between AIP Properties #3, L.P. and Life Investors Insurance Company of America (Huntington Drive Center) (incorporated herein by reference from Exhibit 99.1 to Form 8-K of the Trust dated November 20, 1996) 10.26 -- Note dated November 15, 1996 in the original principal amount of $4,575,000 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Huntington Drive Center ) (incorporated herein by reference from Exhibit 99.2 to Form 8-K of the Trust dated November 20, 1996)
78
EXHIBIT NO. DOCUMENT ------- -------- 10.27 -- Deed of Trust and Security Agreement dated November 15, 1996 between AIP Properties #3, L.P. and Life Investors Insurance Company of America (Patapsco Industrial Center) (incorporated herein by reference from Exhibit 99.3 to Form 8-K of the Trust dated November 20, 1996) 10.28 -- Note dated November 15, 1996 in the original principal amount of $3,112,500 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Patapsco Industrial Center) (incorporated herein by reference from Exhibit 99.4 to Form 8-K of the Trust dated November 20, 1996) 10.29 -- Deed of Trust and Security Agreement dated November 15, 1996 between AIP Properties #3, L.P. and Life Investors Insurance Company of America (Woodlake Distribution Center) (incorporated herein by reference from Exhibit 99.5 to Form 8-K of the Trust dated November 20, 1996) 10.30 -- Note dated November 15, 1996 in the original principal amount of $1,537,500 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Woodlake Distribution Center) (incorporated herein by reference from Exhibit 99.6 to Form 8-K of the Trust dated November 20, 1996) 10.31 -- Deed of Trust and Security Agreement dated November 15, 1996 between AIP Properties #3, L.P. and Life Investors Insurance Company of America (all Texas properties except Woodlake) (incorporated herein by reference from Exhibit 99.7 to Form 8-K of the Trust dated November 20, 1996) 10.32 -- Note dated November 15, 1996 in the original principal amount of $1,162,500 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Meridian Street Warehouse) (incorporated herein by reference from Exhibit 99.8 to Form 8-K of the Trust dated November 20, 1996) 10.33 -- Note dated November 15, 1996 in the original principal amount of $2,775,000 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Beltline Business Center) (incorporated herein by reference from Exhibit 99.9 to Form 8-K of the Trust dated November 20, 1996) 10.34 -- Note dated November 15, 1996 in the original principal amount of $3,375,000 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Plaza South) (incorporated herein by reference from Exhibit 99.10 to Form 8-K of the Trust dated November 20, 1996) 10.35 -- Note dated November 15, 1996 in the original principal amount of $2,100,000 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Commerce North Park) (incorporated herein by reference from Exhibit 99.11 to Form 8-K of the Trust dated November 20, 1996) 10.36 -- Note dated November 15, 1996 in the original principal amount of $2,850,000 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Gateway 5 & 6) (incorporated herein by reference from Exhibit 99.12 to Form 8-K of the Trust dated November 20, 1996) 10.37 -- Note dated November 15, 1996 in the original principal amount of $5,175,000 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Northgate II) (incorporated herein by reference from Exhibit 99.13 to Form 8-K of the Trust dated November 20, 1996) 10.38 -- Note dated November 15, 1996 in the original principal amount of $1,327,500 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Westchase Park) (incorporated herein by reference from Exhibit 99.4 to Form 8-K of the Trust dated November 20, 1996)
79
EXHIBIT NO. DOCUMENT ------- -------- 10.39 -- Bonus and Severance Agreement dated March 13, 1996, by and between the Trust and Charles W. Wolcott (incorporated herein by reference from Exhibit 10.12 to Form 10-K of the Trust for the year ended December 31, 1996) 10.40 -- Bonus and Severance Agreement dated March 13, 1996, by and between the Trust and Marc A. Simpson (incorporated herein by reference from Exhibit 10.13 to Form 10-K of the Trust for the year ended December 31, 1996) 10.41 -- Bonus and Severance Agreement dated March 13, 1996, by and between the Trust and David B. Warner (incorporated herein by reference from Exhibit 10.14 to Form 10-K of the Trust for the year ended December 31, 1996) 10.42 -- Amendment No. 1 to Share Purchase Agreement dated as of December 13, 1996 by and between the Trust and Realco (incorporated herein by reference from Exhibit 10.2 to Form 8-K of the Trust dated March 4, 1997) 10.44 -- Common Share Purchase Agreement dated as of January 29, 1998, by and between the Trust and Praedium II Industrial Associates LLC ("Praedium") (incorporated herein by reference from Exhibit 10.1 to Form 8-K of the Trust dated January 29, 1998) 10.45 -- Registration Rights Agreement dated as of January 29, 1998, by and between the Trust and Praedium (incorporated herein by reference from Exhibit 10.2 to Form 8-K of the Trust dated January 29, 1998) 10.46 -- Agreement dated as of January 29, 1998, by and among the Trust, Realco, ABKB (as Agent for and for the benefit of particular clients), MSRE and MSAM (incorporated herein by reference from Exhibit 10.3 to Form 8-K of the Trust dated January 29, 1998) 10.47 -- Contribution and Exchange Agreement dated as of September 25, 1997 among Shidler West Investment Corporation, AIP-SWAG Operating Partnership, L.P. and the Trust (incorporated herein by reference from Exhibit 99.1 to Form 8-K of the Trust dated October 3, 1997) 10.48 -- Assignment and Assumption of Purchase Agreements dated as of October 3, 1997 between Shidler West Investment Corporation and AIP-SWAG Operating Partnership, L.P. (incorporated herein by reference from Exhibit 99.2 to Form 8-K of the Trust dated October 3, 1997) 10.49 -- Amended and Restated Agreement of Limited Partnership of AIP-SWAG Operating Partnership, L.P. dated as of October 3, 1997 (incorporated herein by reference from Exhibit 99.3 to Form 8-K of the Trust dated October 3, 1997) 10.50 -- Warrant Agreement dated as of October 3, 1997 between the Trust and Shidler West Acquisition Company, LLC (incorporated herein by reference from Exhibit 99.4 to Form 8-K of the Trust dated October 3, 1997) 10.51 -- Warrant Agreement dated as of October 3, 1997 between the Trust and AG Industrial Investors, L.P. (incorporated herein by reference from Exhibit 99.5 to Form 8-K of the Trust dated October 3, 1997) 10.52 -- Registration Rights Agreement dated as of October 3, 1997 between the Trust and Shidler West Acquisition Company, LLC (incorporated herein by reference from Exhibit 99.6 to Form 8-K of the Trust dated October 3, 1997) 10.53 -- Registration Rights Agreement dated as of October 3, 1997 between the Trust and AG Industrial Investors, L.P. (incorporated herein by reference from Exhibit 99.7 to Form 8-K of the Trust dated October 3, 1997)
80
EXHIBIT NO. DOCUMENT ------- -------- 10.54 -- Credit Agreement dated as of October 3, 1997 between the Trust and AIP-SWAG Operating Partnership, L.P., as Borrower, and Prudential Securities Credit Corporation, as Lender (incorporated herein by reference from Exhibit 99.9 to Form 8-K of the Trust dated October 3, 1997) 10.55 -- Credit Agreement dated as of October 3, 1997 between the Trust and AIP-SWAG Operating Partnership, L.P., as Borrower, and Prudential Securities Credit Corporation, as Lender (incorporated herein by reference from Exhibit 99.8 to Form 8-K of the Trust dated October 3, 1997) 10.56 -- Common Share Purchase dated as of January 29, 1998, by and between the Trust and Praedium (incorporated herein by reference from Exhibit 10.1 to Form 8-K of the Trust dated January 29, 1998) 10.57 -- Registration Rights Agreement dated as of January 29, 1998, by and between the Trust and Praedium (incorporated herein by reference from Exhibit 10.2 to Form 8-K of the Trust dated January 29, 1998) 10.58 -- Agreement dated as of January 29, 1998, by and among the Trust, Realco, ABKB (as Agent for and for the benefit of particular clients), MSRE and MSAM (incorporated herein by reference from Exhibit 10.3 to Form 8-K dated January 29, 1998) 10.59 -- Contract of Sale by and between Nationwide Life Insurance Company and ALCU Investments, Inc. (incorporated herein by reference from Exhibit 10.1 to Form 8-K/A of the Trust dated February 11, 1998) 10.60 -- Assignment of Contract of Sale dated as of February 11, 1998, by and among ALCU Investments, Ltd., AIP Operating, L.P. and the Trust (incorporated herein by reference from Exhibit 10.2 to Form 8-K/A of the Trust dated February 11, 1998) 10.61 -- Contribution and Exchange Agreement dated as of January 29, 1998, by and among ALCU Investments, Ltd., AIP Operating, L.P., and the Trust (incorporated herein by reference from Exhibit 10.3 to Form 8-K/A of the Trust dated February 11, 1998) 10.62 -- Amended and Restated Agreement of Limited Partnership of AIP Operating, L.P. dated as of February 11, 1998, by and among the Trust, General Electric Capital Corporation, and ALCU Investments, Ltd. (incorporated herein by reference from Exhibit 10.4 to Form 8-K/A of the Trust dated February 11, 1998) 10.63 -- Promissory Note by and among the Trust, AIP Operating, L.P., and Prudential Securities Credit Corporation (incorporated herein by reference from Exhibit 10.5 to Form 8-K/A of the Trust dated February 11, 1998) 10.64 -- First Amendment to Credit Agreement dated as of February 11, 1998, by and among the Trust, AIP Operating, L.P., and Prudential Securities Credit Corporation (incorporated herein by reference from Exhibit 10.6 to Form 8-K/A of the Trust dated February 11, 1998) *10.65 -- Industrial Property Portfolio Agreement of Purchase and Sale by and between Spieker Northwest, Inc. and the Trust *10.66 -- Purchase and Sale Agreement by and between North Austin Office, Ltd. and the Trust 10.67 -- Purchase and Sale Agreement and Joint Escrow Instructions by and between CM Property Management, Inc. and the Trust dated July 15, 1997 (incorporated herein by reference from Exhibit 10.1 to Form 8-K/A of the Trust dated March 23, 1998)
81
EXHIBIT NO. DOCUMENT ------- -------- 10.68 -- Purchase and Sale Agreement and Escrow Instructions by and between Corporex Properties of Tampa, Inc., CFX-Westshore Corporation, and the Trust (incorporated herein by reference from Exhibit 10.2 to From 8-K/A of the Trust dated March 23, 1998) 10.69 -- Amendment to Purchase and Sale Agreement and Escrow Instructions by and between Corporex Properties of Tampa, Inc., CPX-Westshore Corporation, and the Trust (incorporated herein by reference from Exhibit 10.3 to Form 8-K/A of the Trust dated March 23, 1998) 10.70 -- Purchase and Sale Agreement between the Equitable Life Assurance Society of the United States and the Trust (incorporated herein by reference from Exhibit 10.4 to Form 8-K/A of the Trust dated March 23, 1998) 10.71 -- Purchase and Sale Agreement between Nanook Partners, L.P. and the Trust (incorporated herein by reference from Exhibit 10.5 to Form 8-K/A of the Trust dated March 23, 1998) 10.72 -- Severance and Change in Control Agreement dated as of April 29, 1998, by and between Charles W. Wolcott and the Trust (incorporated herein by reference from Exhibit 10.1 to Form 8-K of the Trust dated April 29, 1998) 10.73 -- Severance and Change in Control Agreement dated as of April 29, 1998, by and between Marc A. Simpson and the Trust (incorporated herein by reference from Exhibit 10.2 to Form 8-K of the Trust dated April 29, 1998) 10.74 -- Severance and Change in Control Agreement dated as of April 29, 1998, by and between David B. Warner and the Trust (incorporated herein by reference from Exhibit 10.3 to Form 8-K of the Trust dated April 29, 1998) 10.75 -- Severance and Change in Control Agreement dated as of April 29, 1998, by and between Lewis D. Friedland and the Trust (incorporated herein be reference from Exhibit 10.4 to Form 8-K of the Trust dated April 29, 1998) 10.76 -- Amendments to the Trust's Employee and Trust Manager Incentive Share Plan (incorporated herein by reference from Exhibit 10.5 to Form 8-K of the Trust dated April 29, 1998) 10.77 -- Share Purchase Agreement by and between the Trust and DDR dated July 30, 1998 (incorporated herein by reference from Exhibit 10.1 to Form 8-K of the Trust dated July 30, 1998) 10.78 -- Demand Promissory Note dated July 30, 1998 (incorporated herein by reference from Exhibit 10.2 to Form 8-K of the Trust dated July 30, 1998) 10.79 -- Second Amended and Restated Registration Rights Agreement by and among the Trust, MSRE and MSAM dated July 30, 1998 (incorporated herein by reference from Exhibit 10.3 to Form 8-K of the Trust dated July 30, 1998) 10.80 -- Second Amended and Restated Registration Rights Agreement by and between the Trust and Realco July 30, 1998 (incorporated herein by reference from Exhibit 10.4 to Form 8-K of the Trust dated July 30, 1998) 10.81 -- Registration Rights Agreement by and between the Trust and DDR dated July 30, 1998 (incorporated herein by reference from Exhibit 10.5 to Form 8-K of the Trust dated July 30, 1998) 10.82 -- First Amended and Restated Registration Rights Agreement by and between the Trust and Praedium dated July 30, 1998 (incorporated herein by reference from Exhibit 10.6 to Form 8-K of the Trust dated July 30, 1998)
82
EXHIBIT NO. DOCUMENT ------- -------- 10.83 -- Second Amended and Restated Registration Rights Agreement by and between the Trust, ABKB and LaSalle dated July 30, 1998 (incorporated herein by reference from Exhibit 10.7 to Form 8-K of the Trust dated July 30, 1998) 10.84 -- Letter Agreement by and between MSRE/MSAM and DDR dated July 30, 1998 (incorporated herein by reference from Exhibit 10.8 to Form 8-K of the Trust dated July 30, 1998) 10.85 -- Letter Agreement by and between ABKB, LaSalle and DDR dated July 30, 1998 (incorporated herein by reference from Exhibit 10.9 to Form 8-K of the Trust dated July 30, 1998) 10.86 -- Letter Agreement by and between Praedium and DDR dated July 30, 1998 (incorporated herein by reference from Exhibit 10.10 to Form 8-K of the Trust dated July 30, 1998) 10.87 -- Letter Agreement by and between Realco and DDR dated July 30, 1998 (incorporated herein by reference from Exhibit 10.11 to Form 8-K of the Trust dated July 30, 1998) 10.88 -- Amendment No. One, dated as of September 14, 1998, to the Share Purchase Agreement, dated as of July 30, 1998, between the Trust and DDR (incorporated herein by reference from Exhibit 10.1 to Form 8-K of the Trust dated September 16, 1998) 10.89 -- Purchase and Sale Agreement, dated as of April 3, 1998, by and between the Norfolk Commerce Center Limited Partnership and DDR (incorporated herein by reference from Exhibit 10.1 to Form 8-K of the Trust dated July 30, 1998 and filed October 23, 1998) 10.90 -- Amendment to Purchase and Sale Agreement dated June 19, 1998, by and between the Norfolk Commerce Center Limited Partnership and DDR (incorporated herein by reference from Exhibit 10.2 to Form 8-K of the Trust dated July 30, 1998 and filed October 23, 1998) 10.91 -- Purchase and Sale Agreement, dated as of May 10, 1998, by and between A&A Greenbrier, Inc., A&A Northpointe B, Inc., A&A Northpointe C, Inc. and A&A Greenbrier Tech, Inc. and DDR Flex (incorporated herein by reference from Exhibit 10.1 to Form 8-K of the Trust dated October 14, 1998) 10.92 -- Purchase and Sale Agreement, dated as of May 10, 1998, by and between Battlefield/Virginia, Inc. and DDR Flex (incorporated herein by reference from Exhibit 10.2 to Form 8-K of the Trust dated October 14, 1998) 10.93 -- Amendment to Purchase and Sale Agreement dated July 8, 1998 by and between A&A Greenbrier, Inc., A&A Northpointe B, Inc., A&A Northpointe C, Inc. and A&A Greenbrier Tech, Inc. and DDR Flex (incorporated herein by reference from Exhibit 10.3 to Form 8-K of the Trust dated October 14, 1998) 10.94 -- Amendment to Purchase and Sale Agreement dated July 8, 1998, by and between Battlefield/Virginia, Inc., and DDR Flex (incorporated herein by reference from Exhibit 10.4 to Form 8-K of the Trust dated October 14, 1998) 10.95 -- Second Amendment to Purchase and Sale Agreement dated September 30, 1998 by and between A&A Greenbrier, Inc., A&A Northpointe B, Inc., A&A Northpointe C, Inc. and A&A Greenbrier Tech, Inc. and DDR Flex (incorporated herein by reference from Exhibit 10.5 to Form 8-K of the Trust dated October 14, 1998)
83
EXHIBIT NO. DOCUMENT ------- -------- 10.96 -- Second Amendment to Purchase and Sale Agreement dated September 30, 1998, by and between Battlefield/Virginia, Inc. and DDR Flex (incorporated herein by reference from Exhibit 10.6 to Form 8-K of the Trust dated October 14, 1998) 10.97 -- Special Warranty Deed, dated as of October 14, 1998, by and between A&A Greenbrier, Inc. and the Trust (incorporated herein by reference from Exhibit 10.7 to Form 8-K of the Trust dated October 14, 1998) 10.98 -- Special Warranty Deed, dated as of October 14, 1998, by and between A&A Northpointe B, Inc. and the Trust (incorporated herein by reference from Exhibit 10.8 to Form 8-K of the Trust dated October 14, 1998) 10.99 -- Special Warranty Deed, dated as of October 14, 1998, by and between A&A Northpointe C, Inc. and the Trust (incorporated herein by reference from Exhibit 10.9 to Form 8-K of the Trust dated October 14, 1998) 10.100 -- Special Warranty Deed, dated as of October 14, 1998, by and between A&A Greenbrier Tech, Inc. and the Trust (incorporated herein by reference from Exhibit 10.10 to Form 8-K of the Trust dated October 14, 1998) *21.1 -- Listing of Subsidiaries *23.1 -- Consent of Ernst & Young LLP *24.1 -- Power of Attorney (Included on signature page hereto) *27.1 -- Financial Data Schedule
- --------------- * Filed herewith EX-3.1 2 3RD AMENDED/RESTATED DECLARATION OF TRUST 1 EXHIBIT 3.1 THIRD AMENDED AND RESTATED DECLARATION OF TRUST OF AMERICAN INDUSTRIAL PROPERTIES REIT The undersigned, acting as the Trust Managers of a real estate investment trust under the Texas Real Estate Investment Trust Act (the "Texas REIT Act"), hereby adopt the following Third Amended and Restated Declaration of Trust for such trust, which replaces in its entirety the previously enacted Second Amended and Restated Declaration of Trust, which Third Amended and Restated Declaration of Trust was adopted by the Shareholders of the Trust on June 30, 1997 pursuant to the affirmative vote of the holders of at least two-thirds of the outstanding Shares of the Trust. ARTICLE ONE The name of the trust (the "Trust") is "American Industrial Properties REIT." An assumed name certificate setting forth such name has been filed in the manner prescribed by law. ARTICLE TWO The Trust is formed pursuant to the Texas REIT Act and has the following as its purpose: To purchase, hold, lease, manage, sell, exchange, develop, subdivide and improve real property and interests in real property, and in general, to carry on any other business and do any other acts in connection with the foregoing and to have and exercise all powers conferred by the laws of the State of Texas upon real estate investment trusts formed under the Texas REIT Act, and to do any or all of the things hereinafter set forth to the same extent as natural persons might or could do. The term "real property" and the term "interests in real property" for the purposes stated herein shall not include severed mineral, oil or gas royalty interests. ARTICLE THREE The address of the Trust's principal office and place of business is 6220 North Beltline, Suite 205, Irving, Texas 75063. ARTICLE FOUR The street address of the Trust's registered office is 6220 North Beltline, Suite 205, Irving, Texas 75063. The name of the Trust's registered agent at that address is Marc A. Simpson. ARTICLE FIVE The names and business addresses of the Trust Managers approving and adopting this Declaration of Trust are as follows: 1 2
Name Mailing Address - ---- --------------- William H. Bricker 16475 Dallas Parkway, Suite 350 Dallas, Texas 75248 T. Patrick Duncan 8000 Robert F. McDermott Frwy., Suite 600 San Antonio, Texas 78230 Robert E. Giles 5051 Westheimer, Suite 300 Houston, Texas 77056 Edward B. Kelley 8000 Robert F. McDermott Frwy., Suite 600 San Antonio, Texas 78230 Charles W. Wolcott 6220 North Beltline, Suite 205 Irving, Texas 75063
ARTICLE SIX The period of the Trust's duration is perpetual. The Trust may be sooner terminated by the vote of the holders of at least a majority of the outstanding voting Shares. ARTICLE SEVEN The aggregate number of shares of beneficial interest which the Trust shall have authority to issue is five hundred million common shares, par value $0.10 per share ("Common Shares"), and fifty million preferred shares, par value $0.10 per share ("Preferred Shares"). All of the Common Shares shall be equal in all respects to every other such Common Share, and shall have no preference, conversion, exchange or preemptive rights. Unless otherwise specified, the term "Shares" in this Declaration of Trust shall be deemed to refer to the Common Shares and, solely to the extent specifically required by law or as specifically provided in any resolution or resolutions of the Trust Managers providing for the issue of any particular series of Preferred Shares, to the Preferred Shares. For purposes of Articles Ten and Nineteen (other than Article Nineteen (j)) of this Declaration of Trust, the term Shares shall be deemed to refer to both the Common Shares and the Preferred Shares and, for purposes of such Articles Ten and Nineteen (other than Article Nineteen (j)), the number of outstanding Shares shall be deemed to be equal to the value of the Trust's outstanding Shares as determined from time to time by resolution of the Trust Managers, such determination to include an allocation of relative value among the Common Shares and any outstanding series of Preferred Shares. The Trust may issue one or more series of Preferred Shares, each such series to consist of such number of shares as shall be determined by resolution of the Trust Managers creating such series. The Preferred Shares of each such series shall have such designations, preferences, conversion, exchange or other rights, participations, voting powers, options, restrictions, limitations, special rights or relations, limitations as to dividends, qualifications or terms, or conditions of redemption thereof, as shall be stated and expressed by the Trust Managers in the resolution or resolutions providing for the issuance of such series of Preferred Shares pursuant to the authority to do so which is hereby expressly vested in the Trust Managers. Except as otherwise specifically provided in any resolution or resolutions of the Trust Managers providing for the issue of any particular series of Preferred Shares, the number of shares of any such series so set forth in such resolution or resolutions may be increased or decreased (but not below the number of shares of such series then outstanding) by a resolution or resolutions likewise adopted by the Trust Managers. Except as otherwise specifically provided in any resolution or resolutions of the Trust Managers providing for the issue of any particular series of Preferred Shares, Preferred Shares redeemed or otherwise acquired by the Trust shall assume the status of authorized but unissued Preferred Shares and shall be unclassified as to series and may thereafter, subject to the provisions of this Article Seven and to any restrictions contained in any resolution 2 3 or resolutions of the Trust Managers providing for the issuance of any such series of Preferred Shares, be reissued in the same manner as other authorized but unissued Preferred Shares. Except as otherwise specifically provided in any resolution or resolutions of the Trust Managers providing for the issue of any particular series of Preferred Shares, holders of Preferred Shares shall have no preemptive rights. Except as otherwise specifically required by law or this Declaration of Trust or as specifically provided in any resolution or resolutions of the Trust Managers providing for the issuance of any particular series of Preferred Shares, the exclusive voting power of the Trust shall be vested in the Common Shares of the Trust. Each Common Share entitles the holder thereof to one vote at all meetings of the shareholders of the Trust. ARTICLE EIGHT The Trust shall issue Shares for consideration consisting of any tangible or intangible benefit to the Trust, including cash, promissory notes, services performed, contracts for services to be performed, or other securities of the Trust, such consideration to be determined by the Trust Managers. ARTICLE NINE The Trust Managers shall manage all money and/or property received for the issuance of Shares for the benefit of the shareholders of the Trust. ARTICLE TEN The Trust will not commence business until it has received for the issuance of Shares consideration of at least $1,000 value. ARTICLE ELEVEN The Trust shall not engage in any activities beyond the scope of the purpose of a real estate investment trust formed pursuant to the Texas REIT Act, as such purpose is set forth in Article Two hereof. ARTICLE TWELVE Cumulative voting for the election of Trust Managers is prohibited. ARTICLE THIRTEEN (a) The affirmative vote of the holders of not less than 80% of the outstanding Shares of the Trust, including the affirmative vote of the holders of not less than 50% of the outstanding Shares not owned, directly or indirectly, by any Related Person (as hereinafter defined), shall be required for the approval or authorization of any Business Combination (as hereinafter defined); provided, however, that the 50% voting requirement referred to above shall not be applicable if the Business Combination is approved by the affirmative vote of the holders of not less than 90% of the outstanding Shares; provided further, that neither the 80% voting requirement nor the 50% voting requirement referred to above shall be applicable if: (i) The Trust Managers of the Trust by a vote of not less than 80% of the Trust Managers then holding office (A) have expressly approved in advance the acquisition of Shares of the Trust that caused the Related Person to become a Related Person or (B) have 3 4 expressly approved the Business Combination prior to the date on which the Related Person involved in the Business Combination shall have become a Related Person; or (ii) The Business Combination is solely between the Trust and another entity, 100% of the voting stock, shares or comparable interests of which is owned directly or indirectly by the Trust; or (iii) The Business Combination is proposed to be consummated within one year of the consummation of a Fair Tender Offer (as hereinafter defined) by the Related Person in which Business Combination the cash or Fair Market Value (as hereinafter defined) of the property, securities or other consideration to be received per Share by all remaining holders of Shares of the Trust in the Business Combination is not less than the price offered in the Fair Tender Offer; or (iv) All of conditions (A) through (D) of this subparagraph (iv) shall have been met: (A) if and to the extent permitted by law, the Business Combination is a merger or consolidation, consummation of which is proposed to take place within one year of the date of the transaction pursuant to which such person became a Related Person and the cash or Fair Market Value of the property, securities or other consideration to be received per share by all remaining holders of Shares of the Trust in the Business Combination is not less than the Fair Price (as hereinafter defined); (B) the consideration to be received by such holders is either cash or, if the Related Person shall have acquired the majority of its holdings of the Trust's Shares for a form of consideration other than cash, in the same form of consideration with which the Related Person acquired such majority; (C) after such person has become a Related Person and prior to consummation of such Business Combination: (1) there shall have been no reduction in the annual rate of dividends, if any, paid per share on the Trust's Shares (adjusted as appropriate for recapitalizations and for Share splits, reverse Share splits and Share dividends), except any reduction in such rate that is made proportionately with any decline in the Trust's net income for the period for which such dividends are declared and except as approved by a majority of the Continuing Trust Managers (as hereinafter defined), and (2) such Related Person shall not have received the benefit, directly or indirectly (except proportionately as a shareholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Trust prior to the consummation of such Business Combination (other than in connection with financing a Fair Tender Offer); and (D) a proxy statement that conforms in all respects with the provisions of the Securities Exchange Act of 1934 (the "Exchange Act") and the rules and regulations thereunder (or any subsequent provisions replacing the Exchange Act or the rules or regulations thereunder) shall be mailed to holders of the Trust's Shares at least 45 days prior to the consummation of the Business Combination for the purpose of soliciting shareholder approval of the Business Combination; or (v) The Rights (as defined in paragraph (b) of this Article Thirteen) shall have become exercisable. (b) If a person has become a Related Person and within one year after the date (the "Acquisition Date") of the transaction pursuant to which the Related Person became a Related Person (x) a Business Combination meeting all of the requirements of subparagraph (iv) of the proviso to paragraph (a) of this Article Thirteen regarding the applicability of the 80% voting requirement shall not have been consummated and (y) a Fair Tender Offer shall not have been consummated and (z) the Trust shall not have been dissolved and liquidated, then, in such event the beneficial owner of each Share (not including Shares beneficially owned by the Related Person) (each such beneficial owner being hereinafter referred to as a "Holder") shall have the right (individually a "Right" and collectively the "Rights"), which may be exercised subject to the provisions of paragraph (d) of this Article Thirteen, commencing at the opening of business on the one-year anniversary date of the Acquisition Date and continuing for a period of 90 days thereafter, subject to extensions as provided in paragraph (d) of this Article Thirteen (the 4 5 "Exercise Period"), to sell to the Trust on the terms set forth herein one Share upon exercise of such Right. Within five business days after the commencement of the Exercise Period the Trust shall notify the Holders of the commencement of the Exercise Period, specifying therein the terms and conditions for exercise of the Rights. During the Exercise Period, each certificate representing Shares beneficially owned by a Holder (a "Certificate") shall also represent the number of Rights equal to the number of Shares represented thereby and the surrender for transfer of any Certificate shall also constitute the transfer of the Rights represented by such Shares. At 5:00 P.M., Dallas, Texas time, on the last day of the Exercise Period, each Right not exercised shall become void, all rights in respect thereof shall cease as of such time and the Certificates shall no longer represent Rights. (c) The purchase price for a Share upon exercise of an accompanying Right shall be equal to the then-applicable Fair Price paid by the Related Person (plus, as an allowance for interest, an amount equal to the prime rate of interest as published in the Wall Street Journal and as in effect from time to time from the Acquisition Date until the date of the payment for such Share but less the amount of any cash and the Fair Market Value of any property or securities distributed with respect to such Shares as dividends or otherwise during such time period), pursuant to the exercise of the Right relating thereto. In the event the Related Person shall have acquired any of its holdings of the Trust's Shares for a form of consideration other than cash, the value of such other consideration shall be the Fair Market Value thereof. (d) Notwithstanding the foregoing in paragraph (b) of this Article Thirteen, the Exercise Period will be deferred in the event (a "Deferral Event") that the Trust is otherwise prohibited under applicable law from repurchasing Shares pursuant to the Rights. In the event the Exercise Period is deferred, or if at any time the Trust reasonably anticipates that a Deferral Event will exist, the Trust will, as soon as practicable, notify the Holders. If at the end of any fiscal quarter the Deferral Event ceases to exist, notice shall be given to the Holders of the commencement of the deferred Exercise Period, which Exercise Period shall commence no sooner than 15 days nor more than 45 days from the date of such notice and which shall continue in effect for a period of time equal in duration to the previously unexpired portion of the Exercise Period. Notwithstanding any other provision of this Declaration of Trust to the contrary, during the Exercise Period (including during the existence of any Deferral Event), neither the Trust nor any subsidiary may declare or pay any dividend or make any distribution on its shares or to its shareholders (other than dividends or distributions payable in its Shares or, in the case of any subsidiary, dividends payable to the Trust) or purchase, redeem or otherwise acquire or retire for value, or permit any subsidiary to purchase or otherwise acquire for value, any Shares of the Trust if, upon giving effect to such dividend, distribution, purchase, redemption, or other acquisition or retirement, the aggregate amount expended for all such purposes (the amount expended for such purposes, if other than in cash, to be determined by a majority of the Continuing Trust Managers, whose determination shall be conclusive) would prejudice the ability of the Trust to satisfy its maximum obligation to purchase Shares upon exercise of the Rights. (e) Rights may be exercised upon surrender to the Trust's principal transfer agent (the "Transfer Agent") at its principal office of the Certificate or Certificates evidencing the Shares to be tendered for purchase by the Trust, together with the form on the reverse thereof completed and duly signed in accordance with the instructions thereon. In the event that a Holder shall tender a Certificate which represents greater than the number of Shares which the Holder elects to require the Trust to purchase upon exercise of the Rights, the Holder shall designate on the reverse side of such Certificate the number of Shares to be sold from such Certificate. The Transfer Agent shall thereupon issue a new Certificate or Certificates for the balance of the number of Shares not sold to the Trust, which new Certificate or Certificates shall also represent Rights for an equivalent number of Shares. (f) For the purposes of this Article: (i) The term "Business Combination" shall mean (A) any merger or consolidation, if and to the extent permitted by law, of the Trust or a subsidiary, with or into a Related Person, (B) any sale, lease, exchange, mortgage, pledge, transfer or other disposition, of all or any Substantial Part (as hereinafter defined) of the assets of the Trust and its subsidiaries (taken as a whole) (including, without limitation, any voting securities of a subsidiary) to or with a Related Person, (C) the issuance or transfer by the Trust or a subsidiary (other than by way of a pro rata distribution to all shareholders) of any securities of the Trust or a subsidiary of the Trust to a Related Person, (D) any reclassification of securities 5 6 (including any reverse Share split) or recapitalization by the Trust, the effect of which would be to increase the voting power (whether or not currently exercisable) of the Related Person, (E) the adoption of any plan or proposal for the liquidation or dissolution of the Trust proposed by or on behalf of a Related Person which involves any transfer of assets, or any other transaction, in which the Related Person has any direct or indirect interest (except proportionately as a shareholder), (F) any series or combination of transactions having, directly or indirectly, the same or substantially the same effect as any of the foregoing, and (G) any agreement, contract or other arrangement providing, directly or indirectly, for any of the foregoing. (ii) The term "Continuing Trust Manager' shall mean (x) any Trust Manager of the Trust who is not affiliated with a Related Person and who was a Trust Manager immediately prior to the time that the Related Person became a Related Person, and (y) any other Trust Manager who is not affiliated with the Related Person and is recommended either by a majority of the persons described in clause (x) of this subparagraph (ii) or by persons described in this clause (y) who are then Trust Managers of the Trust to succeed a person described in either the said clause (x) or clause (y) as a Trust Manager of the Trust. (iii) The term "Fair Market Value" shall mean: (A) in the case of securities, the highest closing sale price during the 30-day period immediately preceding the date in question of such security on the Composite Tape for New York Stock Exchange-Listed Stocks, or, if such security is not quoted on the Composite Tape on the New York Stock Exchange, or, if such security is not listed on such Exchange, on the principal United States securities exchange registered under the Exchange Act on which such security is listed, or, if such security is not listed on any such exchange, the highest closing bid quotation with respect to such security during the 30-day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotation System or any system then in use, or if no such quotations are available, the fair market value on the date in question of such security as reasonably determined by an independent appraiser selected by a majority of the Continuing Trust Managers (or, if there are no Continuing Trust Managers, by the investment banking firm most recently retained by the Trust) in good faith; and (B) in the case of property other than cash or stock, the fair market value of such property on the date in question as reasonably determined by an independent appraiser selected by a majority of the Continuing Trust Managers (or, if there are no Continuing Trust Managers, by the investment banking firm most recently retained by the Trust) in good faith. In each case hereunder in which an independent appraiser is to be selected to determine Fair Market Value, (1) in the event (x) there are no Continuing Trust Managers, and (y) the investment banking firm most recently retained by the Trust is unable or elects not to serve as such appraiser, or (2) in the event there are Continuing Trust Managers that do not select an independent appraiser within 10 days of a request for such appointment made by a Related Person, such independent appraiser may be selected by such Related Person. (iv) The term "Fair Price" shall mean the highest per-Share price (which, to the extent not paid in cash, shall equal the Fair Market Value of any other consideration paid), with appropriate adjustments for recapitalizations and for Share splits, reverse Share splits and Share dividends, paid by the Related Person in acquiring any of its holdings of the Trust's Shares. (v) The term "Fair Tender Offer" shall mean a bona fide tender offer for all of the Trust's Shares outstanding (and owned by persons other than a Related Person if the tender offer is made by the Related Person), whether or not such offer is conditional upon any minimum number of Shares being tendered, in which the aggregate amount of cash or the Fair Market Value of any securities or other property to be received by all holders who tender their Shares for each Share so tendered shall be at least equal to the then applicable 6 7 Fair Price paid by a Related Person or paid by the person making the tender offer if such person is not a Related Person. In the event that at the time such tender offer is commenced the terms and conduct thereof are not directly regulated by Section 14(d) or 13(e) of the Exchange Act and the general rules and regulations promulgated thereunder, then the terms of such tender offer regarding the time such offer is held open and regarding withdrawal rights shall conform in all respects with such terms applicable to tender offers regulated by either of such Sections of the Exchange Act. A Fair Tender Offer shall not be deemed to be "consummated" until Shares are purchased and payment in full has been made for all duly tendered Shares. (vi) The term "Related Person" shall mean and include any individual, corporation, partnership or other "person" (as defined in Section 13(d)(3) of the Exchange Act), and the "Affiliates" and "Associates" (as defined in Rule 12b-2 of the Exchange Act) of any such individual, corporation, partnership or other person) which individually or together is the "Beneficial Owner" (as defined in Rule 13d-3 of the Exchange Act) in the aggregate of more than 50% of the outstanding Shares of the Trust, other than the Trust or any employee benefit plan(s) sponsored by the Trust, except that an individual, corporation, partnership or other person which individually or together Beneficially Owns or upon conversion of debt securities (owned or with regard to which such individual, corporation, partnership or other person is committed to purchase as of the date of adoption of this Declaration of Trust) would own in excess of 20% of the outstanding Shares at the time this provision is adopted by vote of the Trust's shareholders shall only be considered a Related Person at such time as he, she, it or they acquire in the aggregate Beneficial Ownership of more than 80% of the outstanding Shares. (vii) The term "Substantial Part" shall mean more than 35% of the book value of the total assets of the Trust and its subsidiaries (taken as a whole) as of the end of the fiscal year ending prior to the time the determination is being made. (viii) Any person (as such term is defined in subsection (vi) of this paragraph (f)) that has the right to acquire any Shares of the Trust pursuant to any agreement, or upon the exercise of conversion rights, warrants or options, or otherwise, shall be deemed a Beneficial Owner of such Shares for purposes of determining whether such person, individually or together with its Affiliates and Associates, is a Related Person. (ix) For purposes of subparagraph (iii) of paragraph (a) of this Article Thirteen, the term "other consideration to be received" shall include, without limitation, Shares of the Trust retained by its existing public shareholders in the event of a Business Combination in which the Trust is the surviving entity. (g) The affirmative vote of the holders of not less than 80% of the outstanding Shares of the Trust, including the affirmative vote of the holders of not less than 50% of the outstanding Shares not owned, directly or indirectly, by any Related Person (such 50% voting requirement shall not be applicable if such amendment, alteration, change, repeal or rescission is approved by the affirmative vote of not less than 90% of the outstanding Shares) shall be required to amend, alter, change, repeal or rescind, or adopt any provisions inconsistent with, this Article Thirteen. (h) The provisions of this Article Thirteen shall be subject to all valid and applicable laws, including, without limitation, the Texas REIT Act, and, in the event this Article Thirteen or any of the provisions hereof are found to be inconsistent with or contrary to any such valid laws, such laws shall be deemed to control and this Article Thirteen shall be regarded as modified accordingly, and, as so modified, to continue in full force and effect. 7 8 ARTICLE FOURTEEN The Trust Managers may from time to time declare, and the Trust may pay, dividends on its outstanding Shares in cash, in property or in its Shares, except that no dividend shall be declared or paid when the Trust is unable to pay its debts as they become due in the usual course of its business, or when the payment of such dividend would result in the Trust being unable to pay its debts as they become due in the usual course of business. ARTICLE FIFTEEN Upon resolution adopted by the Trust Managers, the Trust shall be entitled to purchase or redeem, directly or indirectly, its own Shares, subject to any limitations of the Texas REIT Act. ARTICLE SIXTEEN (a) In this Article: (i) "Indemnitee" means (A) any present or former Trust Manager or officer of the Trust, (B) any person who while serving in any of the capacities referred to in clause (A) hereof served at the Trust's request as a trust manager, director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another real estate investment trust or foreign or domestic corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise and (C) any person nominated or designated by (or pursuant to authority granted by) the Trust Managers or any committee thereof to serve in any of the capacities referred to in clauses (A) or (B) hereof. (ii) "Official Capacity" means (A) when used with respect to a Trust Manager, the office of Trust Manager of the Trust and (B) when used with respect to a person other than a Trust Manager, the elective or appointive office of the Trust held by such person or the employment or agency relationship undertaken by such person on behalf of the Trust, but in each case does not include service for any other real estate investment trust or foreign or domestic corporation or any partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise. (iii) "Proceeding" means any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative, any appeal in such an action, suit or proceeding, and any inquiry or investigation that could lead to such an action, suit or proceeding. (b) The Trust shall indemnify every Indemnitee against all judgments, penalties (including excise and similar taxes), fines, amounts paid in settlement and reasonable expenses actually incurred by the Indemnitee in connection with any Proceeding in which he or she was, is or is threatened to be named defendant or respondent, or in which he or she was or is a witness without being named a defendant or respondent, by reason, in whole or in part, of his or her serving or having served, or having been nominated or designated to serve, in any of the capacities referred to in paragraph (a)(i) of this Article Sixteen, to the fullest extent that indemnification is permitted by Texas law. An Indemnitee shall be deemed to have been found liable in respect of any claim, issue or matter only after the Indemnitee shall have been so adjudged by a court of competent jurisdiction after exhaustion of all appeals therefrom. Reasonable expenses shall include, without limitation, all court costs and all fees and disbursements of attorneys for the Indemnitee. (c) Without limitation of paragraph (b) of this Article Sixteen and in addition to the indemnification provided for in paragraph (b) of this Article Sixteen, the Trust shall indemnify every Indemnitee against reasonable expenses incurred by such person in connection with any proceeding in which he or she is a witness or a named 8 9 defendant or respondent because he or she served in any of the capacities referred to in paragraph (a)(i) of this Article Sixteen. (d) Reasonable expenses (including court costs and attorneys' fees) incurred by an Indemnitee who was or is a witness or was, is or is threatened to be made a named defendant or respondent in a Proceeding shall be paid or reimbursed by the Trust at reasonable intervals in advance of the final disposition of such Proceeding after receipt by the Trust of a written undertaking by or on behalf of such Indemnitee to repay the amount paid or reimbursed by the Trust if it shall ultimately be determined that he or she is not entitled to be indemnified by the Trust as authorized in this Article Sixteen. Such written undertaking shall be an unlimited obligation of the Indemnitee but need not be secured and it may be accepted without reference to financial ability to make repayment. Notwithstanding any other provision of this Article Sixteen, the Trust may pay or reimburse expenses incurred by an Indemnitee in connection with his or her appearance as a witness or other participation in a Proceeding at a time when he or she is not named a defendant or respondent in the Proceeding. (e) The indemnification provided by this Article Sixteen shall (i) not be deemed exclusive of, or to preclude, any other rights to which those seeking indemnification may at any time be entitled under the Trust's Bylaws, any law, agreement or vote of shareholders or disinterested Trust Managers, or otherwise, or under any policy or policies of insurance purchased and maintained by the Trust on behalf of any Indemnitee, both as to action in his or her Official Capacity and as to action in any other capacity, (ii) continue as to a person who has ceased to be in the capacity by reason of which he or she was an Indemnitee with respect to matters arising during the period he or she was in such capacity, and (iii) inure to the benefit of the heirs, executors and administrators of such a person. (f) The provisions of this Article Sixteen (i) are for the benefit of, and may be enforced by, each Indemnitee of the Trust, the same as if set forth in their entirety in a written instrument duly executed and delivered by the Trust and such Indemnitee and (ii) constitute a continuing offer to all present and future Indemnitees. The Trust, by its adoption of this Declaration of Trust, (x) acknowledges and agrees that each Indemnitee of the Trust has relied upon and will continue to rely upon the provisions of this Article Sixteen in becoming, and serving in any of the capacities referred to in paragraph (a)(i) of this Article Sixteen, (y) waives reliance upon, and all notice of acceptance of, such provisions by such Indemnitees and (z) acknowledges and agrees that no present or future Indemnitee shall be prejudiced in his or her right to enforce the provisions of this Article Sixteen in accordance with their terms by any act or failure to act on the part of the Trust. (g) No amendment, modification or repeal of this Article Sixteen or any provision of this Article Sixteen shall in any manner terminate, reduce or impair the right of any past, present or future Indemnitees to be indemnified by the Trust, nor the obligation of the Trust to indemnify any such Indemnitees, under and in accordance with the provisions of this Article Sixteen as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may be asserted. (h) If the indemnification provided in this Article Sixteen is either (i) insufficient to cover all costs and expenses incurred by any Indemnitee as a result of such Indemnitee being made or threatened to be made a defendant or respondent in a Proceeding by reason of his or her holding or having held a position named in paragraph (a)(i) of this Article Sixteen or (ii) not permitted by Texas law, the Trust shall indemnify, to the fullest extent that indemnification is permitted by Texas law, every Indemnitee with respect to all costs and expenses incurred by such Indemnitee as a result of such Indemnitee being made or threatened to be made a defendant or respondent in a Proceeding by reason of his or her holding or having held a position named in paragraph (a)(i) of this Article Sixteen. (i) The indemnification provided by this Article Sixteen shall be subject to all valid and applicable laws, including, without limitation, the Texas REIT Act, and, in the event this Article Sixteen or any of the provisions hereof or the indemnification contemplated hereby are found to be inconsistent with or contrary to any such valid laws, such laws shall be deemed to control and this Article Sixteen shall be regarded as modified accordingly, and, as so modified, to continue in full force and effect. 9 10 ARTICLE SEVENTEEN No Trust Manager or officer of the Trust shall be liable to the Trust for any act, omission, loss, damage, or expense arising from the performance of his or her duties under the Trust save only for his or her own willful misfeasance or malfeasance or negligence. In discharging their duties to the Trust, Trust Managers and officers of the Trust shall be entitled to rely upon experts and other matters as provided in the Texas REIT Act and the Trust's Bylaws. ARTICLE EIGHTEEN The number of Trust Managers may be increased from time to time by the affirmative vote of the majority of the Trust Managers or decreased by the unanimous vote of the Trust Managers. Each Trust Manager shall serve until his or her successor is elected and qualified or until his or her death, retirement, resignation or removal. A Trust Manager may be removed by the vote of the holders of two-thirds of the outstanding Shares at a special meeting of the shareholders called for such purpose pursuant to the Trust's Bylaws. ARTICLE NINETEEN (a) No Person may own Shares of any class with an aggregate value in excess of 9.8% of the aggregate value of all outstanding Shares of such class of Shares or more than 9.8% of the number of outstanding Shares of any class of Shares (the limitation on the ownership of outstanding Shares is referred to in this Article Nineteen as the "Ownership Limit" and the 9.8% threshold is referred to in this Article Nineteen as the "Percentage Limit"), and no Securities (as hereinafter defined) shall be accepted, purchased, or in any manner acquired by any Person if such issuance or transfer would result in that Person's ownership of Shares exceeding the Percentage Limit. For purposes of determining if the Ownership Limit is exceeded by a Person, Convertible Securities (as hereinafter defined) owned by such Person shall be treated as if the Convertible Securities owned by such Person had been converted into Shares if the effect of such treatment would be to increase the ownership percentage of such Person in the Trust. The Ownership Limit shall not apply (i) to acquisitions of Securities by any Person that has made a tender offer for all outstanding Shares of the Trust (including Convertible Securities) in conformity with applicable federal securities laws, (ii) to the acquisition of Securities of the Trust by an underwriter in a public offering of Securities of the Trust, or in any transaction involving the issuance of Securities by the Trust, in which a majority of the Trust Managers determines that the underwriter or other Person or party initially acquiring such Securities will timely distribute such Securities to or among others so that, following such distribution, none of such Securities will be Excess Securities (as hereinafter defined), (iii) to the acquisition of Securities pursuant to the exercise of employee share options, or (iv) to the acquisition of Securities pursuant to an exception made pursuant to paragraph (h) hereof. (b) Nothing in this Article Nineteen shall preclude the settlement of any transaction in Securities entered into through the facilities of the New York Stock Exchange. If any Securities are accepted, purchased, or in any manner acquired by any Person resulting in a violation of paragraph (a) or (e) hereof, such issuance or transfer shall be valid only with respect to such amount of Securities issued or transferred as does not result in a violation of paragraph (a) or (e) hereof, and such acceptance, purchase or acquisition shall be void ab initio with respect to the amount of Securities that results in a violation of paragraph (a) or (e) hereof (the "Excess Securities"), and the intended transferee of such Excess Securities shall acquire no rights in such Excess Securities except as set forth in subsection (d) below. (c) Each shareholder shall, within ten days of demand by the Trust, disclose to the Trust in writing such information with respect to his, her or its ownership of shares as the Trust Managers in their discretion deem necessary or appropriate in order that the Trust may fully comply with all provisions of the Internal Revenue Code of 1986, as amended, and any successor statute (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 10 11 authority or governmental agency. All Persons who own Shares of any class with an aggregate value in excess of 9.8% of the aggregate value of such class of Shares or 9.8% of the number of outstanding Shares of any class must disclose in writing such ownership information to the Trust no later than January 31 of each year. Failure to provide such information, upon reasonable request, shall result in the Securities so owned being treated as Excess Securities pursuant to paragraph (b) hereof for so long as such failure continues. (d) The Excess Securities, and the owners thereof, shall have the following characteristics, rights and powers: (i) Upon any purported purchase, sale, exchange, acquisition, disposition or other transfer or upon any change in the capital structure of the Trust (including any redemption of Securities) that results in Excess Securities pursuant to paragraphs (a) or (e) of this Article Nineteen, such Excess Securities shall be deemed to have been transferred to the Trust, as trustee of a trust for the exclusive benefit of such beneficiary or beneficiaries to whom an interest in such Excess Securities may later be transferred pursuant to subparagraph (v) of this subsection (d) (the "Beneficial Trust"). Any such Excess Securities so held in the Beneficial Trust shall be issued and outstanding shares of the Trust. The purported transferee shall have no rights in such Excess Securities except as provided in subparagraph (v) of this subsection (d). (ii) The holder of Excess Securities shall not be entitled to receive any dividends, interest payments or other distributions. Any dividend or distribution paid prior to the discovery by the Trust that the Securities have become Excess Securities shall be repaid to the Trust upon demand. (iii) In the event of any voluntary or involuntary liquidation, dissolution or winding up of, or any distribution of the assets of, the Trust, each holder of Excess Securities shall be entitled to receive, ratably with each other holder of Securities and Excess Securities, that portion of the assets of the Trust available for distribution to its shareholders. The Trust as holder of all Excess Securities in the Beneficial Trust or if the Trust shall have been dissolved, any trustee of such Beneficial Trust appointed by the Trust prior to its dissolution, shall distribute ratably to the beneficiaries of such Beneficial Trust any such assets received in respect of the Excess Securities in any liquidation, dissolution or winding up of, or any distribution of the assets of, the Trust. (iv) The holders of shares of Excess Securities shall not be entitled to vote on any matters (except as required by law). (v) Except as otherwise provided in this Article Nineteen, Excess Securities shall not be transferable. The purported transferee may freely designate a beneficiary of an interest in the Beneficial Trust (representing the number of shares of Excess Securities that have not been acquired by the Trust pursuant to subparagraph (vi) of this subsection (d) that are held by the Beneficial Trust attributable to a purported transfer that resulted in the Excess Securities), if (A) the shares of Excess Securities held in the Beneficial Trust would not be Excess Securities in the hands of such beneficiary and (B) the purported transferee does not receive a price from such beneficiary that reflects a price per share for such Excess Securities that exceeds (x) the price per share such purported transferee paid for the Securities in the purported transfer that resulted in the Excess Securities, or (y) if the purported transferee did not give value for such Excess Securities (through a gift, devise or other transaction), a price per share equal to the Market Price (as hereinafter defined) on the date of the purported transfer that resulted in the Excess Securities. Upon such transfer of an interest in the Beneficial Trust, the corresponding shares of Excess Securities in the Beneficial Trust shall be automatically exchanged for an equal number of shares of the applicable Securities and such Securities shall be transferred of record to the transferee of the interest in the Beneficial Trust if such Securities would not be 11 12 Excess Securities in the hands of such transferee. Prior to any transfer of any interest in the Beneficial Trust, the purported transferee must give advance notice to the Trust of the intended transfer and the Trust must have waived in writing its purchase rights under subparagraph (vi) of this subsection (d). Notwithstanding the foregoing, if a purported transferee receives a price for designating a beneficiary of an interest in the Beneficial Trust that exceeds the amounts allowable under the foregoing provisions of this subparagraph (v), such purported transferee shall pay, or cause such beneficiary to pay, such excess to the Trust immediately upon demand. (vi) Excess Securities shall be deemed to have been offered for sale to the Trust, or its designee, at a price per share equal to the lesser of (A) the price per share in the transaction that created such Excess Securities (or, in the case of a devise or gift, the Market Price at the time of such devise or gift) and (B) the Market Price on the date the Trust, or its designee, accepts such offer. The Trust shall have the right to accept such offer for a period of 90 days after the later of (x) the date of the transfer which resulted in such Excess Securities and (y) the date the Trust Managers determine in good faith that a transfer resulting in Excess Securities has occurred. (e) Any sale, transfer, gift, assignment, devise or other disposition of Shares (a "transfer") that, if effective, would result in (i) the Shares of the Trust being owned by less than 100 persons (determined without reference to any rules of attribution) shall be void ab initio as to the Shares which would otherwise be beneficially owned by the transferee, (ii) the Trust being "closely held" within the meaning of Section 856(h) of the Code, shall be void ab initio as to the transfer of the Shares that would cause the Trust to be "closely held" within the meaning of Section 856(h) of the Code, (iii) the Trust owning, directly or indirectly, 10% or more of the ownership interest in any tenant or subtenant of the Trust's real property within the meaning of Section 856(d)(2)(B) of the Code and the Treasury Regulations thereunder, shall be void ab initio, or (iv) the disqualification of the Trust as a REIT shall be void ab initio as to the transfer of the Shares that would cause the Trust to be disqualified as a REIT, and, in the case of each of clauses (i), (ii), (iii) and (iv) of this paragraph (e), the intended transferee shall acquire no rights in such Shares except as set forth in subsection (d) above. (f) For purposes of this Article Nineteen: (i) The term "Convertible Securities" means any securities of the Trust that are convertible into Shares. (ii) The term "individual" shall mean any natural person as well as those organizations treated as natural persons under Section 542(a) of the Code. (iii) The term "Market Price" means the average of the last reported sales price of Common Shares reported on the New York Stock Exchange on the five trading days immediately preceding the relevant __te, or if the Common Shares are not then traded on the New York Stock Exchange, the last reported sales price of the Common Shares on the five trading days immediately preceding the relevant date as reported on any exchange or quotation system over which the Common Shares may be traded, or if the Common Shares are not then traded over any exchange or quotation system, then the market price of the Common Shares on the relevant date as determined in good faith by the Trust Managers. (iv) The term "ownership" (including "own" or "owns") of Shares means beneficial ownership. Beneficial ownership, for this purpose shall be defined to include actual ownership by a Person as well as constructive ownership by such Person after application of principles in accordance with or by reference to Sections 856 or 544 of the Code. (v) The term "Person" includes an individual, corporation, partnership, association, joint stock company, limited liability company, trust, unincorporated association or other 12 13 entity and also includes a "group" as that term is defined in Section 13(d)(3) of the Exchange Act. (vi) The term "REIT" means a "real estate investment trust" as defined in Section 856 of the Code and applicable Treasury Regulations. (vii) The term "Securities" means Shares and Convertible Securities. (g) If any of the restrictions on transfer set forth in this Article Nineteen 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 Securities may be deemed, at the option of the Trust, to have acted as an agent on behalf of the Trust in acquiring the Excess Securities and to hold the Excess Securities on behalf of the Trust. (h) The Percentage Limit set forth in paragraph (a) hereof shall not apply to Securities which the Trust Managers in their sole discretion may exempt from the Percentage Limit while owned by a Person who has provided the Trust with evidence and assurances acceptable to the Trust Managers that the qualification of the Trust as a REIT would not be jeopardized thereby. The Trust Managers, in their sole discretion, may at any time revoke any exception pursuant to this paragraph (h) in the case of any Person, and upon such revocation, the provisions of paragraph (a) hereof shall immediately become applicable to such Person and all Securities which such Person may own. A decision to exempt or refuse to exempt from the Percentage Limit the ownership of certain designated Securities, or to revoke an exemption previously granted, shall be made by the Trust Managers in their sole discretion, based on any reason whatsoever, including, but not limited to, the preservation of the Trust's qualification as a REIT. (i) Subject to the provisions of the first sentence of paragraph (b) hereof, nothing herein contained shall limit the ability of the Trust to impose or to seek judicial or other imposition of additional restrictions if deemed necessary or advisable to protect the Trust and the interests of its security holders by preservation of the Trust's status as a qualified REIT under the Code. (j) All Persons who own 5% or more of the Trust's outstanding Shares during any taxable year of the Trust shall file with the Trust an affidavit setting forth the number of Shares during such taxable year (i) owned directly (held of record by such Person or by a nominee or nominees of such Person) and (ii) constructively owned (within the meaning of Section 544 of the Code or for purposes of Rule 13(d) of the Exchange Act) by the Person filing the affidavit. The affidavit to be filed with the Trust shall set forth all the information required to be reported (i) in returns of shareholders under Section 1.857-9 of the Treasury Regulations or similar provisions of any successor Treasury Regulations and (ii) in reports to be filed under Section 13(d) of the Exchange Act. The affidavit or an amendment to a previously filed affidavit shall be filed with the Trust annually within 60 days after the close of the Trust's taxable year. A Person shall have satisfied the requirements of this paragraph (j) if the person furnishes to the Trust the information in such person's possession after such person has made a good faith effort to determine the Shares it owns and to acquire the information required by income tax regulation 1.857-9 or similar provisions of any successor regulation. ARTICLE TWENTY The Board of Trust Managers shall use its best efforts to cause the Trust and its shareholders to qualify for U.S. federal income tax treatment in accordance with the provisions of the Code applicable to REITs. In furtherance of the foregoing, the Board of Trust Managers shall use its best efforts to take such actions as are necessary, and may take such actions as it deems desirable (in its sole discretion) to preserve the status of the Trust as a REIT. 13 14 ARTICLE TWENTY-ONE Special meetings of the shareholders for any purpose or purposes, unless otherwise prescribed by law or by the Declaration of Trust, may be called by the Trust Managers, any officer of the Trust or the holders of at least five percent (5%) of all of the shares entitled to vote at such meeting. ARTICLE TWENTY-TWO This Declaration of Trust may be amended from time to time by the affirmative vote of the holders of at least two-thirds of the outstanding voting Shares, except that (i) Article Eleven hereof (relating to the prohibition against engaging in non-real estate investment trust businesses); (ii) Article Thirteen hereof (relating to the approval of Business Combinations); (iii) Article Eighteen hereof (relating to the number and removal of Trust Managers); (iv) Article Nineteen hereof (relating to Share ownership requirements); and (v) this Article Twenty-Two may not be amended or repealed, and provisions inconsistent therewith and herewith may not be adopted, except by the affirmative vote of the holders of at least 80% of the outstanding voting Shares. ARTICLE TWENTY-THREE If any provision of this Declaration of Trust or any application of any such provision is determined to be invalid by any federal or state court having jurisdiction over the issue, the validity of the remaining provisions 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. In lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as a part of this Declaration of Trust, a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible, and the parties hereto request the court or any arbitrator to whom disputes relating to this Declaration of Trust are submitted to reform the otherwise illegal, invalid or unenforceable provision in accordance with this Article Twenty-Three. IN WITNESS WHEREOF, the undersigned Trust Managers do hereby execute this Third Amended and Restated Declaration of Trust as of the 30th day of June, 1997. /s/ William S. Bricker ---------------------------------- WILLIAM H. BRICKER /s/ T. Patrick Duncan ---------------------------------- T. PATRICK DUNCAN /s/ Robert E. Giles ---------------------------------- ROBERT E. GILES /s/ Edward B. Kelley ---------------------------------- EDWARD B. KELLEY /s/ Charles W. Wolcott ---------------------------------- CHARLES W. WOLCOTT 14 EX-3.2 3 1ST AMENDMENT TO 3RD AMENDED/RESTATED DECLARATION 1 EXHIBIT 3.2 AMENDMENT TO THE THIRD AMENDED AND RESTATED DECLARATION OF TRUST OF AMERICAN INDUSTRIAL PROPERTIES REIT The undersigned, acting as the Trust Managers of American Industrial Properties REIT, a real estate investment trust formed under the Texas Real Estate Investment Trust Act (the "Texas REIT Act"), hereby adopt the following amendment to the Third Amended and Restated Declaration of Trust for such trust which amendment replaces in its entirety the following Article of the Third Amended and Restated Declaration of Trust for such trust. ARTICLE FIVE The names and mailing addresses of the Trust Managers are as follows:
Name Mailing Address ---- --------------- William H. Bricker 16475 Dallas Parkway, Suite 350 Dallas, Texas 75248 T. Patrick Duncan 8000 Robert F. McDermott Freeway Suite 600, IH-10 West San Antonio, Texas 78230-3884 Robert E. Giles 5051 Westheimer, Suite 300 Houston, Texas 77056 Edward B. Kelley 8000 Robert F. McDermott Freeway Suite 600, IH-10 West San Antonio, Texas 78230-3884 Stanley J. Kraska, Jr. 100 East Pratt Street Baltimore, Maryland 21202 Russell C. Platt 1221 Avenue of the Americas, 22nd Floor New York, New York 10020 Charles W. Wolcott 6210 North Belt Line Road, Suite 170 Irving, Texas 75063
2 IN WITNESS WHEREOF, the undersigned Trust Managers do hereby execute this Amendment to the Third Amended and Restated Declaration of Trust as of the 16th day of July, 1998. /s/ William H. Bricker --------------------------- WILLIAM H. BRICKER /s/ T. Patrick Duncan --------------------------- T. PATRICK DUNCAN /s/ Robert E. Giles --------------------------- ROBERT E. GILES /s/ Edward B. Kelley --------------------------- EDWARD B. KELLEY /s/ Stanley J. Kraska, Jr. --------------------------- STANLEY J. KRASKA, JR. /s/ Russell C. Platt --------------------------- RUSSELL C. PLATT /s/ Charles W. Wolcott --------------------------- CHARLES W. WOLCOTT EX-3.3 4 2ND AMENDMENT TO 3RD AMENDED/RESTATED DECLARATION 1 EXHIBIT 3.3 SECOND AMENDMENT TO THE THIRD AMENDED AND RESTATED DECLARATION OF TRUST OF AMERICAN INDUSTRIAL PROPERTIES REIT The undersigned, acting as the Trust Managers of American Industrial Properties REIT, a real estate investment trust formed under the Texas Real Estate Investment Trust Act (the "Texas REIT Act"), hereby adopt the following amendment to the Third Amended and Restated Declaration of Trust for such Trust, which amendment replaces in its entirety the following Article of the Third Amended and Restated Declaration of Trust for such Trust. ARTICLE FIVE The names and mailing addresses of the Trust Managers are as follows:
Name Mailing Address ---- --------------- William H. Bricker 16475 Dallas Parkway, Suite 300 Dallas, Texas 75248 T. Patrick Duncan 8000 Robert F. McDermott Freeway Suite 600, IH-10 West San Antonio, Texas 78230-3884 Robert E. Giles 5051 Westheimer, Suite 300 Houston, Texas 77056 Edward B. Kelley 8000 Robert F. McDermott Freeway Suite 600, IH-10 West San Antonio, Texas 78230-3884 Stanley J. Kraska, Jr. 100 East Pratt Street Baltimore, Maryland 21202 Russell C. Platt 1221 Avenue of the Americas, 22nd Floor New York, New York 10020 Charles W. Wolcott 6210 North Belt Line Road, Suite 170 Irving, Texas 75063 Scott A. Wolstein 34555 Chagrin Blvd. Moreland Hills, Ohio 44022 Robert H. Gidel 34555 Chagrin Blvd. Moreland Hills, Ohio 44022 Albert T. Adams 34555 Chagrin Blvd. Moreland Hills, Ohio 44022 James A. Schoff 34555 Chagrin Blvd. Moreland Hills, Ohio 44022
2 IN WITNESS WHEREOF, the undersigned Trust Managers do hereby execute this Amendment to the Third Amended and Restated Declaration of Trust as of the ____ day of January, 1999. /s/ William H. Bricker /s/ Charles W. Wolcott - ---------------------------------- ---------------------------------- WILLIAM H. BRICKER CHARLES W. WOLCOTT /s/ T. Patrick Duncan /s/ Scott A. Wolstein - ---------------------------------- ---------------------------------- T. PATRICK DUNCAN SCOTT A. WOLSTEIN /s/ Robert E. Giles /s/ Robert H. Gidel - ---------------------------------- ---------------------------------- ROBERT E. GILES ROBERT H. GIDEL /s/ Edward B. Kelley /s/ Albert T. Adams - ---------------------------------- ---------------------------------- EDWARD B. KELLEY ALBERT T. ADAMS /s/ Stanley J. Kraska /s/ James A. Schoff - ---------------------------------- ---------------------------------- STANLEY J. KRASKA, JR. JAMES A. SCHOFF /s/ Russell C. Platt - ---------------------------------- RUSSELL C. PLATT
EX-3.4 5 3RD AMENDMENT TO 3RD AMENDED/RESTATED DECLARATION 1 EXHIBIT 3.4 THIRD AMENDMENT TO THE THIRD AMENDED AND RESTATED DECLARATION OF TRUST OF AMERICAN INDUSTRIAL PROPERTIES REIT The following amendment to the Third Amended and Restated Declaration of Trust for American Industrial Properties REIT, a real estate investment trust formed under the Texas Real Estate Investment Trust Act (the "Texas REIT Act"), replaces in its entirety the following Article of the Third Amended and Restated Declaration of Trust for such Trust. ARTICLE FIVE The names and mailing addresses of the Trust Managers are as follows:
Name Mailing Address ---- --------------- William H. Bricker 2155 Chenault Dr., Suite 300 Carrollton, Texas 75006-4955 T. Patrick Duncan 8000 Robert F. McDermott Freeway Suite 600, IH-10 West San Antonio, Texas 78230-3884 Robert E. Giles 5051 Westheimer, Suite 300 Houston, Texas 77056 Edward B. Kelley 8000 Robert F. McDermott Freeway Suite 600, IH-10 West San Antonio, Texas 78230-3884 Stanley J. Kraska, Jr. 100 East Pratt Street Baltimore, Maryland 21202 J. Timothy Morris 1221 Avenue of the Americas, 22nd Floor New York, New York 10020 Charles W. Wolcott 6210 North Belt Line Road, Suite 170 Irving, Texas 75063 Scott A. Wolstein 34555 Chagrin Blvd. Moreland Hills, Ohio 44022 Robert H. Gidel 34555 Chagrin Blvd. Moreland Hills, Ohio 44022 Albert T. Adams 34555 Chagrin Blvd. Moreland Hills, Ohio 44022 James A. Schoff 34555 Chagrin Blvd. Moreland Hills, Ohio 44022
2 IN WITNESS WHEREOF, the undersigned hereby executes this Third Amendment to the Third Amended and Restated Declaration of Trust as of the 5th day of March, 1999. AMERICAN INDUSTRIAL PROPERTIES REIT By: /s/ Marc A. Simpson ------------------------------ Marc A. Simpson Senior Vice President, Chief Financial Officer, Secretary and Treasurer 2 EX-3.5 6 5TH AMENDED/RESTATED BYLAWS 1 EXHIBIT 3.5 FIFTH AMENDED AND RESTATED BYLAWS OF AMERICAN INDUSTRIAL PROPERTIES REIT 2 INDEX
PAGE ARTICLE I OFFICES Section 1.1 Principal Office..........................................................1 Section 1.2 Other Offices.............................................................1 ARTICLE II MEETINGS OF SHAREHOLDERS Section 2.1 Place of Meetings.........................................................1 Section 2.2 Annual Meeting............................................................1 Section 2.3 Special Meetings..........................................................1 Section 2.4 Notice of Meetings........................................................1 Section 2.5 Business at Annual Meeting................................................1 Section 2.6 Voting Lists..............................................................2 Section 2.7 Quorum....................................................................2 Section 2.8 Organization..............................................................3 Section 2.9 Proxies...................................................................3 Section 2.10 Voting of Shares..........................................................3 Section 2.11 Voting of Shares by Certain Holders.......................................3 Section 2.12 Election of Trust Managers................................................4 Section 2.13 Telephone Meetings........................................................4 Section 2.14 Action Without Meeting....................................................4 Section 2.15 Inspectors and Voting Procedures..........................................4 ARTICLE III TRUST MANAGERS Section 3.1 Powers and Responsibilities...............................................5 Section 3.2 Number and Qualification..................................................5 Section 3.3 Election and Term of Office...............................................5 Section 3.4 Nomination of Trust Managers..............................................5 Section 3.5 Resignation...............................................................6 Section 3.6 Removal...................................................................6 Section 3.7 Vacancies.................................................................6 Section 3.8 Bond Not Required; Time Commitment........................................6 Section 3.9 Compensation..............................................................7 Section 3.10 Execution of Documents....................................................7 ARTICLE IV MEETINGS OF THE TRUST MANAGERS Section 4.1 Place of Meetings.........................................................7 Section 4.2 Annual Meeting............................................................7 Section 4.3 Regular Meetings..........................................................7 Section 4.4 Special Meetings..........................................................7 Section 4.5 Quorum and Action.........................................................7 Section 4.6 Presumption of Assent to Action...........................................7 Section 4.7 Telephone Meetings........................................................8 Section 4.8 Action Without Meeting....................................................8 Section 4.9 Minutes...................................................................8 Section 4.10 Interest of Trust Managers............................................. 8 Section 4.11 Right of Trust Managers and Officers to Own Shares or Other Property and to Engage in Other Business...............................................8 Section 4.12 Transactions Between Trust Managers and the Trust.........................8 Section 4.13 Persons Dealing with Trust Managers or Officers...........................8
3 Section 4.14 Reliance..................................................................9 Section 4.15 Liability of Trust Managers...............................................9 ARTICLE V COMMITTEES OF THE TRUST MANAGERS Section 5.1 Membership and Authorities................................................9 Section 5.2 Minutes and Rules of Procedure............................................9 Section 5.3 Vacancies.................................................................9 Section 5.4 Telephone Meetings........................................................9 Section 5.5 Action Without Meeting....................................................9 ARTICLE VI OFFICERS Section 6.1 Number....................................................................9 Section 6.2 Election, Term of Office and Qualification...............................10 Section 6.3 Subordinate Officers.....................................................10 Section 6.4 Resignation..............................................................10 Section 6.5 Removal..................................................................10 Section 6.6 Vacancies................................................................10 Section 6.7 The Chief Executive Officer..............................................10 Section 6.8 The President............................................................10 Section 6.9 The Vice Presidents......................................................10 Section 6.10 The Secretary............................................................11 Section 6.11 Assistant Secretaries....................................................11 Section 6.12 The Treasurer............................................................11 Section 6.13 Assistant Treasurers.....................................................11 Section 6.14 Treasurer's Bond.........................................................11 Section 6.15 Salaries.................................................................11 Section 6.16 Execution of Documents...................................................11 ARTICLE VII TRUST SHARES Section 7.1 Share Certificates.......................................................12 Section 7.2 Lost Certificates, etc...................................................12 Section 7.3 Transfer of Shares.......................................................12 Section 7.4 Ownership of Shares......................................................12 Section 7.5 Closing of Transfer Books................................................12 Section 7.6 Dividends................................................................13 Section 7.7 Surplus and Reserves.....................................................13 ARTICLE VIII GENERAL PROVISIONS Section 8.1 General Policies.........................................................13 Section 8.2 Limited Liability of Shareholders........................................13 Section 8.3 Waiver of Notice.........................................................13 Section 8.4 Seal.....................................................................13 Section 8.5 Fiscal Year..............................................................13 Section 8.6 Checks, Notes, etc ......................................................13 Section 8.7 Examination of Books and Records.........................................13 Section 8.8 Voting Upon Shares Held by the Trust.....................................14 Section 8.9 Number, Gender, Etc......................................................14 Section 8.10 Annual and Quarterly Reports.............................................14 Section 8.11 Independent Committee....................................................14 ARTICLE IX AMENDMENTS Section 9.1 Amendment of Bylaws......................................................14 ARTICLE X SUBJECT TO ALL LAWS Section 10.1 Subject to All Laws......................................................14
4 AMERICAN INDUSTRIAL PROPERTIES REIT FIFTH AMENDED AND RESTATED BYLAWS ARTICLE I OFFICES SECTION 1.1 PRINCIPAL OFFICE . The principal office of the Trust shall be in the City of Irving, Dallas County, Texas or at such other location as the Trust Managers may from time to time determine. SECTION 1.2 OTHER OFFICES. The Trust may also have offices at such other places, both within and without the State of Texas, as the Trust Managers may from time to time determine or the business of the Trust may require. ARTICLE II MEETINGS OF SHAREHOLDERS SECTION 2.1 PLACE OF MEETINGS. The Trust Managers may designate any place, either within or without the State of Texas, as the place of meeting for any annual meeting or for any special meeting called by the Trust Managers. A waiver of notice signed by all shareholders entitled to vote at a meeting may designate any place, either within or without the State of Texas, as the place for the holding of such meeting. If no designation is made, or if a special meeting be otherwise called, the place of meeting shall be the principal office of the Trust. SECTION 2.2 ANNUAL MEETING. The annual meeting of shareholders shall be held at such time, on such day and at such place as may be designated by the Trust Managers. At the annual meeting, the shareholders shall, subject to Section 2.5 and Section 3.3 of these Bylaws, elect Trust Managers and transact such other business as may properly be brought before the meeting. Failure to hold the annual meeting at the designated time shall not cause the dissolution of the Trust. SECTION 2.3 SPECIAL MEETINGS. Special meetings of the shareholders for any purpose or purposes, unless otherwise prescribed by law or by the Declaration of Trust, may be called by the Trust Managers, any officer of the Trust or the holders of at least five percent (5%) of all of the shares entitled to vote at the meetings. Business transacted at all special meetings shall be confined to the purpose or purposes stated in the call. SECTION 2.4 NOTICE OF MEETINGS. Written or printed notice of all meetings of shareholders stating the place, day and hour thereof, and in the case of a special meeting the purpose or purposes for which the meeting is called, shall be personally delivered or mailed, not less than ten (10) days nor more than sixty (60) days prior to the date of the meeting, to the shareholders of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States Mail addressed to the shareholder at his address as it appears on the share transfer books of the Trust and the postage shall be prepaid. Personal delivery of any such notice to any officer of a corporation or association, or to any member of a partnership, shall constitute delivery of such notice to such corporation, association or partnership. SECTION 2.5 BUSINESS AT ANNUAL MEETING. No business may be transacted at an annual meeting of shareholders, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Trust Managers (or any duly authorized committee thereof), (b) otherwise properly brought before the annual meeting by or at the direction of the Trust Managers (or any duly authorized committee thereof) or (c) otherwise properly brought before the annual meeting by any shareholder of the Trust (i) who is a shareholder of record on the date of the giving of the notice provided for in this Section 2.5 and on the record date for the determination of shareholders entitled to vote at such annual meeting, and (ii) who complies with the notice procedures set forth in this Section 2.5. 1 5 In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a shareholder, such shareholder must have given timely notice thereof in proper written form to the Secretary of the Trust. To be timely, a shareholder's notice to the Secretary must be delivered to or mailed and received at the principal office of the Trust (i) with respect to the Trust's first annual meeting of shareholders following the adoption of this bylaw, notice by the shareholder to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which public disclosure of the adoption of this Section 2.5 is first made and (ii) thereafter, not less than sixty (60) days nor more than ninety (90) days prior to the date of the applicable annual meeting of shareholders, provided, however, that in the event that less than seventy (70) days' notice or prior public disclosure of the date of the meeting be given or made, notice by the shareholder to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the applicable annual meeting was mailed or such public disclosure of the date of such annual meeting was made, whichever first occurs. For purposes of this Section 2.5, the date of a public disclosure shall include, but not be limited to, the date on which such disclosure is made in a press release reported by the Dow Jones News Services, the Associated Press or any comparable news service or in a document publicly filed by the Trust with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) (or the rules and regulations promulgated thereunder) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). To be in proper written form, a shareholder's notice to the Secretary must set forth as to each matter such shareholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of such shareholder, (iii) the number of shares of the Trust that are owned beneficially or of record by such shareholder, (iv) a description of all arrangements or understandings between such shareholder and any other person or persons (including their names) in connection with the proposal of such business by such shareholder and any material interest of such shareholder in such business, and (v) a representation that such shareholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting. No business shall be conducted at the annual meeting of shareholders except business brought before the annual meeting in accordance with the procedures set forth in this Section 2.5; provided, however, that, once business has been properly brought before the annual meeting in accordance with such procedures, nothing in this Section 2.5 shall be deemed to preclude discussion by any shareholder of any such business. If the presiding officer of an annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the presiding officer shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted. SECTION 2.6 VOTING LISTS. The officer or agent having charge of the share transfer books for shares of the Trust shall make, at least ten (10) days before each meeting of the shareholders, a complete list of shareholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, with the address of each shareholder and the number of shares held by each shareholder, which list, for a period of ten (10) days prior to such meeting, shall be kept on file at the registered office of the Trust and shall be subject to inspection by any shareholders at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder for the duration of the meeting. The original share transfer books shall be prima facie evidence as to who are the shareholders entitled to examine such list or transfer books or to vote at any meeting of shareholders. Failure to comply with this Section 2.6 with respect to any meeting of shareholders shall not affect the validity of any action taken at such meeting. SECTION 2.7 QUORUM. The holders of a majority of the shares entitled to vote, present in person or represented by proxy, shall constitute a quorum at all meetings of the shareholders for the transaction of business, except as otherwise provided by law or by the Declaration of Trust. If, however, such quorum shall not be present or represented at any meeting of the shareholders, the shareholders entitled to vote at such meeting, present in person or represented by proxy, shall have the power to adjourn the meeting from time to time without notice other than announcement at the meeting until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally convened. The shareholders present at a duly organized meeting at which a quorum was present may continue to transact business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum present, provided that there remain at such meeting the holder or holders of at least one-third (1/3) of the shares issued and outstanding and entitled to vote thereat, present in person or represented in the manner specified above. A holder of a share shall be treated as being present at a meeting if the holder of such share 2 6 is (i) present in person at the meeting, or (ii) represented at the meeting by a valid proxy, whether the instrument granting such proxy is marked as casting a vote or abstaining, is left blank or does not empower such proxy to vote with respect to some or all matters to be voted upon at the meeting. SECTION 2.8 ORGANIZATION. (a) The Chief Executive Officer, if one shall be elected, shall preside at all meetings of the shareholders. In the absence of the Chief Executive Officer or should one not be elected, the following officers shall preside in order of priority: President , Chief Financial Officer, Chief Operating Officer or Secretary. If no such officer is available, the meeting shall be adjourned until such an officer is available to preside over the meeting . The presiding officer shall set the agenda for the meeting, shall conduct all aspects of the meeting and shall establish and interpret the rules of order for the conduct of the meeting. (b) The Secretary of the Trust shall act as secretary at all meetings of the shareholders. In his or her absence an Assistant Secretary shall so act and in the absence of all of these officers the presiding officer may appoint any person to act as secretary of the meeting . SECTION 2.9 PROXIES. (a) At any meeting of the shareholders every shareholder entitled to vote at such meeting shall be entitled to vote in person or by proxy executed in writing by such shareholder or by his duly authorized attorney in fact. Proxies shall be filed with the Secretary or Trust Managers immediately after the meeting has been called to order. (b) No proxy shall be valid after eleven (11) months from the date of its execution unless such proxy otherwise provides. (c) A proxy shall be revocable unless the proxy form conspicuously states that the proxy is irrevocable and the proxy is coupled with an interest but in no event shall it remain irrevocable for a period of more than eleven (11) months. A proxy which is revocable as aforesaid may be revoked at any time by filing with the Secretary an instrument revoking it or a duly executed proxy bearing a later date. Any revocable proxy which is not so revoked shall, subject to paragraph (b) above, continue in full force and effect. (d) In the event that any instrument in writing shall designate two (2) or more persons to act as proxies, a majority of such persons present at the meeting or, if only one shall be present, then that one, shall have and may exercise all of the powers conferred by such written instrument upon all the persons so designated unless the instrument shall otherwise provide. SECTION 2.10 VOTING OF SHARES. Except as otherwise provided by law, the Declaration of Trust or these Bylaws, each shareholder shall be entitled at each meeting of shareholders to one (1) vote on each matter submitted to a vote at such meeting for each share having voting rights registered in his name on the books of the Trust at the time of the closing of the share transfer books (or at the record date) for such meeting. When a quorum is present at any meeting (and notwithstanding the subsequent withdrawal of enough shareholders to leave less than a quorum present) in accordance with Section 2.7 of these Bylaws, the votes of holders of a majority of the shares entitled to vote, present in person or represented by proxy, shall decide any matter submitted to such meeting, unless the matter is one upon which by law or by express provision of the Declaration of Trust or of these Bylaws the vote of a greater number is required, in which case the vote of such greater number shall govern and control the decision of such matter. In determining the number of shares entitled to vote, shares abstaining from voting or not voted on a matter (including elections) will not be treated as entitled to vote. The provisions of this Section 2.10 will govern with respect to all votes of shareholders except as otherwise provided for in these Bylaws or in the Declaration of Trust or by some specific statutory provision superseding the provisions contained in these Bylaws or the Declaration of Trust. SECTION 2.11 VOTING OF SHARES BY CERTAIN HOLDERS. (a) Shares standing in the name of another business organization may be voted by such officer, agent or proxy as the organizational documents of such organization may authorize or, in the absence of such authorization, as may be determined by the governing body of such organization. (b) Shares held by an administrator, executor, guardian or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name so long as such shares forming a part of an estate are in the possession and form a part of the estate being served by him. Shares standing in the name of a trustee may 3 7 be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of such shares into his name as trustee. (c) Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority to do so is contained in an appropriate order of the court by which such receiver was appointed. (d) A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. SECTION 2.12 ELECTION OF TRUST MANAGERS. At each election for Trust Managers, each shareholder entitled to vote at such election shall, unless otherwise provided by the Declaration of Trust or by applicable law, have the right to vote the number of shares owned by him for as many persons as there are to be elected and for whose election he has a right to vote. No shareholder shall have the right or be permitted to cumulate his votes on any basis. SECTION 2.13 TELEPHONE MEETINGS. Shareholders may participate in and hold a meeting of the shareholders by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. SECTION 2.14 ACTION WITHOUT MEETING. Any action required by any provision of law or of the Declaration of Trust or these Bylaws to be taken at a meeting of the shareholders or any action which may be taken at a meeting of the shareholders may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof, and such consent shall have the same force and effect as a unanimous vote of the shareholders. SECTION 2.15 INSPECTORS AND VOTING PROCEDURES. (a) The Trust shall, in advance of any meeting of shareholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The Trust may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of shareholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability. (b) The inspectors shall (i) ascertain the number of shares outstanding and the voting power of each, (ii) determine the shares represented at a meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors. (c) The date and time of the opening and closing of the polls for each matter upon which the shareholders will vote at a meeting shall be announced at the meeting. No ballots, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless a court of appropriate jurisdiction, upon application by a shareholder, shall determine otherwise. (d) In determining the validity and counting of proxies and ballots, the inspectors may examine and consider such records or factors as allowed by the Texas Real Estate Investment Trust Act (the "Texas REIT Act"). 4 8 ARTICLE III TRUST MANAGERS SECTION 3.1 POWERS AND RESPONSIBILITIES. The business and affairs of the Trust shall be managed under the direction of its Trust Managers who may exercise all such powers of the Trust and do all such lawful acts and things as are not by statute, the Declaration of Trust or these Bylaws directed or required to be exercised or done by the shareholders. The enumeration of any specific power or authority herein shall not be construed as limiting the aforesaid powers or the general powers or authority or any other specified power or authority conferred herein upon the Trust Managers. SECTION 3.2 NUMBER AND QUALIFICATION. There shall at all times be no less than two (2) nor more than eight (8) Trust Managers who, subject to Section 3.3 below, shall be elected annually by the shareholders. Subject to any limitations specified by law or in the Declaration of Trust, the number of Trust Managers may be fixed from time to time by resolution adopted by a majority of the Trust Managers. No decrease in the number of Trust Managers shall have the effect of shortening the term of any incumbent Trust Manager. A majority of the Trust Managers shall be natural persons. Trust Managers need not be shareholders, must be at least eighteen (18) years of age and must not be subject to any legal disability. At least two (2) of the Trust Managers shall at all times be Independent Trust Managers. For purposes of these Bylaws, the term "Independent Trust Manager" shall mean a Trust Manager who (i) does not perform any services for the Trust (except in the capacity of a Trust Manager) whether as an agent, advisor, consultant, employee, property manager or in any other capacity whatsoever (other than as a Trust Manager), and (ii) is not an "affiliate" of any person or entity that performs any services for the Trust (other than as a Trust Manager). The term "affiliate" as used in these Bylaws means any individual, corporation, partnership, trust, unincorporated organization, association or other entity that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with any person or entity that performs any services for the Trust (other than as a Trust Manager). SECTION 3.3 ELECTION AND TERM OF OFFICE. The Trust Manager nominees who have not been previously elected as Trust Managers by the shareholders of the Trust shall be elected at the annual meeting of the shareholders (except as provided in Section 3.7) by the affirmative vote of the holders of majority of the outstanding shares of the Trust. Trust Managers who have been previously elected as Trust Managers by the shareholders of the Trust shall be re-elected at the annual meeting of the shareholders by the affirmative vote of the holders of a majority of the outstanding shares of the Trust present in person or represented by proxy at such meeting; provided, however, that any Trust Manager that has been previously elected as a Trust Manager by the shareholders who is not re-elected by such majority vote at a subsequent annual meeting shall nevertheless remain in office until his successor is elected and qualified. Each Trust Manager shall hold office until his successor is elected and qualified, or until his death, resignation or removal in the manner provided in these Bylaws. SECTION 3.4 NOMINATION OF TRUST MANAGERS. Only persons who are nominated in accordance with the following procedures shall be eligible for election as Trust Managers of the Trust. Nominations of persons for election as Trust Managers may be made at any annual meeting of shareholders (a) by or at the direction of the Trust Managers (or any duly authorized committee thereof) or (b) by any shareholder of the Trust (i) who is a shareholder of record on the date of the giving of the notice provided for in this Section 3.4 and on the record date for the determination of shareholders entitled to vote at such annual meeting, and (ii) who complies with the notice procedures set forth in this Section 3.4. In addition to any other applicable requirements, for a nomination to be made by a shareholder, such shareholder must have given timely notice thereof in proper written form to the Secretary of the Trust. To be timely, a shareholder's notice to the Secretary must be delivered to or mailed and received at the principal offices of the Trust (i) with respect to the Trust's first annual meeting of shareholders following the adoption of this bylaw, notice by the shareholder to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which public disclosure of the adoption of this Section 3.4 is first made and (ii) thereafter, not less than sixty (60) days nor more than ninety (90) days prior to the date of the applicable annual meeting of shareholders; provided, however, that in the event that less than seventy (70) days' notice or prior public disclosure of the date of the meeting is given or made, notice by the shareholder to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the applicable annual meeting was mailed or such public disclosure of the date of such annual meeting was made, whichever first 5 9 occurs. For purposes of this Section 3.4, the date of a public disclosure shall include, but not be limited to, the date on which such disclosure is made in a press release reported by the Dow Jones News Services, the Associated Press or any comparable national news service or in a document publicly filed by the Trust with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) (or the rules and regulations promulgated thereunder) of the Exchange Act. To be in proper written form, a shareholder's notice to the Secretary must set forth (a) as to each person whom the shareholder proposes to nominate for election as a Trust Manager (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the number of shares of the Trust that are owned beneficially or of record by the person, and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitation of proxies for election of Trust Managers pursuant to Section 14 of the Exchange Act, and (b) as to the shareholder giving the notice (i) the name and record address of such shareholder, (ii) the number of shares of the Trust that are owned beneficially or of record by such shareholder, (iii) a description of all arrangements or understandings between such shareholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such shareholders, (iv) a representation that such shareholder intends to appear in person or by proxy at the meeting to nominate the persons named in the notice, and (v) any other information relating to such shareholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of Trust Managers pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a Trust Manager if elected. No person shall be eligible for election as a Trust Manager of the Trust unless nominated in accordance with the procedures set forth in this Section 3.4. If the presiding officer of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the presiding officer shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded. SECTION 3.5 RESIGNATION. Any Trust Manager may resign at any time by giving written notice to the remaining Trust Managers. Such resignation shall take effect at the time specified therein, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. A Trust Manager judged incompetent or for whom a guardian or conservator has been appointed, shall be deemed to have resigned as of the date of such adjudication or appointment. SECTION 3.6 Removal. A Trust Manager may be removed at any time with or without cause by the vote of holders of shares representing two-thirds (2/3) of the total votes authorized to be cast by shares then outstanding and entitled to vote thereon. Upon the resignation or removal of any Trust Manager, or his otherwise ceasing to be a Trust Manager, he shall execute and deliver such documents as the remaining Trust Managers shall require for the conveyance of any Trust property held in his name, shall account to the remaining Trust Managers as they require for all property which he holds as Trust Manager and shall thereupon be discharged as Trust Manager. Upon the incapacity or death of any Trust Manager, his legal representative shall perform the acts set forth in the preceding sentence and the discharge mentioned therein shall run to such legal representative and to the incapacitated Trust Manager or the estate of the deceased Trust Manager, as the case may be. SECTION 3.7 VACANCIES. If there is an increase in the number of Trust Managers or if any or all of the Trust Managers cease to be Trust Managers hereunder, whether by reason of resignation, removal, incapacity, death or otherwise, such event shall not terminate the Trust or affect its continuity. Until vacancies are filled, the remaining Trust Manager or Trust Managers may exercise the powers of the Trust Managers hereunder. Vacancies may be filled by successor Trust Managers either appointed by a majority of the remaining Trust Managers or elected by the vote of the holders of at least a majority of the outstanding shares at an annual or special meeting of the shareholders. Any Trust Manager elected to fill a vacancy shall hold office until the next annual meeting for the election of Trust Managers. The election of a successor Trust Manager shall be considered an amendment to the Declaration of Trust. SECTION 3.8 BOND NOT REQUIRED; TIME COMMITMENT. Unless otherwise required by law, no Trust Manager shall be required to give bond, surety or security in any jurisdiction for the performance of his duties or 6 10 obligations to the Trust. No Trust Manager shall be required to devote his entire time to the business and affairs of the Trust. SECTION 3.9 COMPENSATION. Trust Managers shall receive compensation for their services to the Trust as may be determined from time to time by the Trust Managers; provided, however, that the cash compensation of the Trust Managers shall not be increased by more than 20% over the prior year without the approval of the holders of a majority of the shares cast at the annual meeting of shareholders of the Trust. The Trust Managers may delegate to any committee the power to fix from time to time the compensation of Trust Managers. Officers of the Trust who also serve as Trust Managers shall not receive compensation for their service as Trust Managers. SECTION 3.10 EXECUTION OF DOCUMENTS. Each Trust Manager and any one of them is authorized to execute on behalf of the Trust any document or instrument of any nature whatsoever, provided that the execution by the Trust of any such document or instrument shall have been previously authorized by such action of the Trust Managers as may be required by statute, the Declaration of Trust or these Bylaws. ARTICLE IV MEETINGS OF THE TRUST MANAGERS SECTION 4.1 PLACE OF MEETINGS. The Trust Managers of the Trust may hold their meetings, both regular and special, either within or without the State of Texas. SECTION 4.2 ANNUAL MEETING. The annual meeting of the Trust Managers shall be held immediately following the adjournment of the annual meeting of the shareholders and no notice of such meeting shall be necessary to the Trust Managers in order to legally constitute the meeting, provided a quorum shall be present, or they may meet at such time and place as shall be fixed by the consent in writing of all of the Trust Managers. SECTION 4.3 REGULAR MEETINGS. Regular meetings of the Trust Managers, in addition to the annual meetings referred to in Section 4.2, may be held without notice at such time and place as shall from time to time be determined by the Trust Managers. SECTION 4.4 SPECIAL MEETINGS. Special meetings of the Trust Managers may be called by the Chief Executive Officer, if one shall be elected, or by the President, if a Chief Executive Officer is not elected, on ten (10) business day's notice (oral or written) to each Trust Manager. Special meetings shall be called by the Chief Executive Officer (if one shall be elected), the President or the Secretary on like notice on the oral or written request of any Trust Manager. Neither the purpose of, nor the business to be transacted at, any special meeting of the Trust Managers need be specified in the notice or waiver of notice of such meeting. Attendance of a Trust Manager at a meeting shall constitute a waiver of notice of such meeting except where a Trust Manager attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the grounds that the meeting is not lawfully called or convened. SECTION 4.5 QUORUM AND ACTION. At all meetings of the Trust Managers, the presence of a majority of the Trust Managers shall be necessary and sufficient to constitute a quorum for the transaction of business and the act of a majority of the Trust Managers at any meeting at which a quorum is present shall be the act of the Trust Managers unless the act of a greater number is required by law, the Declaration of Trust or these Bylaws. If a quorum shall not be present at any meeting of Trust Managers, the Trust Managers present may adjourn the meeting from time to time without notice other than announcement at the meeting until a quorum shall be present. If there are only two Trust Managers, the presence of both Trust Managers shall be necessary to constitute a quorum. SECTION 4.6 PRESUMPTION OF ASSENT TO ACTION. A Trust Manager who is present at a meeting of the Trust Managers at which action on any Trust matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the Secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the Trust immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Trust Manager who voted in favor of such action. 7 11 SECTION 4.7 TELEPHONE MEETINGS. Trust Managers may participate in and hold a meeting of the Trust Managers by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this Section shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. SECTION 4.8 ACTION WITHOUT MEETING. Any action required or permitted to be taken at a meeting of the Trust Managers may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all the Trust Managers, and such consent shall have the same force and effect as a unanimous vote at a meeting. SECTION 4.9 MINUTES. The Trust Managers shall keep regular minutes of their proceedings. The minutes shall be placed in the minute book of the Trust. SECTION 4.10 INTEREST OF TRUST MANAGERS. With respect to the actions of the Trust Managers, Trust Managers who have any direct or indirect interest in connection with any matter being acted upon may be counted for all quorum purposes under this Article IV. SECTION 4.11 RIGHT OF TRUST MANAGERS AND OFFICERS TO OWN SHARES OR OTHER PROPERTY AND TO ENGAGE IN OTHER BUSINESS. Any Trust Manager or officer of the Trust may acquire, own, hold and dispose of shares of the Trust for his individual account, and may exercise all rights of a shareholder to the same extent and in the same manner as if he were not a Trust Manager or officer of the Trust. Except as provided specifically to the contrary in a written agreement with the Trust, any Trust Manager may, in a capacity other than that of Trust Manager, have business interests and engage in business activities similar to or in addition to those relating to the Trust, which interests and activities may be similar to and competitive with those of the Trust and may include the acquisition, syndication, holding, management, development, operation or disposition, for his own account or for the account of others, of interests in mortgages, interests in real property, or interests in entities engaged in the real estate business. Except as provided specifically to the contrary in a written agreement with the Trust, each Trust Manager shall be free of any obligation to present to the Trust any investment opportunity which comes to him in any capacity other than solely as Trust Manager of the Trust, even if such opportunity is of a character which, if presented to the Trust, could be exploited by the Trust. Subject to the provisions of Article III hereof, any Trust Manager or officer of the Trust may be a trustee, officer, director, shareholder, partner, member, advisor or employee of, or otherwise have a direct or indirect interest in any person who may be engaged to render advice or services to the Trust, and may receive compensation from such person as well as compensation as Trust Manager or officer or otherwise hereunder. SECTION 4.12 TRANSACTIONS BETWEEN TRUST MANAGERS AND THE TRUST. Except as otherwise provided by the Declaration of Trust or these Bylaws, and in the absence of fraud, a contract, act or other transaction, between the Trust and any other person, or in which the Trust is interested, shall be valid and no Trust Manager or officer of the Trust shall have any liability as a result of entering into any such contract, act or transaction, even though (a) one or more of the Trust Managers, directly or indirectly is interested in or connected with, or is a trustee, partner, director, shareholder, member, employee, officer or agent of such other person, or (b) one or more of the Trust Managers, individually or jointly with others, is a party to, or directly or indirectly is interested in, or connected with, such contract, act or transaction, provided that (i) such interest or connection is disclosed in reasonable detail or known to the Trust Managers and thereafter the Trust Managers authorize or ratify such contract, act or other transaction by affirmative vote of a majority of the Trust Managers who are not interested in the transaction, or (ii) such interest or connection is disclosed in reasonable detail or known to the shareholders, and thereafter such contract, act or transaction is approved by shareholders holding a majority of the shares then outstanding and entitled to vote thereon. SECTION 4.13 PERSONS DEALING WITH TRUST MANAGERS OR OFFICERS. Any act of the Trust Managers or officers of the Trust purporting to be done in their capacity as such shall, as to any person dealing with such Trust Managers or officers, conclusively be deemed to be within the purposes of the Trust and within the powers of the Trust Managers or officers. No person dealing with the Trust Managers or any of them or with the officers of the Trust or any of them, shall be bound to see to the application of any funds or property passing into their hands or control. The receipt of the Trust Managers or any of the officers of the Trust of moneys or other consideration shall be binding upon the Trust. 8 12 SECTION 4.14 RELIANCE. Trust Managers and officers of the Trust shall not be liable for any claims or damages that may result from their acts in the discharge of any duty imposed or power conferred upon them by the Trust, if, in the exercise of ordinary care, they acted in good faith and in reliance upon the written opinion of an attorney for the Trust. In discharging their duties, Trust Managers and officers of the Trust, when acting in good faith and exercising ordinary care, may rely upon financial statements of the Trust, stated in a written report by an independent certified public accountant, to fairly present the financial position of the Trust. The Trust Managers and officers of the Trust may rely upon any instrument or other document reasonably believed by them to be genuine. SECTION 4.15 LIABILITY OF TRUST MANAGERS. No Trust Manager of the Trust shall be liable to the Trust for any act, omission, loss, damage or expense arising from the performance of his duty under the Trust, except to the extent specifically required by statute, the Declaration of Trust or these Bylaws. ARTICLE V COMMITTEES OF THE TRUST MANAGERS SECTION 5.1 MEMBERSHIP AND AUTHORITIES. The Trust Managers, by resolution adopted by a majority of the Trust Managers, may designate one (1) or more Trust Managers to constitute such committees as the Trust Managers may determine, including, but not limited to, a Compensation Committee and an Audit Committee, each of which committees to the extent provided in such resolution shall have and may exercise all of the authority of the Trust Managers in the business and affairs of the Trust, except in those cases where the authority of the Trust Managers is specifically denied to the committee or committees by the Trust Managers, applicable law, the Declaration of Trust or these Bylaws. No committee shall have the power to alter or to repeal any resolution adopted by the Trust Managers. The designation of a committee and the delegation thereto of authority shall not operate to relieve the Trust Managers, or any member thereof, of any responsibility imposed upon each of them by law. The members of each such committee shall serve at the pleasure of the Trust Managers. A majority of the members of each committee shall be Independent Trust Managers; provided, however, that if a committee shall consist of two (2) members, only one (1) of such members shall be required to be an Independent Trust Manager. SECTION 5.2 MINUTES AND RULES OF PROCEDURE. Each committee designated by the Trust Managers shall keep regular minutes of its proceedings and report the same to the Trust Managers when required. Subject to the provisions of these Bylaws, the members of any committee may fix such committee's own rules of procedure. SECTION 5.3 VACANCIES. The Trust Managers shall have the power at any time to fill vacancies in, to change the membership of, or to dissolve, any committee. SECTION 5.4 TELEPHONE MEETINGS. Members of any committee designated by the Trust Managers may participate in or hold a meeting by use of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this Section shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called or convened. SECTION 5.5 ACTION WITHOUT MEETING. Any action required or permitted to be taken at a meeting of any committee designated by the Trust Managers may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all the members of the committee, and such consent shall have the same force and effect as a unanimous vote at a meeting. ARTICLE VI OFFICERS SECTION 6.1 NUMBER. The officers of the Trust shall include a President and a Secretary. The Trust Managers may also elect a Chief Executive Officer, one (1) or more Vice Presidents, a Treasurer, one (1) or more Assistant Secretaries and one (1) or more Assistant Treasurers. One (1) person may hold any two (2) or more of these offices. 9 13 SECTION 6.2 ELECTION, TERM OF OFFICE AND QUALIFICATION. The Trust Managers shall elect officers, none of whom need be a Trust Manager, except for the Chief Executive Officer, if one shall be elected, at any time and from time to time as they deem necessary. Each officer so elected shall hold office until his successor shall have been duly elected and qualified or until his death, resignation or removal in the manner hereinafter provided. SECTION 6.3 SUBORDINATE OFFICERS. The Trust Managers may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms, have such authority and perform such duties as the Trust Managers may from time to time determine. The Trust Managers may delegate to any committee or officer the power to appoint any such subordinate officer or agent. No subordinate officer appointed by any committee or superior officer as aforesaid shall be considered as an officer of the Trust, the officers of the Trust being limited to the officers elected or appointed as such by the Trust Managers. SECTION 6.4 RESIGNATION. Any officer may resign at any time by giving written notice thereof to the Trust Managers or to the President or Secretary of the Trust. Any such resignation shall take effect at the time specified therein and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 6.5 REMOVAL. Any officer elected or appointed by the Trust Managers may be removed by the Trust Managers at any time with or without cause by majority vote of the entire Board of Trust Managers. Any other officer may be removed at any time with or without cause by the Trust Managers or by any committee or superior officer upon whom such power of removal may be conferred by the Trust Managers. The removal of any officer shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create any contract rights. SECTION 6.6 VACANCIES. A vacancy in any office shall be filled for the unexpired portion of the term by the Trust Managers, but in case of a vacancy occurring in an office filled by a committee or superior officer in accordance with the provisions of Section 6.3, such vacancy may be filled by such committee or superior officer. SECTION 6.7 THE CHIEF EXECUTIVE OFFICER. The Chief Executive Officer, if one shall be elected, shall be the chief executive officer of the Trust, shall preside at all meetings of the shareholders and Trust Managers, shall be an ex officio member of all standing committees, shall have general and active management of the business of the Trust, shall have the general supervision and direction of all other officers of the Trust with full power to see that their duties are properly performed and shall see that all orders and resolutions of the Trust Managers are carried into effect. He may sign, with any other proper officer, certificates for shares of the Trust and any deeds, bonds, mortgages, contracts and other documents which the Trust Managers have authorized to be executed, except where required by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Trust Managers or these Bylaws, to some other officer or agent of the Trust. In addition, the Chief Executive Officer shall perform whatever duties and shall exercise all powers that are given to him by the Trust Managers. SECTION 6.8 THE PRESIDENT. If no Chief Executive Officer shall be elected, the President shall be the chief executive officer of the Trust and shall have the powers and duties of the Chief Executive Officer as set forth in Section 6.7. In the absence of the Chief Executive Officer, if one shall be elected, the President shall preside at all meetings of the shareholders and Trust Managers. He may sign, with any other proper officer, certificates for shares of the Trust and any deeds, bonds, mortgages, contracts and other documents which the Trust Managers have authorized to be executed, except where required by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Trust Managers or these Bylaws to some other officer or agent of the Trust. In addition, the President shall perform whatever duties and shall exercise whatever powers given to him by the Trust Managers or by the Chief Executive Officer, if one shall be elected. SECTION 6.9 THE VICE PRESIDENTS. The Vice Presidents shall perform such duties as are given to them by these Bylaws and as may from time to time be assigned to them by the Trust Managers, by the Chief Executive Officer, if one shall be elected, or by the President, if a Chief Executive Officer is not elected, and may sign, with any other proper officer, certificates for shares of the Trust. At the request of the President, or in his absence or disability, the Vice President designated by the President (or in the absence of such designation, the Vice President 10 14 who has served the longest term of office with the Trust) shall perform the duties and exercise the powers of the President. SECTION 6.10 THE SECRETARY. The Secretary, when available, shall attend all meetings of the Trust Managers and all meetings of the shareholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose and shall perform like duties for the Trust Manager committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the Trust Managers as required by law or these Bylaws, be custodian of the Trust records and have general charge of the share books of the Trust and shall perform such other duties as may be prescribed by the Trust Managers, by the Chief Executive Officer, if one shall be elected, or by the President, if a Chief Executive Officer is not elected, under whose supervision he shall be. The Secretary may sign, with any other proper officer, certificates for shares of the Trust and shall keep in safe custody the seal of the Trust, and, when authorized by the Trust Managers, affix the same to any instrument requiring it and, when so affixed, it shall be attested by his signature or by the signature of the Treasurer or an Assistant Secretary. SECTION 6.11 ASSISTANT SECRETARIES. The Assistant Secretaries shall perform such duties as are given to them by these Bylaws or as may from time to time be assigned to them by the Trust Managers or by the Secretary. At the request of the Secretary, or in his absence or disability, the Assistant Secretary designated by the Secretary (or in the absence of such designation the Assistant Secretary who has served the largest term of office with the Trust), shall perform the duties and exercise the powers of the Secretary. SECTION 6.12 THE TREASURER. The Treasurer shall have the custody and be responsible for all Trust funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Trust and shall deposit all monies and other valuable effects in the name and to the credit of the Trust in such depositories as may be designated by the Trust Managers. The Treasurer shall disburse the funds of the Trust as may be ordered by the Trust Managers, taking proper vouchers for such disbursements, and shall render to the Chief Executive Officer, if one shall be elected, the President and the Trust Managers, at the regular meetings of the Trust Managers, or whenever they may require it, an account of all his transactions as Treasurer and of the financial condition of the Trust. The Treasurer may sign, with any other proper officer, certificates for shares of the Trust. SECTION 6.13 ASSISTANT TREASURERS. The Assistant Treasurers shall perform such duties as are given to them by these Bylaws or as may from time to time be assigned to them by the Trust Managers or by the Treasurer. At the request of the Treasurer, or in his absence or disability, the Assistant Treasurer designated by the Treasurer (or in the absence of such designation, the Assistant Treasurer who has served the longest term of office with the Trust), shall perform the duties and exercise the powers of the Treasurer. SECTION 6.14 TREASURER'S BOND. If required by the Trust Managers, the Treasurer and any Assistant Treasurer shall give the Trust a bond in such sum and with such surety or sureties as shall be satisfactory to the Trust Managers for the faithful performance of the duties of his office and for the restoration to the Trust, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Trust. SECTION 6.15 SALARIES. The salary or other compensation of officers shall be fixed from time to time by the Trust Managers. The Trust Managers may delegate to any committee or officer the power to fix from time to time the salary or other compensation of subordinate officers and agents appointed in accordance with the provisions of Section 6.3. SECTION 6.16 EXECUTION OF DOCUMENTS. Each officer of the Trust and any one of them is authorized to execute on behalf of the Trust any document or instrument of any nature whatsoever, provided that the execution by the Trust of any such document or instrument shall have been previously authorized by such action of the Trust Managers as may be required by statute, the Declaration of Trust or these Bylaws. 11 15 ARTICLE VII TRUST SHARES SECTION 7.1 SHARE CERTIFICATES. (a) The certificates representing shares of beneficial interest of the Trust shall be in such form, not inconsistent with statutory provisions and the Declaration of Trust, as shall be approved by the Trust Managers. The certificates shall be signed by the Chief Executive Officer, if one shall be elected, the President or a Vice President and a Secretary or Assistant Secretary, or such other or additional officers as may be prescribed from time to time by the Trust Managers. The signatures of such officer or officers upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar, either of which is other than the Trust itself or an employee of the Trust. In case any officer who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer before such certificate is issued, it may be issued with the same effect as if he were such officer at the date of its issuance. (b) In the event the Trust has, by its Declaration of Trust, limited or denied the preemptive right of shareholders, there shall be set forth on the face or back of the certificates, which the Trust shall issue to represent beneficial interests such legends or statements, if any, as shall be required by applicable law or the Declaration of Trust or as may be approved by the Trust Managers. (c) All certificates shall be consecutively numbered and the name of the person owning the shares represented thereby, with the number of such shares and the date of issue, shall be entered on the Trust's books. (d) All certificates surrendered to the Trust shall be canceled and, except as provided in Section 7.2 with respect to lost, destroyed or mutilated certificates, no new certificate shall be issued until the former certificate for the same number of shares has been surrendered and canceled. SECTION 7.2 LOST CERTIFICATES, ETC. The Trust Managers may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Trust alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. In authorizing such issue of a new certificate or certificates, the Trust Managers may, in their discretion and as a condition precedent to the issue thereof, require the owner of such lost or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as the Trust Managers shall require and/or indemnify the Trust as the Trust Managers may prescribe. SECTION 7.3 TRANSFER OF SHARES. Subject to any restrictions upon transfer, upon surrender to the Trust or the transfer agent of the Trust of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer and satisfaction of the Trust that the requested transfer complies with the provisions of applicable state and federal laws and regulations, the Declaration of Trust and any agreements to which the Trust is a party, the Trust shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. SECTION 7.4 OWNERSHIP OF SHARES. The Trust shall be entitled to treat and recognize the holder of record of any share or shares as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Texas. SECTION 7.5 CLOSING OF TRANSFER BOOKS. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or entitled to receive a distribution by the Trust (other than a distribution involving a purchase or redemption by the Trust of its own shares) or a share dividend, or in order to make a determination of shareholders for any other proper purpose, the Trust Managers may provide that the share transfer books shall be closed for a stated period but not to exceed, in any case, sixty (60) days. If the share transfer books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least ten (10) days immediately preceding such meeting. In lieu of closing the share transfer books, the Trust Managers may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than sixty (60) days and, in case of a meeting of shareholders, not less than ten (10) days prior to the date on which the particular action 12 16 requiring such determination of shareholders is to be taken, and the determination of shareholders on such record date shall apply with respect to the particular action requiring the same notwithstanding any transfer of shares on the books of the Trust after such record date. SECTION 7.6 DIVIDENDS. The Trust Managers may, from time to time, declare, and the Trust may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by the Declaration of Trust and by law, such dividends to be paid in cash or in property or in shares of beneficial interest of the Trust, except no dividends shall be paid when the Trust is insolvent or when the payment thereof would render the Trust insolvent. When making a determination of whether to declare a dividend, the Trust Managers shall make the determination consistent with their fiduciary duties as Trust Managers. SECTION 7.7 RESERVES. By resolution the Trust Managers may create such reserve or reserves of the Trust as the Trust Managers from time to time, in their absolute discretion, determine to be proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Trust, or for such other purpose as the Trust Managers shall determine to be beneficial to the interest of the Trust. The Trust Managers may modify or abolish any such reserve in the manner in which it was created. ARTICLE VIII GENERAL PROVISIONS SECTION 8.1 GENERAL POLICIES. The Trust intends to make investments that are consistent with the applicable requirements of the Internal Revenue Code of 1986, as amended, and the Texas REIT Act, as amended, and related regulations with respect to the composition of the Trust's investments and the derivation of its income. SECTION 8.2 LIMITED LIABILITY OF SHAREHOLDERS. A shareholder shall not be personally or individually liable in any manner whatsoever for any debt, act, omission or obligation incurred by the Trust or the Trust Managers. A shareholder shall be under no obligation to the Trust or to its creditors with respect to such shares other than the obligation to pay to the Trust the full amount of the consideration for which such shares were issued or to be issued. Upon the payment of such consideration, such shares shall be fully paid and non-assessable by the Trust. SECTION 8.3 WAIVER OF NOTICE. (a) Whenever, under the provisions of applicable law or of the Declaration of Trust or of these Bylaws, any notice is required to be given to any shareholder or Trust Manager, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be equivalent to the giving of such notice. (b) Attendance of a Trust Manager at a meeting shall constitute a waiver of notice of such meeting except where a Trust Manager attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the grounds that the meeting is not lawfully called or convened. SECTION 8.4 SEAL. If one be adopted, the Trust seal shall have inscribed thereon the name of the Trust and shall be in such form as may be approved by the Trust Managers. Said seal shall be kept in the custody of the Secretary and may be used by causing it or a facsimile of it to be impressed or affixed or in any manner reproduced. SECTION 8.5 FISCAL YEAR. The fiscal year of the Trust shall be fixed by resolution of the Trust Managers. SECTION 8.6 CHECKS, NOTES, ETC. All checks or demands for money and notes of the Trust shall be signed by such officer or officers or such other person or persons as the Trust Managers may from time to time designate. The Trust Managers may authorize any officer or officers or such other person or persons to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Trust, and such authority may be general or confined to specific instances. SECTION 8.7 EXAMINATION OF BOOKS AND RECORDS. The Trust Managers shall determine from time to time whether, and if allowed, when and under what conditions and regulations the accounts and books of the Trust 13 17 (except such as may by statute be specifically opened to inspection) or any of them shall be open to inspection by the shareholders, and the shareholders' rights in this respect are and shall be restricted and limited accordingly. SECTION 8.8 VOTING UPON SHARES HELD BY THE TRUST. Unless otherwise ordered by the Trust Managers, the Chief Executive Officer, or if no Chief Executive Officer shall be elected, the President, acting on behalf of the Trust, shall have full power and authority to attend and to act and to vote at any meeting of shareholders of any corporation or other entity in which the Trust may hold shares and at any such meeting, shall possess and may exercise any and all of the rights and powers incident to the ownership of such shares which, as the owner thereof, the Trust might have possessed and exercised, if present. The Trust Managers by resolution from time to time may confer like powers upon any other person or persons. SECTION 8.9 NUMBER, GENDER, ETC. WHENEVER the singular number is used in these Bylaws and when required by the context, the same shall include the plural, and the masculine gender shall include the feminine and neuter genders. The term "person," as used herein and as the context requires shall mean and include individuals, corporations, limited partnerships, general partnerships, joint stock companies or associations, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts, or other entities and governments and agencies and political subdivisions thereof. SECTION 8.10 ANNUAL AND QUARTERLY REPORTS. The Trust shall furnish to its shareholders annual reports containing audited financial statements with a report thereon by its independent accountants. The Trust shall also furnish to its shareholders quarterly reports for each of the first three quarters of each fiscal year containing unaudited financial information. SECTION 8.11 INDEPENDENT COMMITTEE. If the Trust receives an offer to purchase all or substantially all of the assets of the Trust, or if the Trust receives a proposal for a merger transaction in which the Trust will not be the surviving entity, the Trust Managers shall create a committee consisting entirely of Independent Trust Managers (as defined in the Declaration of Trust) who shall, consistent with their fiduciary duties, review any such offer and make a recommendation to all of the Trust Managers. ARTICLE IX AMENDMENTS SECTION 9.1 AMENDMENT OF BYLAWS. Except as otherwise provided by applicable law or the Declaration of Trust, the power to alter, amend or repeal these Bylaws or to adopt new Bylaws shall be vested in the Trust Managers and (to the extent not inconsistent with the Texas REIT Act and the Declaration of Trust and specified in the notice of the meeting) the shareholders. Such action to amend the Bylaws shall be taken (i) with respect to all Bylaw provisions, by the affirmative vote of a majority of the Trust Managers , or (ii)(a) with respect to Section 2.5, Section 3.3, Section 3.4, Section 3.6, Section 3.7 or Article X of these Bylaws, by the affirmative vote of the holders of two-thirds (2/3) of the Trust's outstanding shares, or (b) with respect to all other Bylaws, by the affirmative vote of the holders of a majority of the Trust's outstanding shares. ARTICLE X SUBJECT TO ALL LAWS The provisions of these Bylaws shall be subject to all valid and applicable laws, including, without limitation, the Texas REIT Act as now or hereafter amended, and in the event that any of the provisions of these Bylaws are found to be inconsistent with or contrary to any such valid laws, the latter shall be deemed to control and these Bylaws shall be deemed modified accordingly, and, as so modified, shall continue in full force and effect. 14 EX-3.6 7 AMENDMENT TO 5TH AMENDED/RESTATED BYLAWS 1 EXHIBIT 3.6 AMENDMENT TO THE FIFTH AMENDED AND RESTATED BYLAWS OF AMERICAN INDUSTRIAL PROPERTIES REIT RESOLVED, that Section 3.2 of the Trust's Fifth Amended and Restated Bylaws be, and it hereby is, amended to provide that the maximum number of Trust Managers that shall constitute the Board is 11. EX-10.65 8 INDUSTRIAL PROPERTY PORTFOLIO AGREEMENT 1 EXHIBIT 10.65 INDUSTRIAL PROPERTY PORTFOLIO AGREEMENT OF PURCHASE AND SALE This Agreement, dated as of April 30, 1998, is between Spieker Northwest, Inc., a California corporation ("Seller"), and American Industrial Properties REIT, a Texas Real Estate Investment Trust ("Buyer"). ARTICLE I PURCHASE AND SALE OF PROPERTY SECTION 1.1 SALE. Seller agrees to sell to Buyer, and Buyer agrees to purchase from Seller, subject to the terms, covenants and conditions set forth herein, that certain real property located in Austin, Texas; Albuquerque, New Mexico; Colorado Springs, Colorado; Phoenix, Arizona; and Tucson, Arizona, together with any and all rights, privileges and easements appurtenant thereto owned by Seller, which real property is more particularly described in EXHIBIT A (comprised of EXHIBIT A-1 through EXHIBIT A-6) attached hereto and made a part hereof (collectively the "Land"), together with all of Seller's right, title and interest in all rights, privileges and easements appurtenant to the Land, including, without limitation, all minerals, oil, gas and other hydrocarbon substances on and under and that may be produced from the Land, as well as all of Seller's right, title and interest in all development rights, land use entitlements, including without limitation building permits, licenses, permits and certificates, utilities commitments, air rights, water, water rights, riparian rights, and water stock relating to the Land and any rights-of-way or other appurtenances used in connection with the beneficial use and enjoyment of the Land and all of Seller's right, title and interest in and to all roads, easements, rights-of-way and alleys adjoining, serving or servicing the Land (collectively, the "Appurtenances"); together with all of Seller's right, title and interest in all improvements and fixtures located on the Land and Appurtenances, and all of Seller's right, title and interest in all apparatus, and equipment used in connection with the operation or occupancy of the Land and Appurtenances, such as heating and air conditioning systems and facilities used to provide any utility, refrigeration, ventilation, garbage disposal or other services on the Land and Appurtenances, and along with all on-site parking facilities (collectively, the "Improvements", and together with the Land and Appurtenances, the "Real Property"); together with the personal property owned by Seller, if any, located on the Real Property and used exclusively in the operation or maintenance of the Real Property, as described in SCHEDULE 1 attached hereto and made a part hereof but excluding any such personal property in Seller's property management offices, if any, on the Real Property (the "Personal Property"); together with any intangible personal property now or hereafter owned by Seller and used in the use or operation of the Real Property and Personal Property, including, without limitation, Seller's rights, if any, to the use of any trade names or trademarks in connection with the Real Property, provided that Seller makes no representation or warranty as to whether Seller has rights to the use of any trade names or trademarks or any other rights with respect to any trade names or trademarks, and Seller's right, title and interest with respect to 2 leases, rental agreements, subleases and tenancies affecting the Real Property and Seller's interest in all security deposits, prepaid rents and lease guaranties (collectively, the "Intangible Property"). The Real Property, Personal Property and Intangible Property are collectively referred to herein as the "Property". SECTION 1.2 PURCHASE PRICE. (a) The purchase price of the Property is Forty-Three Million Five Hundred Thousand Dollars ($43,500,000) (the "Purchase Price"), allocated as provided on Exhibit B. (b) The Purchase Price shall be paid as follows: (1) UPON THE EXECUTION OF THIS AGREEMENT BY BUYER AND SELLER, BUYER SHALL DEPOSIT IN ESCROW WITH COMMONWEALTH LAND TITLE COMPANY OF DALLAS (THE "TITLE COMPANY") AN ALL-CASH PAYMENT IN THE AMOUNT OF FOUR HUNDRED THIRTY-FIVE THOUSAND DOLLARS ($435,000) (THE "DEPOSIT"). (2) THE DEPOSIT SHALL BE HELD IN AN INTEREST BEARING ACCOUNT AND ALL INTEREST THEREON SHALL BE DEEMED A PART OF THE DEPOSIT. IF THE SALE OF THE PROPERTY AS CONTEMPLATED HEREUNDER IS CONSUMMATED, THEN THE DEPOSIT SHALL BE PAID TO SELLER AT THE CLOSING AND CREDITED AGAINST THE PURCHASE PRICE. IF THE SALE OF THE PROPERTY IS NOT CONSUMMATED DUE TO SELLER'S DEFAULT HEREUNDER, THEN, AS BUYER'S SOLE REMEDIES, BUYER MAY EITHER: (1) TERMINATE THIS AGREEMENT AND RECEIVE A REFUND OF THE DEPOSIT, IN WHICH EVENT NEITHER PARTY SHALL HAVE ANY FURTHER RIGHTS OR OBLIGATIONS HEREUNDER EXCEPT AS PROVIDED IN SECTIONS 6.1, 9.3 AND 9.9 BELOW, OR (2) BUYER MAY ENFORCE SPECIFIC PERFORMANCE OF THIS AGREEMENT. IF THE SALE IS NOT CONSUMMATED DUE TO ANY DEFAULT BY BUYER HEREUNDER, THEN SELLER SHALL RETAIN THE DEPOSIT AS LIQUIDATED DAMAGES. THE PARTIES HAVE AGREED THAT SELLER'S ACTUAL DAMAGES, IN THE EVENT OF A FAILURE TO CONSUMMATE THIS SALE DUE TO BUYER'S DEFAULT, WOULD BE EXTREMELY DIFFICULT OR IMPRACTICABLE TO DETERMINE. AFTER NEGOTIATION, THE PARTIES HAVE AGREED THAT, CONSIDERING ALL THE CIRCUMSTANCES EXISTING ON THE DATE OF THIS AGREEMENT, THE AMOUNT OF THE DEPOSIT IS A REASONABLE ESTIMATE OF THE DAMAGES THAT SELLER WOULD INCUR IN SUCH EVENT. BY PLACING THEIR INITIALS BELOW, EACH PARTY SPECIFICALLY CONFIRMS THE ACCURACY OF THE STATEMENTS MADE ABOVE AND THE FACT THAT EACH PARTY WAS REPRESENTED BY COUNSEL WHO EXPLAINED, AT THE TIME THIS AGREEMENT WAS MADE, THE CONSEQUENCES OF THIS LIQUIDATED DAMAGES PROVISION. THE FOREGOING IS NOT INTENDED TO LIMIT BUYER'S OBLIGATIONS UNDER SECTIONS 6.1, 9.3 AND 9.9. INITIALS: SELLER ________ BUYER _______ (3) THE BALANCE OF THE PURCHASE PRICE, WHICH IS FORTY-THREE MILLION SIXTY-FIVE THOUSAND DOLLARS ($43,065,000), SHALL BE PAID TO SELLER IN IMMEDIATELY AVAILABLE FUNDS, SUBJECT TO THE PRORATIONS AND ADJUSTMENTS AS PROVIDED IN THIS AGREEMENT, AT THE CONSUMMATION OF THE PURCHASE AND SALE CONTEMPLATED HEREUNDER (THE "CLOSING"). 2 3 ARTICLE II CONDITIONS SECTION 2.1 CONDITION PRECEDENT. Buyer's obligation to purchase the Property is conditioned upon the following: (a) Buyer's review and approval of updated preliminary title reports or commitments, together with copies of the underlying documents, and any surveys of the Property in Seller's possession. Seller shall furnish to Buyer a copy of such reports, together with the underlying documents, and any surveys in Seller's possession, within three (3) days after the date Seller receives a fully executed original of this Agreement (the "Delivery Period"). (b) Buyer's review and approval of all tenant leases and any other occupancy agreements (as may have been amended, restated or renewed, hereinafter collectively referred to as the "leases") affecting the Property. Seller shall furnish to Buyer copies of the leases within the Delivery Period. (c) Buyer's review and approval of the physical condition of the Property. (d) Buyer's review and approval of all zoning, land use, building, environmental and other statutes, rules, or regulations applicable to the Property. (e) Subject to the provisions of the paragraph below, Buyer's review and approval of operating statements with respect to the Property for 1995, 1996, 1997 and for January and February 1998, and if prepared, March 1998, certificates of occupancy, licenses, approvals and permits regarding the Property, plans and specifications, soils and other reports, service contracts, and other contracts or documents which will be binding on Buyer after Closing. Seller shall deliver to Buyer within the Delivery Period copies of all such items in Seller's possession or in the possession of any current third party property manager of Seller which pertain to the Property; provided, however, Seller shall make any plans and specifications in its possession and any such contracts or documents of significance to the Property in its possession which pertain to the Property, available at the Property for Buyer's inspection and copying, at Buyer's expense, during reasonable business hours, and in lieu of Seller's furnishing Buyer with copies thereof. Notwithstanding the foregoing, Buyer's review shall not include a review of Seller's internal economic memoranda or reports, attorney-client privileged materials or Seller's appraisals of the Property, if any. (f) Buyer's review and approval of any other matters Buyer deems relevant to the Property, including, but not limited to, the following items to the extent in Seller's possession: a current rent roll, a schedule of the Personal Property, copies of the most recent tax bills, security incident reports, a schedule of filed litigation regarding or affecting the Property, a current aged receivables report, and copies of construction and equipment warranties. (g) Seller's agreement to cooperate, and to cause its third party employees, including without limitation its property manager and consultants, to cooperate with Buyer and Buyer's agents and consultants during the Contingency Period. 3 4 SECTION 2.2 CONTINGENCY PERIOD. (a) Buyer shall have until April 27, 1998 to review and approve the matters described in Sections 2.1(b)-(g) above in Buyer's sole discretion and Buyer shall have until April 29, 1998, to review and approve the matters described in 2.1(a) (such period being referred to herein as the "Contingency Period"). If Buyer determines to proceed with the purchase of the Property, then Buyer shall, before the end of the Contingency Period, notify Seller in writing that Buyer has approved all of the matters described in Section 2.1(a)-(g) above subject to other termination rights contained herein, including the right to terminate this Agreement pursuant to subsection 4.1(c) below. If before the end of the Contingency Period, Buyer fails to provide written notice of its election to proceed with the purchase of the Property or to terminate this Agreement, then Buyer shall be deemed to have elected to terminate this Agreement. In the event Buyer elects to terminate this Agreement by written notice to Seller or is deemed to have elected to terminate this Agreement pursuant to the terms hereof, the Deposit and any accrued interest thereon shall be returned to Buyer, and neither party shall have any further rights or obligations hereunder except as provided in Sections 6.1, 9.3 and 9.9 below. (b) Promptly following the execution of this Agreement, Seller shall provide to Buyer's representatives and its independent accounting firm access to all financial and other information relating to the operation of the Property which is Seller's possession. Seller shall authorize any attorneys who have represented Seller in any material litigation pertaining to or affecting the Property to respond, at Buyer's expense, to inquiries from Buyer's representatives and independent accounting firm. If this Agreement terminates prior to the Closing, other than by reason of a default of Seller, Buyer shall deliver to Seller copies of any audited financial statements of the Property prepared for Buyer and assign to Seller without warranty all of Buyer's rights thereto. ARTICLE III BUYER'S EXAMINATION SECTION 3.1 REPRESENTATIONS AND WARRANTIES OF SELLER. Subject to the provisions of Sections 3.2 and 3.3 below, Seller hereby makes the following representations and warranties, provided that Seller makes no representations or warranties with respect to the matters (the "Disclosure Items") which will be set forth in SCHEDULE 2 which Seller shall deliver to Buyer within five (5) business days after the mutual execution and delivery hereof and which at that time will be attached hereto and made a part hereof. Notwithstanding anything to the contrary contained herein or in any document delivered in connection herewith, Seller shall have no liability with respect to the Disclosure Items. (a) Seller has not (i) made a general assignment for the benefit of creditors, (ii) filed any voluntary petition in bankruptcy or suffered the filing of any involuntary petition by Seller's creditors, (iii) suffered the appointment of a receiver to take possession of all, or 4 5 substantially all, of Seller's assets, (iv) suffered the attachment or other judicial seizure of all, or substantially all, of Seller's assets, (v) admitted in writing its inability to pay its debts as they come due, or (vi) made an offer of settlement, extension or composition to its creditors generally. (b) Seller is not a "foreign person" as defined in Section 1445 of the Internal Revenue Code of 1986, as amended (the "Code") and any related regulations. (c) This Agreement (i) has been duly authorized, executed and delivered by Seller, and (ii) does not violate any provision of any agreement or judicial order to which Seller is a party or to which Seller or the Property is subject. (d) Seller has the power and authority to enter into this Agreement and to perform its obligations hereunder. (e) To the best of Seller's knowledge, the only tenant leases in force for the Property are set forth in the tenant list attached hereto as EXHIBIT C and made a part hereof and to the best of Seller's knowledge, there are no tenant improvement obligations of Landlord except as set forth in the leases or as otherwise disclosed to Buyer in writing. (f) To the best of Seller's knowledge, no consents are required for the performance of Seller's obligations hereunder. (g) To the best of Seller's knowledge, Seller has not received written notice from any Significant Tenant, as defined below, that Seller has not performed its material obligations under such Significant Tenant's lease. As used herein, the term Significant Tenant shall mean any tenant occupying five percent (5%) or more of any one of the six (6) real properties comprising the Real Property. (h) To the best of Seller's knowledge, the only service contracts and amendments thereto that will be in effect on the Closing Date are described on SCHEDULE 5 attached hereto and made a part hereof, subject to the provisions of Article VII below. (i) As of the date of this Agreement, Seller has not received any written notice of any pending or threatened condemnation of all or any portion of the Property. (j) As of the date of this Agreement, Seller has not received written notice of any litigation that is pending or threatened with respect to the Property, except (i) litigation fully covered by insurance policies (subject to customary deductibles), or (ii) litigation set forth in SCHEDULE 6 attached hereto and made a part hereof. (k) As of the date of this Agreement, except as set forth in the Due Diligence Materials, as defined below, Seller has not received any written notice from any governmental authority that all or any portion of any Property is in material violation of any applicable building codes or any applicable environmental law (relating to clean-up or abatement), zoning law or land use law, or any other applicable local, state or federal law or regulation relating to the Property, which material violation has not been cured or remedied prior to the date of this Agreement. 5 6 (l) Seller has not granted any option or right of first refusal or first opportunity to any party of acquire any fee or ground leasehold interest in any portion of the Property. Each of the representations and warranties of Seller contained in this Section 3.1: (1) is true as of the date of this Agreement; (2) shall be deemed remade by Seller, and shall be true in all material respects as of the date of Closing, subject to (A) any Exception Matters (as defined below), (B) the Disclosure Items, and (C) other matters expressly permitted in this Agreement or otherwise specifically approved in writing by Buyer including, without limitation, the documents, surveys, reports, items and other materials delivered to or made available to Buyer pursuant to Article II hereof (the "Due Diligence Materials"), and (3) shall survive the close of escrow as provided in Section 3.3 below. SECTION 3.2 NO LIABILITY FOR EXCEPTION MATTERS. (a) As used herein, the term "Exception Matter" shall refer to a matter disclosed to Buyer in writing or discovered by Buyer before the Closing, that would make a representation or warranty of Seller contained in this Agreement untrue or incorrect, including, without limitation, matters disclosed in writing to Buyer by Seller or by any other person. If Buyer obtains knowledge of any Exception Matter after the date hereof, Buyer may terminate this Agreement and receive a return of the Deposit upon written notice to Seller within five (5) days after Buyer learns of such Exception Matter if Seller elects not to cure or remedy any such Exception Matter. (b) Buyer shall promptly notify Seller in writing of any Exception Matter of which Buyer obtains knowledge before the Closing. If Buyer obtains knowledge of any Exception Matter before the Closing, but nonetheless elects to proceed with the acquisition of the Property, Buyer shall consummate the acquisition of the Property subject to such Exception Matter and Seller shall have no liability with respect to such Exception Matter, notwithstanding any contrary provision, covenant, representation or warranty contained in this Agreement or in any document delivered pursuant to the terms hereof. If Buyer elects to terminate this Agreement on the basis of any Exception Matter, Buyer shall so notify Seller in writing within five (5) days following Buyer's discovery of the Exception Matter, and the Deposit shall be returned to Buyer. Buyer's failure to give such notice within such 5-day period shall be deemed a waiver by Buyer of such Exception Matter. Upon any such termination of this Agreement, neither party shall have any further rights or obligations hereunder, except as provided in Sections 6.1, 9.3 and 9.9 below. Seller shall have no obligation to cure or remedy any Exception Matter, and, subject to Buyer's right to terminate this Agreement as set forth above, Seller shall have no liability whatsoever to Buyer with respect to any Exception Matters. SECTION 3.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of Seller and Buyer contained herein shall survive six months from the Closing, except that Buyer's representations and warranties in Sections 3.5(d) shall survive indefinitely. Any claim which Buyer or Seller may have at any time against the other for a breach of any such representation or warranty (other than those contained in Sections 3.5(d), whether known or unknown, which is not asserted by written notice to Seller or Buyer 6 7 within nine (9) months after the Closing shall not be valid or effective, and the party shall have no liability with respect thereto. SECTION 3.4 SELLER'S KNOWLEDGE For purposes of this Agreement and any document delivered at Closing, whenever the phrase "to the best of Seller's knowledge" or the "knowledge" of Seller or words of similar import are used, they shall be deemed to refer to the current actual knowledge of Dennis Singleton and John Foster at the times indicated only and not any implied, imputed or constructive knowledge, without any independent investigation having been made or any implied duty to investigate. SECTION 3.5 REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Seller as follows: (a) Buyer represents and warrants to Seller that this Agreement and all documents executed by Buyer which are to be delivered to Seller at Closing do not and at the time of Closing will not violate any provision of any agreement or judicial order to which Buyer is a party or to which Buyer is subject. (b) Buyer represents and warrants to Seller that Buyer has not (i) made a general assignment for the benefit of creditors, (ii) filed any voluntary petition in bankruptcy or suffered the filing of any involuntary petition by Buyer's creditors, (iii) suffered the appointment of a receiver to take possession of all, or substantially all, of Buyer's assets, (iv) suffered the attachment or other judicial seizure of all, or substantially all, of Buyer's assets, (v) admitted in writing its inability to pay its debts as they come due, or (vi) made an offer of settlement, extension or composition to its creditors generally. (c) Buyer is duly formed and validly existing under the laws of the State of Texas. Buyer has duly authorized, executed and delivered this Agreement. (d) Buyer is purchasing the Property as investment rental property, and not for Buyer's own operations or use. Each of the representations and warranties of Buyer contained in this Section shall be deemed remade by Buyer as of the Closing and shall survive the Closing as provided in Section 3.3 above. SECTION 3.6 BUYER'S INDEPENDENT INVESTIGATION. (a) Buyer acknowledges and agrees that it has been given or will be given before the end of the Contingency Period, a full opportunity to inspect and investigate each and every aspect of the Property, either independently or through agents of Buyer's choosing, including, without limitation: 7 8 (1) ALL MATTERS RELATING TO TITLE, TOGETHER WITH ALL GOVERNMENTAL AND OTHER LEGAL REQUIREMENTS SUCH AS TAXES, ASSESSMENTS, ZONING, USE PERMIT REQUIREMENTS AND BUILDING CODES. (2) THE PHYSICAL CONDITION AND ASPECTS OF THE PROPERTY, INCLUDING, WITHOUT LIMITATION, THE INTERIOR, THE EXTERIOR, THE SQUARE FOOTAGE WITHIN THE IMPROVEMENTS ON THE REAL PROPERTY AND WITHIN EACH TENANT SPACE THEREIN, THE STRUCTURE, SEISMIC ASPECTS OF THE PROPERTY, THE PAVING, THE UTILITIES, AND ALL OTHER PHYSICAL AND FUNCTIONAL ASPECTS OF THE PROPERTY. SUCH EXAMINATION OF THE PHYSICAL CONDITION OF THE PROPERTY SHALL INCLUDE AN EXAMINATION FOR THE PRESENCE OR ABSENCE OF HAZARDOUS MATERIALS, AS DEFINED BELOW, WHICH SHALL BE PERFORMED OR ARRANGED BY BUYER AT BUYER'S SOLE EXPENSE. FOR PURPOSES OF THIS AGREEMENT, "HAZARDOUS MATERIALS" SHALL MEAN INFLAMMABLE EXPLOSIVES, RADIOACTIVE MATERIALS, ASBESTOS, POLYCHLORINATED BIPHENYLS, LEAD, LEAD-BASED PAINT, UNDER AND/OR ABOVE GROUND TANKS, HAZARDOUS MATERIALS, HAZARDOUS WASTES, HAZARDOUS SUBSTANCES, OIL, OR RELATED MATERIALS, WHICH ARE LISTED OR REGULATED IN THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT OF 1980, AS AMENDED (42 U.S.C. SECTIONS 6901, ET SEQ.), THE RESOURCES CONSERVATION AND RECOVERY ACT OF 1976 (42 U.S.C. SECTION 6901, ET SEQ.), THE CLEAN WATER ACT (33 U.S.C. SECTION 1251, ET SEQ.), THE SAFE DRINKING WATER ACT (14 U.S.C. SECTION 1401, ET SEQ.), THE HAZARDOUS MATERIALS TRANSPORTATION ACT (49 U.S.C. SECTION 1801, ET SEQ.), THE AND TOXIC SUBSTANCE CONTROL ACT (15 U.S.C. SECTION 2601, ET SEQ.), THE ARIZONA ENVIRONMENTAL QUALITY ACT, A.R.S. SECTIONS 49-201, ET SEQ.; THE ARIZONA "STATE SUPERFUND" PROVISIONS, A.R.S. SECTIONS 49-281, ET SEQ.; THE ARIZONA SOLID WASTE MANAGEMENT PROVISIONS, A.R.S. SECTIONS 49-701, ET SEQ.; THE ARIZONA HAZARDOUS WASTE MANAGEMENT ACT, A.R.S. SECTIONS 49-921, ET SEQ.; AND THE ARIZONA UNDERGROUND STORAGE TANK PROVISIONS, A.R.S. SECTIONS 49-1001, AND ANY OTHER APPLICABLE FEDERAL, STATE OR LOCAL LAWS. (3) ANY EASEMENTS AND/OR ACCESS RIGHTS AFFECTING THE PROPERTY. (4) THE LEASES AND ALL MATTERS IN CONNECTION THEREWITH, INCLUDING, WITHOUT LIMITATION, THE ABILITY OF THE TENANTS TO PAY THE RENT AND THE ECONOMIC VIABILITY OF THE TENANTS. (5) THE SERVICE CONTRACTS AND ANY OTHER DOCUMENTS OR AGREEMENTS OF SIGNIFICANCE AFFECTING THE PROPERTY. (6) ALL OTHER MATTERS OF MATERIAL SIGNIFICANCE AFFECTING THE PROPERTY. (b) BUYER SPECIFICALLY ACKNOWLEDGES AND AGREES THAT SELLER IS SELLING AND BUYER IS PURCHASING THE PROPERTY ON AN "AS IS WITH ALL FAULTS" BASIS AND THAT BUYER IS NOT RELYING ON ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, FROM SELLER, ITS AGENTS, OR BROKERS AS TO ANY MATTERS CONCERNING THE PROPERTY EXCEPT AS EXPRESSLY SET FORTH IN SECTION 3.1 ABOVE, INCLUDING WITHOUT LIMITATION: (i) the quality, nature, adequacy and 8 9 physical condition and aspects of the Property, including, but not limited to, the structural elements, seismic aspects of the Property, foundation, roof, appurtenances, access, landscaping, parking facilities and the electrical, mechanical, HVAC, plumbing, sewage, and utility systems, facilities and appliances, the square footage within the improvements on the Real Property and within each tenant space therein, (ii) the quality, nature, adequacy, and physical condition of soils, geology and any groundwater, (iii) the existence, quality, nature, adequacy and physical condition of utilities serving the Property, (iv) the development potential of the Property, and the Property's use, habitability, merchantability, or fitness, suitability, value or adequacy of the Property for any particular purpose, (v) the zoning or other legal status of the Property or any other public or private restrictions on use of the Property, (vi) the compliance of the Property or its operation with any applicable codes, laws, regulations, statutes, ordinances, covenants, conditions and restrictions of any governmental or quasi-governmental entity or of any other person or entity, (vii) the presence of Hazardous Materials on, under or about the Property or the adjoining or neighboring property, (viii) the quality of any labor and materials used in any improvements on the Real Property, (ix) the condition of title to the Property, (x) the leases, service contracts, or other agreements affecting the Property and (xi) the economics of the operation of the Property. SECTION 3.7 RELEASE. (a) Without limiting the above, but subject to the representations and warranties of Seller contained in Section 3.1 hereof, Buyer on behalf of itself and its successors and assigns waives its right to recover from, and forever releases and discharges, Seller, Seller's affiliates, Seller's investment manager, the partners, trustees, beneficiaries, shareholders, members, directors, officers, employees and agents of each of them, and their respective heirs, successors, personal representatives and assigns (collectively, the "Seller Related Parties"), from any and all demands, claims, legal or administrative proceedings, losses, liabilities, damages, penalties, fines, liens, judgments, costs or expenses whatsoever (including, without limitation, attorneys' fees and costs), whether direct or indirect, known or unknown, foreseen or unforeseen, that may arise on account of or in any way be connected with (i) the physical condition of the Property including, without limitation, all structural and seismic elements, all mechanical, electrical, plumbing, sewage, heating, ventilating, air conditioning and other systems, the environmental condition of the Property and Hazardous Materials on, under or about the Property, or (ii) any law or regulation applicable to the Property, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Sections 6901, et seq.), the Resources Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901, et seq.), the Clean Water Act (33 U.S.C. Section 1251, et seq.), the Safe Drinking Water Act (14 U.S.C. Section 1401, et seq.), the Hazardous Materials Transportation Act (49 U.S.C. Section 1801, et seq.), and the Toxic Substance Control Act (15 U.S.C. Section 2601, et seq.), and any other federal, state or local law. SECTION 3.8 SURVIVAL. The provisions of this Article III shall survive the Closing, subject to the qualifications and limitations contained herein. 9 10 ARTICLE IV TITLE SECTION 4.1 CONDITIONS OF TITLE. At the Closing, Seller shall convey title to the Real Property to Buyer by special warranty deeds (the "Deeds") subject to no exceptions other than: (a) Interests of tenants in possession; (b) Non-delinquent liens for real estate taxes and assessments; and (c) Any exceptions disclosed by the preliminary title reports and commitments and any amendments or supplements thereto delivered to Buyer during the Contingency Period, or the Due Diligence Materials, and any other exceptions to title which would be disclosed by an inspection and/or survey of the Property, except for any exceptions which Seller, in Seller's sole discretion, elects to remove from title pursuant to the provisions of this Section below. Buyer shall notify Seller in writing before the expiration of the Contingency Period if Buyer has an objection to any of the aforesaid matters. If Buyer does not give Seller timely written notice of any such objection, all of the foregoing exceptions shall be the "Conditions of Title." If Buyer does give Seller timely written notice of any such matters objected to by Buyer (the "Disapproved Matters"), then Seller shall notify Buyer in writing within one (1) business day after receipt, as to whether Seller will remove any of the Disapproved Matters from title to the Property prior to Closing. Seller shall have absolutely no obligation to remove any Disapproved Matter. If Seller elects in writing to remove any Disapproved Matter, then Seller shall do so at Seller's cost prior to Closing and the Conditions of Title shall include all said matters referred to in clauses (b) and (c) above except for any such Disapproved Matter removed by Seller. If Seller elects not to remove all such Disapproved Matters or if Seller does not give Buyer written notice of its election within the one (1) business day period, then this Agreement shall terminate, the Deposit shall be returned to Buyer and neither party shall have any further rights or obligations hereunder, except as provided in Section 6.1, 9.3 and 9.9 hereof unless on or before three (3) business days after Seller's receipt of Buyer's Disapproved Matters, Buyer gave Seller written notice that Buyer is waiving its objections to the Disapproved Matters and agrees in such notice that the Disapproved Matters shall be part of the Conditions of Title. If there are additional exceptions to title that were not disclosed to Buyer during the Contingency Period and that are disclosed to Buyer after the expiration of the Contingency Period, then Buyer shall have, as Buyer's sole rights and remedies, the right to approve such additional exceptions and proceed with the Closing or to terminate this Agreement as provided below. Buyer shall notify Seller in writing on or before three (3) business days after receiving notice of any additional exception to title as to whether Buyer approves or disapproves such exceptions. Buyer's failure to give Seller written notice of Buyer's approval during such three (3) business day period shall be deemed an election by Buyer to disapprove the title exceptions. If Buyer disapproves the additional exceptions by providing written notice to Seller within said three (3) business day period, then this Agreement shall terminate and the Deposit shall be returned to Buyer and neither party shall have any further rights or obligations hereunder except as provided in Sections 6.1, 9.3 and 9.9 10 11 below. If Buyer approves the additional title exceptions, such additional title exceptions shall become part of the Conditions of Title. By acceptance of the Deeds and the Closing of the purchase and sale of the Property, (i) Buyer agrees it is assuming for the benefit of Seller all of the obligations of Seller with respect to the Conditions of Title from and after the Closing, and (ii) Buyer agrees that Seller shall have conclusively satisfied its obligations with respect to title to the Property. The provisions of this Section shall survive the Closing. Nothing herein is intended to limit Buyer's right to approve title matters in its sole discretion during the Contingency Period pursuant to the provisions of Article II above. SECTION 4.2 EVIDENCE OF TITLE. Delivery of title in accordance with the foregoing shall be evidenced by the willingness of the Title Company to issue, at Closing, its Owner's ALTA Policies of Title Insurance (for the properties located in Arizona and Colorado) and a standard form owner policy of title insurance (for the properties located in Texas and New Mexico), in the amount of the Purchase Price showing title to the Real Property vested in Buyer, subject to the Conditions of Title (the "Title Policy"). Buyer shall have prepared, at Buyer's cost, the ALTA surveys of the Property necessary to support the issuance of the Title Policy. Buyer shall provide Seller with copies of such surveys at no cost to Seller. ARTICLE V RISK OF LOSS AND INSURANCE PROCEEDS SECTION 5.1 MINOR LOSS. Buyer shall be bound to purchase the Property for the full Purchase Price as required by the terms hereof, without regard to the occurrence or effect of any damage to the Property or destruction of any improvements thereon or condemnation of any portion of the Property, provided that: (a) the cost to repair any such damage or destruction, or the diminution in the value of the remaining Property as a result of a partial condemnation, does not exceed Four Hundred Thirty-Five Thousand Dollars ($435,000) and (b) upon the Closing, there shall be a credit against the Purchase Price due hereunder equal to the amount of any insurance proceeds or condemnation awards collected by Seller as a result of any such damage or destruction or condemnation, plus the amount of any insurance deductible, less any sums expended by Seller toward the restoration or repair of the Property. If the proceeds or awards have not been collected as of the Closing, then the amount of such proceeds or awards shall be a credit against the Purchase Price, subject to the amount needed to reimburse Seller for sums expended to repair or restore the Property, and Seller shall retain the rights to such proceeds and awards. SECTION 5.2 MAJOR LOSS. If the amount of the damage or destruction or condemnation as specified above exceeds Four Hundred Thirty-Five Thousand Dollars ($435,000), then Buyer may, at its option to be exercised within ten (10) days of Seller's notice of the occurrence of the damage or destruction or the commencement of condemnation proceedings, either terminate this Agreement or 11 12 consummate the purchase for the full Purchase Price as required by the terms hereof. If Buyer elects to terminate this Agreement or fails to give Seller notice within such 10-day period that Buyer will proceed with the purchase, then the Deposit shall be returned to Buyer and neither party shall have any further rights or obligations hereunder except as provided in Sections 6.1, 9.3 and 9.9 below. If Buyer elects to proceed with the purchase, then upon the Closing, there shall be a credit against the Purchase Price due hereunder equal to the amount of any insurance proceeds or condemnation awards collected by Seller as a result of any such damage or destruction or condemnation, plus the amount of any insurance deductible, less any sums expended by Seller toward the restoration or repair of the Property. If the proceeds or awards have not been collected as of the Closing, then the amount of such proceeds or awards shall be a credit against the Purchase Price, subject to the amount needed to reimburse Seller for sums expended to repair or restore the Property, and Seller shall retain the rights to such proceeds and awards. ARTICLE VI BROKERS AND EXPENSES SECTION 6.1 BROKERS. The parties represent and warrant to each other that no broker or finder was instrumental in arranging or bringing about this transaction except for CB Commercial Real Estate ("Seller's Broker"). There are no claims or rights for brokerage commissions or finder's fees in connection with the transactions contemplated by this Agreement, except for the commission due, if any, to Seller's Broker, which shall be paid at Closing pursuant to a separate agreement between Seller and Seller's Broker. If any other person brings a claim for a commission or finder's fee based upon any contact, dealings or communication with Buyer or Seller, then the party through whom such person makes his claim shall defend the other party (the "Indemnified Party") from such claim, and shall indemnify the Indemnified Party and hold the Indemnified Party harmless from any and all costs, damages, claims, liabilities or expenses (including without limitation, reasonable attorneys' fees and disbursements) incurred by the Indemnified Party in defending against the claim. The provisions of this Section 6.1 shall survive the Closing or, if the purchase and sale is not consummated, any termination of this Agreement. SECTION 6.2 EXPENSES. Except as provided in Sections 4.2 above and 8.5 below, each party hereto shall pay its own expenses incurred in connection with this Agreement and the transactions contemplated hereby. 12 13 ARTICLE VII LEASES AND OTHER AGREEMENTS SECTION 7.1 BUYER'S APPROVAL OF NEW LEASES AND AGREEMENTS AFFECTING THE PROPERTY. Between the date hereof and the Closing, Seller shall not enter into any new lease or other agreement affecting the Property, or modify or terminate any existing lease or other agreement affecting the Property, without first obtaining Buyer's written approval, which, during the Contingency Period, will not be unreasonably withheld or delayed. Buyer shall have sole discretion after the Contingency Period to approve or disapprove any such proposed action. Notwithstanding the foregoing, if Buyer fails to give Seller notice of its approval or disapproval of any such proposed action within three (3) business days after Seller notifies Buyer in writing of Seller's desire to take such action and provides to Buyer an economic term sheet for the lease, reasonable financial information on the tenant and other information reasonably requested by Buyer, then Buyer shall be deemed to have given its approval. Buyer agrees that Buyer has approved the proposed leases and lease terms more particularly described in SCHEDULE 3 attached hereto and made a part hereof. SECTION 7.2 TENANT IMPROVEMENT COSTS AND LEASING COMMISSIONS. With respect to any new lease or lease modification entered into by Seller before the Closing Date and not shown on the original list of leases presented to Buyer and attached hereto as SCHEDULE 4 and made a part hereof or lease renewal or lease extension that is approved by Buyer or deemed approved by Buyer, if Seller performs or pays or contracts for any tenant improvement work or pays or contracts for any leasing commissions before the Closing, then such expenses shall be reimbursed by Buyer to Seller at Closing, and Buyer shall, at Closing, assume any and all remaining obligations with respect to such tenant improvements and leasing commissions pursuant to the Assignment of Leases as defined below. Buyer shall reimburse Seller for Seller's out of pocket legal costs incurred to negotiate any new lease or lease modification, or any lease renewal or extension occurring after the date on SCHEDULE 4. On and after the Closing, Seller shall have no further obligations with respect to any leases or other agreements affecting the Property, including, without limitation, tenant improvement work and leasing commissions. Notwithstanding the foregoing, Buyer and Seller acknowledge that at Closing, Buyer shall receive a credit of (i) Ninety-Six Thousand Sixty-Three Dollars and Thirty-Three cents ($96,063.33) for Sun Strand's unused tenant improvement allowance and the cost of the transformer, (ii) One Hundred Forty-Four Thousand Dollars ($144,000) for CIGNA's lease non-renewal fee, and (iii) One Hundred Fifty Thousand Dollars ($150,000) for the roof located at Tucson Tech Center. The provisions of this Section shall survive the Closing. SECTION 7.3 TENANT NOTICES. At the Closing, Seller shall furnish Buyer with a signed notice to be given to each tenant of the Property. The notice shall disclose that the Property has been sold to Buyer, that, after the Closing, all rents should be paid to Buyer and that Buyer shall be responsible for all the tenant's 13 14 security deposit, provided that Buyer is given credit at Closing for such security deposit. The form of the notice shall be otherwise reasonably acceptable to the parties. SECTION 7.4 OPERATION OF PROPERTY. From the date hereof, Seller shall maintain and operate the Property in the ordinary course of business; provided, however, that Seller shall not be obligated to make capital expenditures except as may be necessary to maintain the Property in the same condition it was in at the expiration of the Contingency Period, subject to normal wear and tear and loss by casualty. ARTICLE VIII CLOSING AND ESCROW SECTION 8.1 ESCROW INSTRUCTIONS. Upon execution of this Agreement, the parties hereto shall deposit an executed counterpart of this Agreement with the Title Company, and this instrument shall serve as the instructions to the Title Company as the escrow holder for consummation of the purchase and sale contemplated hereby. Seller and Buyer agree to execute such reasonable additional and supplementary escrow instructions as may be appropriate to enable the Title Company to comply with the terms of this Agreement; provided, however, that in the event of any conflict between the provisions of this Agreement and any supplementary escrow instructions, the terms of this Agreement shall control. SECTION 8.2 CLOSING. The Closing hereunder shall be held and delivery of all items to be made at the Closing under the terms of this Agreement shall be made at the offices of the Title Company on May 6, 1998, and before 5:00 p.m. local time, or such other earlier date and time as Buyer and Seller may mutually agree upon in writing (the "Closing Date"). Upon ten (10) days' written notice to Buyer, Seller shall have the right to extend the Closing Date by a period of up to forty-five (45) days. The Closing Date and time may not otherwise be extended without the prior written approval of both Seller and Buyer. SECTION 8.3 DEPOSIT OF DOCUMENTS. (a) At or before the Closing, Seller shall deposit into escrow the following items with respect to the Property: (1) THE DULY EXECUTED AND ACKNOWLEDGED DEEDS IN THE FORM ATTACHED HERETO AS EXHIBIT D CONVEYING THE REAL PROPERTY TO BUYER SUBJECT TO THE CONDITIONS OF TITLE; (2) FOUR (4) DULY EXECUTED COUNTERPARTS OF THE BILL OF SALE IN THE FORM ATTACHED HERETO AS EXHIBIT E (THE "BILL OF SALE"); 14 15 (3) FOUR (4) DULY EXECUTED COUNTERPARTS OF AN ASSIGNMENT AND ASSUMPTION OF LEASES, SERVICE CONTRACTS AND WARRANTIES IN THE FORM ATTACHED HERETO AS EXHIBIT F (THE "ASSIGNMENT OF LEASES"); (4) AN AFFIDAVIT PURSUANT TO SECTION 1445(B)(2) OF THE FEDERAL CODE, AND ON WHICH BUYER IS ENTITLED TO RELY, THAT SELLER IS NOT A "FOREIGN PERSON" WITHIN THE MEANING OF SECTION 1445(F)(3) OF THE FEDERAL CODE; (5) AN AFFIDAVIT OF PROPERTY VALUE FOR THE PROPERTIES LOCATED IN ARIZONA; (6) A STATUTORY NOTICE TO PURCHASERS OF REAL PROPERTY FOR THE PROPERTY LOCATED IN TEXAS; (7)AN ASSIGNMENT AND ASSUMPTION OF DECLARANT OBLIGATIONS FOR THE PROPERTY LOCATED IN NEW MEXICO IN THE FORM ATTACHED HERETO AS EXHIBIT H; (8) A REAL PROPERTY TRANSFER DECLARATION FOR THE PROPERTIES LOCATED IN COLORADO; (9) A DR-1083 FOR THE PROPERTIES LOCATED IN COLORADO; AND (10) AN ASSIGNMENT AND ASSUMPTION OF DECLARANT OBLIGATION FOR THE PROPERTY LOCATED IN TEXAS IN THE FORM ATTACHED HERETO AS EXHIBIT I. (b) At or before Closing, Buyer shall deposit into escrow the following items: (1) FUNDS NECESSARY TO CLOSE THIS TRANSACTION; (2) FOUR (4) DULY EXECUTED COUNTERPARTS OF THE BILL OF SALE; AND (3) FOUR (4) DULY EXECUTED COUNTERPARTS OF THE ASSIGNMENT OF LEASES; (4) AN AFFIDAVIT OF PROPERTY VALUE FOR THE PROPERTIES LOCATED IN ARIZONA; (5) A STATUTORY NOTICE TO PURCHASERS OF REAL PROPERTY FOR THE PROPERTY LOCATED IN TEXAS; (6)AN ASSIGNMENT AND ASSUMPTION OF DECLARANT OBLIGATIONS FOR THE PROPERTY LOCATED IN NEW MEXICO IN THE FORM ATTACHED HERETO AS EXHIBIT H; AND (7)AN ASSIGNMENT AND ASSUMPTION OF DECLARANT OBLIGATION FOR THE PROPERTY LOCATED IN TEXAS IN THE FORM ATTACHED HERETO AS EXHIBIT I. 15 16 (c) Buyer and Seller shall each deposit such other instruments as are reasonably required by the Title Company or otherwise required to close the escrow and consummate the purchase and sale of the Property in accordance with the terms hereof, including, without limitation, an agreement (the "Designation Agreement") designating Title Company as the "Reporting Person" for the transaction pursuant to Section 6045(e) of the Federal Code and the regulations promulgated thereunder, and executed by Seller, Buyer and Title Company. The Designation Agreement shall be in a form reasonably acceptable to the parties, and, in any event, shall comply with the requirements of Section 6045(e) of the Federal Code and the regulations promulgated thereunder. (d) Seller shall deliver to Buyer originals of the leases, copies of the tenant correspondence files (for the three (3) most recent years of Seller's ownership of the Property only), and originals of any other items which Seller was required to furnish Buyer copies of or make available at the Property pursuant to Section 2.1(e) above except for Seller's general ledger and other internal books or records, within two (2) business days after the Closing Date. If requested by Buyer, Seller shall provide Buyer with reasonable access to Seller's original tenant correspondence files after Closing. Seller shall deliver to Buyer a set of keys to the Property on the Closing Date. SECTION 8.4 ESTOPPEL CERTIFICATES. (a) If in accordance with Article II of this Agreement Buyer elects to proceed with the purchase of the Property, then Seller shall use its reasonable efforts to obtain recertifications of estoppel certificates from each tenant of the Property in the form attached hereto as EXHIBIT G or in another form approved by Buyer. It shall be a condition to Buyer's obligation to close the sale and purchase of the Property that on or before the Closing, Buyer is able to obtain a recertification of an estoppel certificate in the form described above from all of the tenants listed on Schedule 7 attached hereto and from tenants of the Property covering at least ninety percent (90%) of the rentable/revenue producing square footage of the Property (which tenants shall include those listed on Schedule 7). (b) If the condition contained in Section 8.4(a) above is not satisfied, then Buyer may, by written notice given to Seller before the Closing, elect to terminate this Agreement and receive a refund of the Deposit or waive said condition. If Buyer so elects to terminate this Agreement, neither party shall have any further rights or obligations hereunder except as provided in Section 6.1 above and Sections 9.3 and 9.9 below. SECTION 8.5 PRORATIONS. (a) Rents, including, without limitation, percentage rents, if any, and any additional charges and expenses payable under tenant leases, all as and when actually collected (whether such collection occurs prior to, on or after the Closing Date); real property taxes and assessments; water, sewer and utility charges; amounts payable under any service contracts; annual permits and/or inspection fees (calculated on the basis of the period covered); and any other expenses of the operation and maintenance of the Property (including, without limitation, expenses already paid by Seller but which are being amortized over time by Seller and with respect to which Seller shall receive a credit at Closing in the amount of the unamortized portion 16 17 thereof), shall all be prorated as of 12:01 a.m. on the date the Deeds are recorded on the basis of a 365-day year. Seller shall receive a credit at Closing for the tenant improvements and leasing commissions described in Section 7.2. Any sums collected by Buyer from tenants after the Closing shall be promptly paid to current rents and then to Seller to the extent of any remaining rents and other sums which were delinquent at Closing. Buyer shall use reasonable efforts to collect such delinquent rents but shall have no obligation to commence a legal proceeding to collect such sums. If Buyer has not been able to collect any delinquent rents within ninety (90) days after the Closing, Seller may bring legal actions to collect such rents, provided Seller shall have no right to terminate any tenant's lease. The amount of any security deposits under tenant leases shall be credited against the Purchase Price. Seller shall receive credits at Closing for the amount of any utility or other deposits with respect to the Property. Seller shall use reasonable efforts to obtain a utility reading immediately prior to the Closing Date. Buyer shall cause all utilities to be transferred into Buyer's name and account at the time of Closing. Seller and Buyer hereby agree that if any of the aforesaid prorations and credits cannot be calculated accurately on the Closing Date, then the same shall be calculated as soon as reasonably practicable after the Closing Date and either party owing the other party a sum of money based on such subsequent proration(s) or credits shall promptly pay said sum to the other party. (b) For the properties located in Arizona, Seller shall pay for the premium for a standard coverage title policy. Buyer shall pay for (i) the additional premium for extended coverage and (ii) the cost of all endorsements. The escrow fees and recording costs shall be equally borne by both Buyer and Seller. For the property located in New Mexico, Seller shall pay for the title insurance policy. Buyer shall pay for (i) the cost of all endorsements and the costs of deleting the standard preprinted exceptions, (ii) all recording costs and (iii) the environmental audit and any other inspections. The escrow fees shall be equally borne by both Buyer and Seller. For the property located in Texas, Seller shall pay for (i) the title insurance premium, and (ii) the cost of recording the deed. Buyer shall pay for the cost of all endorsements. The escrow fees shall be equally borne by both Buyer and Seller. For the properties located in Colorado, Buyer shall pay for (i) all recording costs, (ii) the documentary fees and (iii) the costs of all endorsements and extended title coverage. Seller shall pay for the premium for basic title coverage. The escrow fees shall be equally borne by both Buyer and Seller. All other costs associated with the closing of the transaction contemplated herein shall be paid in accordance with the local custom of the county in which the Property is located. (c) The provisions of this Section 8.5 shall survive the Closing. 17 18 ARTICLE IX MISCELLANEOUS SECTION 9.1 NOTICES. Any notices required or permitted to be given hereunder shall be given in writing and shall be delivered (a) in person, (b) by certified mail, postage prepaid, return receipt requested, (c) by Facsimile with confirmation of receipt, or (d) by a commercial overnight courier that guarantees next day delivery and provides a receipt, and such notices shall be addressed as follows: To Buyer: American Industrial Properties REIT 6210 North Beltline, Suite 170 Irving, TX 75063-2656 Attention: Mr. Lew Friedland Fax No.: (972) 756-0704 Phone No.: (972) 756-6000 with a copy to: Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. 2001 Ross Avenue, Suite 3000 Dallas, TX 25201-8001 Att'n: Brad B. Hawley, Esq. Fax No.: (214) 849-5599 To Seller : Spieker Properties 2180 Sand Hill Road, Suite 200 Menlo Park, CA 94025 Att'n: Dennis E. Singleton Fax No.: (650) 854-6594 with copies to: Spieker Properties 2180 Sand Hill Road, Suite 200 Menlo Park, CA 94025 Att'n: Sara Reynolds Fax No.: (650) 854-6594 Spieker Properties 590 LaPlace Court, Suite 100 Carlsbad, CA 92008 Att'n: Fred Reed Fax No.: (760) 931-1761 18 19 and a copy to: Orrick, Herrington & Sutcliffe LLP 400 Sansome Street San Francisco, California 94111 Att'n: Michael H. Liever, Esq. Fax No.: (415) 773-4285 or to such other address as either party may from time to time specify in writing to the other party. Any notice shall be effective only upon delivery. SECTION 9.2 ENTIRE AGREEMENT. This Agreement, together with the Exhibits hereto, contains all representations, warranties and covenants made by Buyer and Seller and constitutes the entire understanding between the parties hereto with respect to the subject matter hereof. Any prior correspondence, memoranda or agreements are replaced in total by this Agreement together with the Exhibits hereto. SECTION 9.3 ENTRY AND INDEMNITY. In connection with any entry by Buyer, or its agents, employees or contractors onto the Property, Buyer shall give Seller reasonable advance notice of such entry and shall conduct such entry and any inspections in connection therewith so as to minimize, to the greatest extent possible, interference with Seller's business and the business of Seller's tenants and otherwise in a manner reasonably acceptable to Seller. Without limiting the foregoing, prior to any entry to perform any on-site testing, Buyer shall give Seller written notice thereof, including the identity of the company or persons who will perform such testing and the proposed scope of the testing. Seller shall approve or disapprove, in Seller's sole discretion, the proposed testing within three (3) business days after receipt of such notice. If Seller fails to respond within such three (3) business day period, Seller shall be deemed to have disapproved the proposed testing. If Buyer or its agents, employees or contractors take any sample from the Property in connection with any such approved testing, Buyer shall provide to Seller a portion of such sample being tested to allow Seller, if it so chooses, to perform its own testing. Seller or its representative may be present to observe any testing or other inspection performed on the Property. Upon the request of Seller, Buyer shall promptly deliver to Seller copies of any reports relating to any testing or other inspection of the Property performed by Buyer or its agents, employees or contractors. Buyer shall not contact any governmental authority without first obtaining the prior written consent of Seller thereto, and Seller, at Seller's election, shall be entitled to have a representative on any phone or other contact made by Buyer to a governmental authority and present at any meeting by Buyer with a governmental authority. Buyer shall maintain, and shall assure that its contractors maintain, public liability and property damage insurance in amounts and in form and substance adequate to insure against all liability of Buyer and its agents, employees or contractors, arising out of any entry or inspections of the Property pursuant to the provisions hereof, and Buyer shall provide Seller with evidence of such insurance coverage upon request by Seller. Buyer shall indemnify and hold Seller harmless from and against any costs, damages, liabilities, losses, expenses, liens or claims (including, without limitation, reasonable attorney's fees) arising out of or relating to any entry on the Property by Buyer, its agents, employees or contractors in the course of performing the inspections, testings or inquiries 19 20 provided for in this Agreement. The foregoing indemnity shall survive beyond the Closing, or, if the sale is not consummated, beyond the termination of this Agreement. SECTION 9.4 TIME. Time is of the essence in the performance of each of the parties' respective obligations contained herein. SECTION 9.5 ATTORNEYS' FEES. If either party hereto fails to perform any of its obligations under this Agreement or if any dispute arises between the parties hereto concerning the meaning or interpretation of any provision of this Agreement, then the defaulting party or the party not prevailing in such dispute, as the case may be, shall pay any and all costs and expenses incurred by the other party on account of such default and/or in enforcing or establishing its rights hereunder, including, without limitation, court costs and reasonable attorneys' fees and disbursements. SECTION 9.6 ASSIGNMENT. Buyer's rights and obligations hereunder shall not be assignable without the prior written consent of Seller. Buyer shall in no event be released from any of its obligations or liabilities hereunder in connection with any assignment. In connection with any assignment pursuant to the terms hereof, the assignee shall assume all of the rights and obligations of Buyer hereunder pursuant to a document acceptable to Seller and delivered to Seller prior to the assignment. Subject to that limitation, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. SECTION 9.7 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. SECTION 9.8 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State in which the relevant portion of the Property is located. SECTION 9.9 CONFIDENTIALITY AND RETURN OF DOCUMENTS. Buyer and Seller shall each maintain as confidential any and all material obtained about the other or, in the case of Buyer, about the Property, this Agreement or the transactions contemplated hereby, and shall not disclose such information to any third party except if required by law. This provision shall survive the Closing or any termination of this Agreement. SECTION 9.10 INTERPRETATION OF AGREEMENT. The article, section and other headings of this Agreement are for convenience of reference only and shall not be construed to affect the meaning of any provision contained 20 21 herein. Where the context so requires, the use of the singular shall include the plural and vice versa and the use of the masculine shall include the feminine and the neuter. The term "person" shall include any individual, partnership, joint venture, corporation, trust, unincorporated association, any other entity and any government or any department or agency thereof, whether acting in an individual, fiduciary or other capacity. SECTION 9.11 LIMITED LIABILITY. The obligations of Seller are intended to be binding only on the property of Seller and shall not be personally binding upon, nor shall any resort be had to, the private properties of any of its trustees, officers, beneficiaries, directors, members, or shareholders, the general partners, officers, directors, members, or shareholders thereof, or any employees or agents of Seller. SECTION 9.12 AMENDMENTS. This Agreement may be amended or modified only by a written instrument signed by Buyer and Seller. SECTION 9.13 NO RECORDING. Neither this Agreement or any memorandum or short form thereof may be recorded by Buyer. SECTION 9.14 DRAFTS NOT AN OFFER TO ENTER INTO A LEGALLY BINDING CONTRACT. The parties hereto agree that the submission of a draft of this Agreement by one party to another is not intended by either party to be an offer to enter into a legally binding contract with respect to the purchase and sale of the Property. The parties shall be legally bound with respect to the purchase and sale of the Property pursuant to the terms of this Agreement only if and when the parties have been able to negotiate all of the terms and provisions of this Agreement in a manner acceptable to each of the parties in their respective sole discretion, including, without limitation, all of the Exhibits and Schedules hereto, and both Seller and Buyer have fully executed and delivered to each other a counterpart of this Agreement, including, without limitation, all Exhibits and Schedules hereto. SECTION 9.15 NO PARTNERSHIP. The relationship of the parties hereto is solely that of Seller and Buyer with respect to the Property and no joint venture or other partnership exists between the parties hereto. Neither party has any fiduciary relationship hereunder to the other. SECTION 9.16 NO THIRD PARTY BENEFICIARY. The provisions of this Agreement are not intended to benefit any third parties. 21 22 SECTION 9.17 LIMITATION ON LIABILITY. Notwithstanding anything to the contrary contained herein, after the Closing the maximum aggregate liability of Seller, and the maximum aggregate amount which may be awarded to and collected by Buyer, under this Agreement (including, without limitation, for any breach of representation and warranty contained herein) and any and all documents executed pursuant hereto or in connection herewith (collectively the "Other Documents") including, without limitation, the Deeds, the Bills of Sale and the Assignments of Leases, shall under no circumstances whatsoever exceed Two Percent (2%) of the Purchase Price. SECTION 9.18 BUYER'S ACKNOWLEDGMENT OF SATISFACTION OF CONDITIONS. Notwithstanding anything to the contrary contained herein including, without limitation, the provisions of Article II and Section 4.1, Buyer acknowledges and agrees that it has reviewed and approved all of the Due Diligence Materials, conditions and other items and matters described or referred to in Section 2.1(a) through (g) and the title matters described in Section 4.1, and that the conditions contained in Sections 2.1(a) through (g) and Section 4.1 have been satisfied. SECTION 9.19 LIMITATION ON INDEMNIFICATION. To the extent, if at all, that N.M. Stat. Ann. Section 56-7-1 is applicable to this Agreement, or any related documents, any agreement to indemnify any indemnitee in this Agreement or any related documents, will not extend to liability, claims, damages, losses or expenses, including fees of lawyers, arising out of (i) the preparation or approval of maps, drawings, opinions, reports, surveys, change orders, designs or specifications by an indemnitee or the agents or employees of the indemnitee or (ii) the giving of or the failure to give directions or instructions by the indemnitee, or the agents or employees of the indemnitee, where such giving or failure to give directions or instructions is the primary cause of bodily injury to persons or damage to the property. SECTION 9.20 SPECIAL PROVISIONS REGARDING PROPERTIES LOCATED IN THE STATE OF COLORADO. Special taxing districts may be subject to general obligation indebtedness that is paid by revenues produced from annual tax levies on the taxable property within such districts. Property owners in such districts may be placed at risk for increased mill levies and excessive tax burdens to support the servicing of such debt where circumstances arise resulting in the inability of such a district to discharge such indebtedness without such an increase in mill levies. Buyer should investigate the debt financing requirements of the authorized general obligation indebtedness of such districts, existing mill levies of such district servicing such indebtedness, and the potential for an increase in such mill levies. SECTION 9.21 MANAGER LETTERS. Buyer will have its accountants audit the operating statements and books and records with respect to each of the real properties constituting the Property. Buyer has requested that each manager of each such real property (a "Manager") give the Buyer a certification letter (the 22 23 "Certification Letter") with respect to such operating statements and books and records. Seller is willing to allow each such Manager to provide such a Certification Letter only upon the terms and conditions set forth in this Section. Buyer hereby expressly acknowledges and agrees that Manager in giving the Certification Letter is doing so only on its own behalf and not on behalf of or as agent of Spieker. Buyer hereby agrees to, and shall, indemnify and hold Seller and the Seller Related Parties harmless from and against any and all claims, losses, liabilities, damages, causes of action, costs and expenses, including, without limitation, attorney's fees and costs, of whatever nature, arising out of or in connection with the Certification Letters and the reliance thereon by Buyer or any other party. Each Manager must confirm to Spieker in a letter acceptable to Spieker that it is giving the Certification Letter on its own behalf and not on behalf of or as agent of Seller and that the Manager will not look to Spieker for indemnification, compensation or any other obligations with respect to any Certification Letter. SECTION 9.22 LETTER OF CREDIT. At or before Closing, Seller shall deliver into escrow (i) the original Bank of America Irrevocable Standby Letter of Credit No. C7340430, as amended (the "Dell LC"); (ii) a copy of the Letter to Bank of America dated April 29, 1998 and executed by Michael Watt, Chief Operating Officer of Dell Financial Services and any supplements thereto (the "Dell Letter"); and (iii) a copy of the Letter to Bank of America dated April 30, 1998 and executed by Sara H. Reynolds, Vice President and General Counsel of Seller (the "Spieker Letter"). SECTION 9.23 METWEST, INC.'S LEASE. Spieker Properties, L.P., a California limited partnership shall execute a Guaranty for the benefit of Buyer in the form attached hereto as Exhibit J and made a part hereof. SECTION 9.24 SURVIVAL. (a) Except as expressly set forth to the contrary herein, no representations, warranties, covenants or agreements of the parties contained herein shall survive the Closing. (b) The provisions of this Article IX shall survive Closing. 23 24 The parties hereto have executed this Agreement as of the respective dates written below. SELLER: SPIEKER NORTHWEST INC., a California corporation By: /s/ CRAIG G. VOUGHT ------------------------------------- Craig G. Vought Its: Vice President ------------------------------------ BUYER: AMERICAN INDUSTRIAL PROPERTIES REIT a Texas Real Estate Investment Trust By: /s/ [ILLEGIBLE] ------------------------------------- Its: V.P. ------------------------------------ 24 25 LIST OF EXHIBITS AND SCHEDULES EXHIBITS Exhibit A Real Property Description Exhibit A-1 through Exhibit A-6 Exhibit B Allocation of Purchase Price Exhibit C List of Tenant Leases Exhibit D Special Warranty Deed Exhibit E Bill of Sale Exhibit F Assignment of Leases, Service Contracts and Warranties Exhibit G Tenant Estoppel Certificate Exhibit H Assignment and Assumption of Declarant Obligations Exhibit I Assignment and Assumption of Declarant Obligations Exhibit J Guaranty SCHEDULES Schedule 1 Personal Property List Schedule 2 Disclosure Items Schedule 3 Preapproved Leases Schedule 4 List of Original Leases Schedule 5 List of Service Contracts Schedule 6 Pending or Threatened Litigation Schedule 7 List of Major Tenants
25 26 EXHIBIT A-1 SUMMIT PARK AND LAND AUSTIN, TEXAS [SEE ATTACHED] A-1 27 EXHIBIT A-2 BROADBENT BUSINESS PARK AND LAND ALBUQUERQUE, NEW MEXICO [SEE ATTACHED] A-2 28 EXHIBIT A-3 ACADEMY POINT ATRIUM II COLORADO SPRINGS, COLORADO [SEE ATTACHED] A-3 29 EXHIBIT A-4 AERO TECH R&D COLORADO SPRINGS, COLORADO [SEE ATTACHED] A-4 30 EXHIBIT A-5 BLACK CANYON TECH CENTER PHOENIX, ARIZONA [SEE ATTACHED] A-5 31 EXHIBIT A-6 TUCSON TECH CENTER TUCSON, ARIZONA [SEE ATTACHED] A-6 32 EXHIBIT B ALLOCATION OF PURCHASE PRICE
PROPERTY PURCHASE PRICE -------- -------------- Tucson Tech Center, Arizona $4,300,000 Black Canyon Tech, Arizona $7,850,000 Aero Tech R & D, Colorado $6,600,000 Academy Pointe Atrium II, Colorado $8,650,000 Broadbent Business Park, New Mexico $5,400,000 Summit Park, Texas $8,200,000 Summit Land and Broadbent Land $2,500,000
B-1 33 EXHIBIT C LIST OF TENANT LEASES BY PROPERTY C-1 34 EXHIBIT D SPECIAL WARRANTY DEED [See Attached] D-1 35 EXHIBIT A [Legal Description] [See Attached] 36 EXHIBIT B (a) Interests of tenants in possession pursuant to the terms of their leases; (b) Non-delinquent liens for real estate taxes and assessments (c) Exceptions disclosed by the preliminary title reports and commitments and amendments thereto received by Grantee, and any other exceptions to title which would be disclosed by an inspection of the Property and/or matters shown on the surveys of the Property [we will specify the matters]. 37 CUT AND PASTE GLOBAL ACKNOWLEDGMENT FORM INSERT 38 EXHIBIT E BILL OF SALE ---------------------------------------- This Bill of Sale (the "Bill of Sale") is made and entered into , 199__, by and between Spieker Northwest, Inc., a California corporation ("Assignor"), and AMERICAN INDUSTRIAL PROPERTIES REIT, a Texas Real Estate Investment Trust ("Assignee"). In consideration of the sum of Ten Dollars ($10) and other good and valuable consideration paid by Assignee to Assignor, the receipt and sufficiency of which are hereby acknowledged by Assignor, Assignor does hereby assign, transfer, convey and deliver to Assignee, its successors and assigns, free and clear of any liens or encumbrances created by, through or under Assignor except as set forth in Exhibit C, all items of tangible personal property, if any, which are owned by Assignor and situated upon and used exclusively in connection with the land described on the attached Exhibit A (the "Land") and the improvements located thereon (the "Improvements"), and which are described on the attached Exhibit B, but specifically excluding any and all personal property owned by tenants or otherwise considered the property of tenants under any leases affecting the Land or Improvements (the " Personal Property"). This Bill of Sale is made subject, subordinate and inferior to the easements, covenants and other matters and exceptions set forth on Exhibit C, attached hereto and made a part hereof for all purposes. ASSIGNEEACKNOWLEDGES AND AGREES THAT, EXCEPT AS EXPRESSLY PROVIDED IN THAT CERTAIN AGREEMENT OF PURCHASE AND SALE DATED ___________, 1998, BY AND BETWEEN ASSIGNOR AND ASSIGNEE (THE "AGREEMENT"), ASSIGNOR HAS NOT MADE, DOES NOT MAKE AND SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO (A) THE NATURE, QUALITY OR CONDITIONS OF THE PERSONAL PROPERTY, (B) THE INCOME TO BE DERIVED FROM THE PERSONAL PROPERTY, (C) THE SUITABILITY OF THE PERSONAL PROPERTY FOR ANY AND ALL ACTIVITIES AND USES WHICH ASSIGNEE MAY CONDUCT THEREON, (D) THE COMPLIANCE OF OR BY THE PERSONAL PROPERTY OR ITS OPERATION WITH ANY LAWS, RULES, ORDINANCES OR REGULATIONS OF ANY APPLICABLE GOVERNMENTAL AUTHORITY OR BODY, (E) THE HABITABILITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE PERSONAL PROPERTY, OR (F) ANY OTHER MATTER WITH RESPECT TO THE PERSONAL PROPERTY. ASSIGNEE FURTHER ACKNOWLEDGES AND AGREES THAT, HAVING BEEN GIVEN THE OPPORTUNITY TO INSPECT THE PERSONAL PROPERTY, ASSIGNEE IS RELYING SOLELY ON ITS OWN INVESTIGATION OF THE PERSONAL PROPERTY AND NOT ON ANY INFORMATION PROVIDED OR TO BE PROVIDED BY ASSIGNOR, EXCEPT AS SPECIFICALLY PROVIDED IN THE AGREEMENT. ASSIGNEE FURTHER ACKNOWLEDGES AND AGREES THAT ANY INFORMATION PROVIDED OR TO BE PROVIDED WITH RESPECT TO THE PERSONAL PROPERTY WAS OBTAINED FROM A VARIETY OF SOURCES AND THAT ASSIGNOR HAS NOT MADE ANY INDEPENDENT INVESTIGATION OR VERIFICATION OF SUCH E-1 39 INFORMATION. ASSIGNEE FURTHER ACKNOWLEDGES AND AGREES THAT THE SALE OF THE PERSONAL PROPERTY AS PROVIDED FOR HEREIN IS MADE ON AN "AS IS, WHERE IS" CONDITION AND BASIS "WITH ALL FAULTS," EXCEPT AS SPECIFICALLY PROVIDED IN THE AGREEMENT. The obligations of Assignor are intended to be binding only on the property of Assignor and shall not be personally binding upon, nor shall any resort be had to, the private properties of any of its trustees, officers, beneficiaries, directors, members, or shareholders, or of its general partners, officers, directors, members, or shareholders thereof, or any employees or agents of Assignor. IN WITNESS WHEREOF, Assignor and Assignee have caused this Bill of Sale to be executed on the date and year first above written. ASSIGNOR: SPIEKER NORTHWEST INC., a California corporation By: -------------------------------------- Its: ------------------------------------- ASSIGNEE: AMERICAN INDUSTRIAL PROPERTIES REIT, a Texas Real Estate Investment Trust By: -------------------------------------- Its: ------------------------------------- E-2 40 EXHIBIT A [LEGAL DESCRIPTION] E-A-1 41 EXHIBIT B [PERSONAL PROPERTY E-A-1 42 EXHIBIT C (d) Interests of tenants in possession pursuant to the terms of their leases; (e) Non-delinquent liens for real estate taxes and assessments (f) Exceptions disclosed by the preliminary title reports and commitments and amendments thereto received by Grantee, and any other exceptions to title which would be disclosed by an inspection of the Property and/or matters shown on the surveys of the Property [we will list such matters]. E-A-1 43 EXHIBIT F ASSIGNMENT OF LEASES, SERVICE CONTRACTS AND WARRANTIES ------------------------------- This Assignment of Lease, Service Contracts and Warranties (this "Assignment") is made and entered into , 199__, by and between SPIEKER NORTHWEST, INC., a California corporation ("Assignor"), and AMERICAN INDUSTRIAL PROPERTIES REIT, a Texas Real Estate Investment Trust ("Assignee"). For good and valuable consideration paid by Assignee to Assignor, the receipt and sufficiency of which are hereby acknowledged by Assignor, Assignor does hereby assign, transfer, set over and deliver unto Assignee all of Assignor's right, title, and interest in (i) those certain leases (the "Leases") listed on Exhibit A, attached hereto and made a part hereof for all purposes except for Seller's right to collect delinquent rent and other delinquent sums owing under such Leases for the period prior to the date hereof, (ii) those certain service contracts, tenant improvement agreements and leasing commission agreements (the "Contracts") listed on Exhibit B, if any, attached hereto and made a part hereof for all purposes, and (iii) those certain warranties held by Assignor (the "Warranties") listed on Exhibit C, attached hereto and made a part hereof for all purposes. This Assignment is made subject, subordinate and inferior to the easements, covenants and other matters and exceptions set forth on Exhibit D, attached hereto and made a part hereof for all purposes. ASSIGNEE ACKNOWLEDGES AND AGREES, BY ITS ACCEPTANCE HEREOF, THAT, EXCEPT AS EXPRESSLY PROVIDED IN THAT CERTAIN AGREEMENT OF PURCHASE AND SALE, DATED AS OF _____________, 1998, BY AND BETWEEN ASSIGNOR AND ASSIGNEE (THE "AGREEMENT"), THE LEASES, THE CONTRACTS AND THE WARRANTIES ARE CONVEYED "AS IS, WHERE IS" AND IN THEIR PRESENT CONDITION WITH ALL FAULTS, AND THAT ASSIGNOR HAS NOT MADE, DOES NOT MAKE AND SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO THE NATURE, QUALITY OR CONDITION OF THE LEASES, THE CONTRACTS OR THE WARRANTIES, THE INCOME TO BE DERIVED THEREFROM, OR THE ENFORCEABILITY, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF THE LEASES, THE CONTRACTS OR THE WARRANTIES. Except as otherwise expressly provided in the Agreement, by accepting this Assignment and by its execution hereof, Assignee assumes the payment and performance of, and agrees to pay, perform and discharge, all the debts, duties and obligations to be paid, performed or discharged from and after the date hereof, by (a) the "landlord" or the "lessor" under the terms, covenants and conditions of the Leases, including, without limitation, brokerage commissions and compliance with the terms of the Leases relating to tenant improvements and security F-1 44 deposits, and (b) the owner under the Contracts and/or the Warranties. Assignee agrees to indemnify, hold harmless and defend Assignor from and against any and all claims, losses, liabilities, damages, costs and expenses (including, without limitation, reasonable attorneys' fees) resulting by reason of the failure of Assignee to pay, perform or discharge any of the debts, duties or obligations assumed or agreed to by Assignee hereunder. Assignor agrees to indemnify Assignee and hold harmless and defend Assignee from and against any and all claims, damages, liabilities, losses, costs and expenses (including, without limitation, reasonable attorneys' fees) resulting by reason of the failure of Assignor to have paid, performed, or discharged any debts, duties or obligations which Assignor was obligated to have paid, performed, or discharged, and which accrued, during Assignor's ownership of the Property (as such term is defined in the Agreement), by (a) the "landlord" or the "lessor" under the terms, covenants and conditions of the Leases, or (b) the Owner under the Contracts and/or Warranties, excluding with respect to clauses (a) and (b) any such debts, duties or obligations arising out of or in any way related to the physical condition of the Property. The obligations of Assignor are intended to be binding only on the property of Assignor and shall not be personally binding upon, nor shall any resort be had to, the private properties of any of its trustees, officers, beneficiaries, directors, members, or shareholders, or of its investment manager, the general partners, officers, directors, members, or shareholders thereof, or any employees or agents of Assignor or its investment manager. All of the covenants, terms and conditions set forth herein shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. IN WITNESS WHEREOF, Assignor and Assignee have caused this Assignment to be executed on the day and year first above written. ASSIGNOR: SPIEKER NORTHWEST INC., a California corporation By: -------------------------------------- Its: ------------------------------------- ASSIGNEE: AMERICAN INDUSTRIAL PROPERTIES REIT, a Texas Real Estate Investment Trust By: -------------------------------------- Its: ------------------------------------- F-2 45 EXHIBIT G TENANT ESTOPPEL CERTIFICATE (TENANT NAME) Name Address Re: ____________ Dear _________: You provided an estoppel certificate to Spieker Northwest, Inc. ("Spieker") in connection with its acquisition of the real property (the "Property") of which you are a tenant. The estoppel certificate is attached hereto and made a part hereof (the "Estoppel Certificate"). _______________ ("Buyer") is in the process of negotiating with Spieker a purchase agreement for the acquisition of the Property by Buyer. In the event Spieker and Buyer are able to negotiate a purchase agreement, Buyer has requested that Spieker obtain from you a recertification of your Estoppel Certificate. We would appreciate it if you would sign the enclosed extra counterpart of this letter and return it to _________________________________________________________by Federal Express to confirm that all of the information and statements contained in the Estoppel Certificate are true and correct as of this date of the letter [EXCEPT - UPDATE ANY INFORMATION NECESSARY] and that all rent and other sums payable under the Lease have been paid through March 1998. Thank you very much for your cooperation in this matter. Very truly yours, SPIEKER NORTHWEST, INC., a California corporation By: -------------------------------------- Its: ------------------------------------- We agree that the information and statements contained in the Estoppel Certificate are true and correct as of the date of this letter [EXCEPT-UPDATE ANY INFORMATION OR STATEMENTS] and that G-1 46 all rent and other sums payable under our Lease have been paid through March 1998. Spieker, Buyer and any successors or assigns of Buyer who may acquire an interest in or title to the Property, and any lender or its successors or assigns that may make a loan with respect to the Property, may rely on this letter in proceeding with the acquisition of the Property or in proceeding with making such a loan. - ------------------------------ By: -------------------------------------- Its: ------------------------------------- Dated: March __, 1998 G-2 47 EXHIBIT H ASSIGNMENT AND ASSUMPTION OF DECLARANT OBLIGATIONS RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: American Industrial Properties REIT 6210 North Beltline, Suite 170 Irving, Texas 75063-2656 Attention: Mr. Lew Friedland - -------------------------------------------------------------------------------- (SPACE ABOVE THIS LINE FOR RECORDER'S USE) ASSIGNMENT AND ASSUMPTION OF DECLARANT OBLIGATIONS (Broadbent Business Park) THIS ASSIGNMENT AND ASSUMPTION ("Assignment") dated as of April __, 1998, is between SPIEKER NORTHWEST, INC., a California corporation ("Assignor"), and AMERICAN INDUSTRIAL PROPERTIES REIT, a Texas Real Estate Investment Trust ("Assignee"). A. Assignor is the declarant under that certain Declaration of Protective Covenants dated February 29, 1980 and recorded on March 14, 1980 in the real estate records of Bernalillo County, New Mexico as Document No. 80-15957 at Book 759 at Pages 691-713, as amended by that certain Amendment of Declaration of Protective Covenants dated June 18, 1981 and recorded on June 19, 1981 in the real estate records of Bernalillo County in the State of New Mexico as Document No. 81-32370 at Book 858 at Pages 932-940, and as amended by that certain Second Amendment of Declaration of Protective Covenants dated July 18, 1986 and recorded on July 23, 1986 in the real estate records of Bernalillo County, New Mexico as Document No. 86-67339 at Book 375-A at Pages 161-171 (the "Declaration"). H-1 48 B. Assignor is the declarant by virtue of that certain Assignment and Assumption of Declarant Obligations dated as of November 17, 1997 and recorded on November 17, 1997 in the real estate records of Bernalillo County, New Mexico as Document No. 97-120850. C. Assignor has transferred to Assignee its interest of Assignor in the real property encumbered by the Declaration. D. Assignor desires to assign to Assignee all of the rights and obligations of Assignor as declarant under the Declaration, and Assignee desires to accept the assignment of the rights and obligations and to assume Assignor's rights and obligations as declarant under the Declaration, on the terms and conditions below. ACCORDINGLY, Assignor and Assignee agree: 1. As of the date of this Assignment (the "Effective Date"), Assignor assigns to Assignee all of the rights and obligations of Assignor as declarant under the Declaration. 2. Assignor hereby agrees to indemnify Assignee against and hold Assignee harmless from any and all liabilities, losses, damages, claims, costs or expenses, including, without limitation, reasonable attorneys' fees and costs (collectively, the "Claims"), originating prior to the Effective Date and relating to Assignor's rights and obligations as declarant under the Declaration. 3. As of the Effective Date, Assignee hereby assumes all of Assignor's rights and obligations as declarant under the Declaration and will indemnify Assignor against and hold Assignor harmless from any and all Claims originating on or after the Effective Date and relating to Assignor's rights and obligations as declarant under the Declaration. 4. To the extent, if at all, Section 56-7-1 NMSA 1978 is applicable to this Assignment, no indemnity obligation provided in this Assignment with respect to the real property encumbered by the Declaration shall extend to liability, claims, damages, losses or expenses, including attorney fees, relating to the construction, installation, alteration, modification, repair, maintenance, servicing, demolition, excavation, drilling, reworking, grading, paving, clearing, site preparation or development of any real property or of any improvement on, above or under real property and arising out of (a) the preparation or approval of maps, drawings, opinions, reports, surveys, change orders, designs or specifications by the indemnitee, or the agents or employees of the indemnitee, or (b) the giving of or the failure to give directions or instructions by the indemnitee, or the agents or employees of the indemnitee, where the giving of or failure to give directions or instructions is the primary cause of bodily injury to persons or damage to property. 5. In the event of any dispute between Assignor and Assignee arising out of the obligations of Assignor under this Assignment or concerning the meaning or interpretation of any provision contained in this Assignment, the losing party shall pay the prevailing party's costs and expenses of the dispute, including, without limitation, reasonable attorneys' fees and costs. Any such attorneys' fees and other expenses incurred by either party in enforcing a judgment in its favor under this Agreement shall be recoverable separately from and in addition to any other H-2 49 amount included in the judgment, and the attorneys' fees obligation is intended to be severable from the other provisions of this Assignment and to survive and not be merged into any such judgment. 6. This Assignment shall be binding on and inure to the benefit of Assignor and Assignee and their respective successors, successors-in-interest and assigns. 7. This Assignment may be executed in any number of counterparts, each of which shall be deemed an original but all of which taken together shall constitute one and the same instrument. 8. This Assignment shall be governed by and construed in accordance with the laws of New Mexico. Assignor and Assignee have executed this Assignment the day and year first above written. Assignor: SPIEKER NORTHWEST, INC. a California corporation By: -------------------------------------- Its: ------------------------------------- Assignee: AMERICAN INDUSTRIAL PROPERTIES REIT, a Texas Real Estate Investment Trust By: -------------------------------------- Its: ------------------------------------- H-3 50 EXHIBIT I ASSIGNMENT AND ASSUMPTION OF DECLARANT OBLIGATIONS RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: American Industrial Properties REIT 6210 North Beltline, Suite 170 Irving, Texas 75063-2656 Attention: Mr. Lew Friedland -------------------SPACE ABOVE THIS LINE FOR RECORDER'S USE------------------ ASSIGNMENT AND ASSUMPTION (Summit Park) THIS ASSIGNMENT AND ASSUMPTION ("Assignment") is made and entered into as of April __, 1998, by and between SPIEKER NORTHWEST, INC., a California corporation ("Assignor"), and AMERICAN INDUSTRIAL PROPERTIES REIT, a Texas Real Estate Investment Trust, with reference to the following: A. Assignor is the successor declarant/grantor each of the following documents (the "Declarations"): (i) That certain Declaration of Sign and Landscaping Easements and Maintenance Covenants dated March 31, 1988 and recorded on May 2, 1988 in the Official Records of Travis County, Texas, at BOOK 10666, PAGE 988; (ii) That certain Declaration of Easements and Maintenance Covenants dated March 31, 1988 in the Official Records of Travis County, Texas, at BOOK 10667, PAGE 14; (iii) That certain Private Access Easement and Maintenance Agreement dated March 31, 1988 and recorded on May 2, 1988 in the Official Records of Travis County, Texas, at BOOK 10667, PAGE 1; and I-1 51 (iv) That certain Private Access Easement and Maintenance Agreement dated March 31, 1988 and recorded on May 2, 1988 in the Official Records of Travis County, Texas, at BOOK 10666, PAGE 975. B. The parties hereto desire that Assignee become the successor declarant/grantor under the Declarations in connection with its acquisition from Assignor of the real property (the "Property") to which the Declarations relate. NOW, THEREFORE, in consideration of the mutual promises and agreements hereinafter contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Assignment and Assumption. Effective upon the date of recordation (the "Effective Date") of the deed of the Property by Assignor to Assignee, Assignor assigns to Assignee all of Assignor's rights, powers and reservations under the Declarations, and Assignee accepts such assignment and assumes and agrees to perform the duties and obligations of Assignor accruing or arising under the Declarations from and including the Effective Date. 2. Indemnification. (a) If Assignee fails to perform any duty or obligation accruing or arising under the Declarations from and including the Effective Date, Assignee shall indemnify and hold harmless Assignor from and against any and all claims, demands, losses, damages, liabilities, costs and expenses (including, without limitation, reasonable attorneys' fees) resulting therefrom. If any litigation or other action is brought against Assignor by reason of any such failure, Assignee shall, upon Assignor's request, defend same at Assignee's expense by counsel reasonably satisfactory to Assignor. (b) If Assignor fails to perform any duty or obligation accruing or arising under the Declarations prior to the Effective Date, Assignor shall indemnify and hold harmless Assignee from and against any and all claims, demands, losses, damages, liabilities, costs and expenses (including, without limitation, reasonable attorneys' fees) resulting therefrom. If any litigation or other action is brought against Assignee by reason of any such failure, Assignor shall, upon Assignee's request, defend same at Assignor's expense by counsel reasonably satisfactory to Assignee. 3. Attorneys' Fees. In any litigation, arbitration or other action or proceeding arising from this Assignment between the parties hereto, the prevailing party shall be entitled to recover reasonable attorneys' fees and costs incurred therein. 4. Successors and Assigns. This Assignment shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors and assigns. 5. Miscellaneous. This Assignment constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and can be modified only by a writing signed by the parties hereto. This Assignment shall be governed by and construed in accordance with the laws of the State of Texas. Time is of the essence. This Assignment may be I-2 52 executed in counterparts with the same effect as if the parties hereto had executed the same document. IN WITNESS WHEREOF, the parties hereto have executed this Assignment and Assumption as of the date first set forth above. AMERICAN INDUSTRIAL PROPERTIES REIT, SPIEKER NORTHWEST, INC. a Texas Real Estate Investment Trust a California corporation By: By: -------------------------------- ------------------------------ Its: Its: ------------------------------- ----------------------------- I-3 53 SCHEDULE 1 LIST OF PERSONAL PROPERTY S1-1 54 SCHEDULE 2 DISCLOSURE ITEMS Tucson Tech Center, Arizona o Some portions of the roof have leaks o The roof needs repairs o Avent, Inc. is currently appealing the 1998 tax valuation of the property Black Canyon Tech, Arizona o Metwest intends to sublease its leased space and/or vacate the leased space before the expiration of its lease o Sunstrand's tenant improvement allowance o Drywells located on property may not be registered Aerotech R&D, Colorado o Some portions of the roof have leaks Academy Pointe Atrium II, Colorado o Compressor currently being replaced o Property may not be in compliance with certain ADA requirements o Overlook Systems and OAO Corporation have outstanding tenant improvement allowances Broadbent Business Park/Land, New Mexico o Some portions of the roof have leaks o Cigna's dispute with WCB (prior owner) over payment of building paint job Summit Park/Land, Texas o Radian has an outstanding tenant improvement allowance o Dell Computer has an outstanding tenant improvement allowance o Dell Computer one (1) Letter of Credit security deposit S2-1 55 SCHEDULE 3 PREAPPROVED LEASES AND LEASE TERMS S3-1 56 SCHEDULE 4 LIST OF EXISTING LEASES (AS OF ______________________, 1998) S4-1 57 SCHEDULE 5 LIST OF SERVICE CONTRACTS [SEE ATTACHED] S4-1 58 SCHEDULE 6 PENDING OR THREATENED LITIGATION None S6-1 59 SCHEDULE 7 LIST OF MAJOR TENANTS [See Attached] S7-1 EX-10.66 9 PURCHASE AND SALE AGREEMENT 1 EXHIBIT 10.66 PURCHASE AND SALE AGREEMENT BY AND BETWEEN NORTH AUSTIN OFFICE, LTD. AND AMERICAN INDUSTRIAL PROPERTIES REIT 2 PURCHASE AND SALE AGREEMENT THIS PURCHASE AND SALE AGREEMENT (the "Agreement") is dated as of February ___, 1998, (the "Effective Date") by and between NORTH AUSTIN OFFICE, LTD., a Texas limited partnership ("Seller"), and AMERICAN INDUSTRIAL PROPERTIES REIT, a Texas real estate investment trust ("Buyer"). IN CONSIDERATION of the respective agreements hereinafter set forth, Seller and Buyer agree as follows: 1. Property Included in Sale. Seller hereby agrees to sell and convey to Buyer, and Buyer hereby agrees to purchase from Seller, subject to the terms and conditions set forth herein, the following: (a) that certain real property located in Austin, Travis County, Texas, and being more particularly described in Exhibit A attached hereto and incorporated herein for all purposes (the "Land"); (b) all rights, privileges and easements appurtenant to the Land, including, without limitation, all minerals, oil, gas and other hydrocarbon substances on and under and that may be produced from the Land, as well as all development rights, land use entitlements, including without limitation building permits, licenses, permits and certificates, utilities commitments, air rights, water, water rights, riparian rights, and water stock relating to the Land and any rights-of-way or other appurtenances used in connection with the beneficial use and enjoyment of the Land and all of Seller's right, title and interest in and to all roads, easements, rights of way and alleys adjoining, serving or servicing the Land (collectively, the "Appurtenances"); (c) all improvements and fixtures located on the Land and appurtenances, including, without limitation, that certain office building and related improvements located on the Land, and all apparatus, and equipment used in connection with the operation or occupancy of the Land and appurtenances, such as heating and air conditioning systems and facilities used to provide any utility, refrigeration, ventilation, garbage disposal or other services on the Land and appurtenances, and along with all on-site parking facilities (collectively, the "Improvements", and together with the Land and Appurtenances, the "Real Property"); (d) all tangible personal property owned by Seller located on or in or used in connection with the Real Property as of the date hereof and as of the "Closing Date" (as defined in Paragraph 8(b) below) including, without limitation, those items described in the Personal Property Inventory attached hereto as Exhibit B attached hereto (collectively, the "Tangible Personal Property"); and (e) any intangible personal property now or hereafter owned by Seller and used in the ownership, use or operation or development of the Real Property and Tangible Personal Property, including, without limitation, the right to use the name "WHITNEY JORDAN PLAZA" and any other trade name now used in connection with the Real Property and, to 3 the extent approved by Buyer pursuant to this Agreement, any contract or lease rights (including, without limitation, the lessor's interest in and to all tenant leases, rental agreements, subleases and tenancies, including all amendments, modifications, agreements, records, substantive correspondence, and other documents affecting in any way a right to occupy any portion of the Real Property (individually and collectively, the "Leases"), and Seller's interest in all security deposits and prepaid rent, if any, under the Leases and any and all guaranties of the Leases, utility contracts, warranties or other agreements or rights relating to the ownership, use and operation of the Real Property or Tangible Personal Property (collectively, the "Intangible Property", and together with the Tangible Personal Property, the "Personal Property"). All of the items referred to in Subparagraphs (a), (b), (c), (d) and (e) above are collectively referred to as the "Property." 2. Purchase Price; Earnest Money. (a) The purchase price of the Property is TWENTY-TWO MILLION TWO HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($22,250,000.00), subject to adjustments as provided in this Agreement (the "Purchase Price"). (b) The Purchase Price less any adjustments to the Purchase Price provided this Agreement, shall be delivered in immediately available funds at the closing of the purchase and sale contemplated hereunder (the "Closing"). (c) Within one (1) day after the Effective Date, Buyer shall deliver to title company (the "Escrow Holder") a copy of this Agreement together with a certified check or wired funds in the amount of $200,000.00; within thirty (30) days after the Effective Date, Buyer shall deliver to Escrow Holder a certified check or wired funds in the amount of $300,000.00, for a total of $500,000.00 (collectively the "Earnest Money"), which Earnest Money shall be held in escrow by the Escrow Holder and delivered to the party entitled thereto in accordance with the provisions of this Agreement. The Earnest Money shall be invested by the Escrow Holder in an interest-bearing escrow account in a bank or other financial institution acceptable to Buyer. All interest earned on the Earnest Money shall belong to Buyer and shall be paid to Buyer on demand. (d) A portion of the Earnest Money in the amount of One Hundred and No/100 Dollars ($100.00) (the "Independent Contract Consideration") shall be deemed independent consideration for Seller's execution and delivery of this Contract. If the Closing occurs, the Independent Contract Consideration shall be applied as a credit towards the Purchase Price. However, if the Closing does not occur, for any reason, the Independent Contract Consideration shall be paid by the Escrow Holder to Seller. (e) Subject to the Conditions Precedent to closing as set out in paragraph 6 below but notwithstanding any other provision of this Agreement to the contrary, thirty (30) days after the Effective Date, $25,000.00 of the Earnest Money shall become non-refundable (2) 4 unless Buyer thereafter terminates this Agreement because of a material default by Seller occurring thereafter, provided, however, that in the event Seller does not provide a Preliminary Document within the time required by subparagraph 4 (a) for the delivery to Buyer of such Preliminary Document, the said 30-day time period shall be extended by the number of additional days Seller takes to provide such Preliminary Document to Buyer. (f) Subject to the Conditions Precedent to closing as set out in paragraph 6 below and subject to the conditions set out in section 5 (c) below, forty-five (45) days after the Effective Date, the remainder of the Earnest Money shall become non-refundable. 3. Title to the Property. (a) At the Closing, Seller shall convey to Buyer indefeasible and insurable fee simple title to the Real Property and Improvements, by duly executed and acknowledged special warranty deed substantially in the form attached hereto as Exhibit C (the "Deed"). Evidence of delivery of indefeasible and insurable fee simple title shall be the issuance by Texas Professional Title, Inc. (the "Title Company") to Buyer at the Closing of an Owner's Policy of Title Insurance in the form promulgated by the Texas State Board of Insurance in the amount of the Purchase Price at no more than the standard rates allowed by the Texas Department of Insurance, insuring fee simple title to the Real Property in Buyer, subject only to such exceptions as Buyer shall approve pursuant to Paragraph 5, below (the "Title Policy"). The Title Policy shall provide full coverage against mechanics' and materialmen's liens, the printed form survey exception shall be limited to "shortages in area" and the standard exception for taxes shall read: "standby fees and taxes for the year 1998 and subsequent years, and subsequent assessments for prior years due to change in land usage or ownership" and shall contain such special endorsements as Buyer may reasonably require, including, without limitation, any endorsements required as a condition to Buyer's approval of any title exceptions pursuant to Paragraph 5, below (the "Endorsements"). (b) At the Closing, Seller shall transfer title to the Tangible Personal Property by a special warranty bill of sale in the form attached hereto as Exhibit D (the "Bill of Sale"), such title to be free of any liens, encumbrances or interests. (c) At the Closing, Seller shall transfer title to the Intangible Property, the "Assumed Contracts" (as hereinafter defined), and the "Warranties and Guaranties" (as hereafter defined) by an assignment of intangible property in the form attached hereto as Exhibit E (the "Assignment of Intangible Property"), and shall assign the Leases by an assignment of leases in the form attached hereto as Exhibit F (the "Assignment of Leases"), such title to be free of any liens, encumbrances or interests. (d) Anything contained herein to the contrary notwithstanding and notwithstanding any approval or consent given by Buyer hereunder, Seller shall cause all monetary encumbrances, including without limitation all mechanics' liens to be released from (3) 5 the Property on or prior to the Closing and shall cause the Title Company to insure title to the Property as vested in Buyer without any exception for such matters. 4. Due Diligence Documents. (a) Within ten (10 ) days after the Effective Date, Seller shall provide to Buyer, at Seller's expense, the Title Commitment (as defined in subparagraph 4 (a) (i) below) and the Survey (as defined in subparagraph 4 (a) (ii) below), and, except as specifically provided for under subparagraph 4 (a) (xi) below, within five (5) days after the Effective Date, Seller shall provide to Buyer, at Seller's expense, the other documents described in this subparagraph 4 (a) (collectively the documents described in this subparagraph 4 (a), including but not limited to the Title Commitment and Survey, are herein referred to as the "Preliminary Documents") to the extent in Seller's possession and/or control. In the event Seller does not deliver one or more of the Preliminary Documents to Buyer within the required time period, Seller shall not be in default but shall have an additional period of time for providing the Preliminary Document (continuing until the end of the original Due Diligence Period as set out in subparagraph 5 (a) below) in which to provide any and every such Preliminary Document, in which event (i) the 30-day time period for $25,000.00 of the Earnest Money becoming non-refundable as provided for in subparagraph 2 (e) above, (ii) the 45-day time period for the remainder of the Earnest Money becoming non-refundable as set forth in subparagraph 2(f), (iii) the 45-day Due Diligence Period as set out in subparagraph 5 (a), and (iv) the Closing Date, shall all be extended by the number of additional days Seller takes to provide such Preliminary Document to Buyer. The Preliminary Documents consist of the following: (i) Title Commitment. A current title commitment (the "Title Commitment") for an owner's Policy of title insurance, covering the Real Property and issued by the Title Company, together with a legible copy of each document, map and survey referred to in the Title Commitment; (ii) Survey. An up-dated survey of the Property dated within thirty (30) days of the Effective Date (the "Survey") prepared by a registered public surveyor, in accordance with the most recent Texas Surveyor's Association standards for a Category A1, Condition II Survey, certified by such surveyor to Buyer and the Title Company in the form attached hereto as Exhibit G and acceptable to the Title Company for the purpose of limiting the standard printed exception for survey matters to "shortages in area" in the Title Policy. The Survey at a minimum shall (a) set forth the legal description and street address of the Real Property, (b) show the location of all of the Improvements, all recorded restrictions, easements, rights-of-way, ingress and egress, all building restriction lines or applicable yard or setback requirements, all curb cuts, all utility lines and facilities, all visible restrictions, easements, rights-of-way, possible rights of third parties, party walls and encroachments (either onto the Land from adjacent property or onto adjacent property from the Land) affecting the Real Property, and (c) locate all improvements on adjoining property which are within five feet of the property lines of the Land; (4) 6 (iii) Agreements. Copies of written, agreements, contracts and other documents, whether existing or proposed as of the Effective Date, which (a) affect the Property and (b) are not disclosed by the Title Commitment, including without limitation any agreements relating to the service, operation, repair, supply, advertising, promotion, sale, leasing or management of the Property or the use of common facilities. If no such documents exist, Seller shall furnish its certification to that effect. Buyer shall designate, prior to the expiration of the "Due Diligence Period" (hereafter defined), those contracts that Seller shall assign to Buyer and that Buyer shall assume as of the Closing Date, which contracts to be assumed by Buyer are referred to herein as "Assumed Contracts"; (iv) Plans. Copies of all as-built plans and specifications for the Improvements, and as-built drawings for all underground utilities (collectively, the "Plans"); (v) Warranties. Copies of any and all guarantees or warranties and other rights given to Seller in connection with the construction of the Improvements or the purchase of any of the Personal Property, if any (collectively the "Warranties and Guaranties"); (vi) Reports. All reports in Seller's possession or control relating to the Property including reports relating to the (i) environmental condition of the Property, including without limitation, environmental reports, environmental audits and the like (which reports are listed on Exhibit H); and (ii) soil, seismological, geological and drainage conditions, and the flood characteristics of the Property; (vii) Rent Roll. A rent roll, dated no earlier than ten (10) days prior to the Effective Date, and certified by Seller to be accurate and complete, showing: 1) the name and address of each tenant of the Improvements; 2) the rentable square footage for each tenant; 3) the commencement and expiration date of each tenant's Lease; 4) the monthly rental payable by each tenant (including the date and amount of any schedule rent escalation's during the Lease term); 5) the amount and nature of expenses for which the tenant is responsible; 6) the amount of any security deposit; 7) details of any extension options, any options to terminate or lease additional space, and any rights of first refusal; 8) any free rent, or other unexpired concessions or inducements, or obligations of Seller; and 9) aging of current accounts receivable from tenants, along with a listing of any prepaid rent (all rent is assumed due on the first of the month unless otherwise noted), (the "Rent Roll"). (5) 7 The most current Rent Roll is attached as Exhibit I. Seller shall deliver to Buyer for its approval, ten (10) days prior to the Closing Date, an updated Rent Roll dated not earlier than ten (10) days prior to the Closing Date and certified by Seller to be accurate and complete (the "Updated Rent Roll"). (viii) Leases. Copies of all Leases with all tenants of the Improvements, certified by Seller and access to copies of all correspondence to or from such tenants. Seller may comply with its obligation to deliver copies of Leases by providing Buyer and its agents with full access to its lease files; (ix) Operating Statements. Copies of operating statements for the Property certified by Seller (or audited, if audited statements are available) to be accurate and complete, which shall cover the past two (2) calendar years and the monthly period of January 1998 as it becomes available (Buyer hereby acknowledging and agreeing that the operating statements for January 1998 is in the process of being prepared and shall be provided to Buyer within five (5) business days after it is prepared and finalized). Such statements shall include itemization of income and expense, itemization of all capital expenditures made and a report of net cash receipts during the respective periods; (x) Licenses, Etc. Copies of any licenses, permits or certificates required by governmental authorities in connection with construction or occupancy of the Improvements, including, without limitation, building permits, certificates of completion, certificates of occupancy, environmental permits and licenses, and swimming pool and sign permits; (xi) Insurance Policies. Copies of all liability, fire and casualty insurance policies carried by Seller and an insurance claims history for the most recent calendar year prior to Closing, which shall be delivered within two (2) weeks after the Effective Date; (xii) Commission Agreements. A complete list, and copies, of all agreements for leasing commissions and/or locator fees payable on prior leases, existing leases and renewals or options affecting the Property (and, if such agreements show a commission or locator fee which will be due or payable after the Effective Date, an executed release from the broker or finder releasing Buyer and its successors and assigns from any obligation to pay such commission or locator fee and agreeing to look solely to Seller for payment (the "Commission Releases")); (xiii) Other Documents. Current property tax bills, and all data, correspondence, documents, agreements, waivers, notices, applications and other records with respect to the Property relating to transactions with taxing authorities, governmental agencies, utilities, vendors, tenants and others with whom Buyer may be dealing from and after the Closing Date. Seller may satisfy this requirement by making its files available to Buyer. (6) 8 (b) Independent Audit. Promptly following the execution of this Agreement and to the extent not already provided pursuant to the terms of Paragraph 4(a), above, Seller shall provide to Buyer's representatives and independent accounting firm access to all financial and other information relating to the Property which would be sufficient to enable Buyer's representatives and independent accounting firm to prepare audited financial statements for 1996, 1997 and 1998 year-to-date in conformity with generally accepted accounting principles and to enable them to prepare such statements, reports or disclosures as Buyer may deem necessary or advisable. Seller shall reasonably cooperate with Buyer's representatives and independent accounting firm in connection with the aforementioned financial analysis and shall provide any additional information necessary to allow Buyer to make disclosures required by and otherwise comply with the financial accounting requirements of Regulation S-X promulgated by the Securities and Exchange Commission. Seller shall provide Buyer's independent accounting firm a signed representation letter which will be sufficient to enable an independent public accountant to render an opinion on the financial statements related to the Property. Seller shall authorize any attorneys who have represented Seller in any material litigation pertaining to or affecting the Property to respond, at Buyer's expense, to inquiries from Buyer's representatives and independent accounting firm. If and to the extent Seller's financial statements pertaining to the Property for any periods during the years 1996, 1997 or 1998 year-to-date have been audited, promptly after the execution of this Agreement, Seller shall provide Buyer with copies of such audited financial statements and shall cooperate with Buyer's representatives and independent public accountants to enable them to contact the auditors who prepared such audited financial statements and to obtain, at Buyers expense, a reissuance of such audited financial statements. If this Agreement terminates prior to the Closing, other than by reason of a default of Seller, Buyer shall deliver to Seller copies of any audited financial statements of the Property prepared for Buyer and assign to Seller without warranty all of Buyer's rights thereto. The provisions of this section 4 (b) shall survive Closing. 5. Due Diligence Review. (a) Approval of Preliminary Documents and Physical Condition. Buyer shall review each of the Preliminary Documents, and the physical condition of the Property, and such other items as Buyer deems necessary and shall advise Seller in writing of any objectionable condition revealed in its review by written notice to Seller within twenty (20) days after Buyer's receipt of all Preliminary Documents. Buyer shall complete its review of the Preliminary Documents and the physical condition of the Property and all other reviews permitted or otherwise provided for in this Agreement on or before forty-five (45) days after the Effective Date (the "Due Diligence Period"). If Buyer fails to so notify Seller within the Due Diligence Period as to any or all of the Preliminary Documents, or as to the physical condition of the Property, then such Preliminary Document(s) or physical condition shall be deemed approved by Buyer. Subject to Paragraph 3(d) and Paragraph 6, Seller shall have five (5) business days after the earlier of: (i) Delivery to Seller of specific written disapproval of all or any Preliminary Documents, or of the physical condition of the Property; or (7) 9 (ii) Expiration of the Due Diligence Period if any Preliminary Document or the physical condition of the Property is deemed disapproved, to notify Buyer in writing that either (1) Seller shall cause the Preliminary Document or condition disapproved to be cured, removed or terminated, as the case may be, prior to the Closing Date, or (2) Seller shall not cause such Preliminary Document or condition to be cured, removed or terminated. If Seller fails to so notify Buyer within the five (5) day period, then Seller shall be deemed to have elected the option in clause (a)(ii)(2) above. If Seller elects the option in clause (a)(ii)(2) above, then, subject to the provisions of Paragraph 7, below, Buyer shall have the right in its sole discretion to either waive the objectionable condition and proceed with the purchase pursuant to this Agreement or terminate this Agreement and receive a return of the Earnest Money. If Seller gives notice pursuant to (a)(ii)(l), above, and fails to remove or otherwise satisfy the objectionable condition, and Buyer is unwilling to waive such condition, Seller shall be in default and Buyer shall have the rights and remedies set forth in Paragraph 7, below. (b) Termination of Agreement . Notwithstanding anything in this Agreement to the contrary, but subject to the loss of part or all of its Earnest Money, Buyer shall have the right to terminate this Agreement at any time during the Due Diligence Period. In the event this Agreement is terminated pursuant to Paragraph 5, then, subject to the provisions of Paragraph 7, the Earnest Money shall be returned to Buyer and all obligations of Buyer and Seller hereunder (except the provisions of this Agreement which recite that they survive termination) shall terminate and be of no further force or effect. The provisions of this Subparagraph shall survive termination of this Agreement. (c) In the event Buyer fails to terminate this Agreement pursuant to any provisions of this section 5 within the Due Diligence Period, the earnest money shall become non-refundable subject only to (i) the Conditions Precedent to Closing as set out in paragraph 6 below and (ii) a material default by Seller thereafter occurring resulting in Buyer's termination of this Agreement. 6. Conditions Precedent to Closing. The following are conditions precedent to Buyer's obligation to purchase the Property (the "Conditions Precedent"). The Conditions Precedent are intended solely for the benefit of Buyer and may be waived only by Buyer in writing. In the event any Condition Precedent is not satisfied or waived by Buyer, Buyer may, in its sole and absolute discretion, terminate this Agreement at which point the Earnest Money shall be returned to Buyer and, subject to the provisions of Paragraph 7, all obligations of Buyer and Seller hereunder (except provisions of this agreement which recite that they survive termination) shall terminate and be of no further force or effect; provided, however, that in the event any of the Conditions Precedent have not been satisfied or waived, Buyer shall so inform Seller of same and Seller shall have thirty (30) days from the date of such notification to satisfy such Condition Precedent. (8) 10 (a) All of Seller's representations and warranties contained in this Agreement shall have been substantially true and correct in all material respects when made and shall be substantially true and correct in all material respects as of the Closing Date. (b) The physical condition of the Property shall be substantially the same on the Closing Date as on the date of Buyer's execution of this Agreement, except for reasonable wear and tear and loss by casualty (subject to the provisions of Paragraph 13, below) and repairs, replacements and improvements made with Buyer's written approval. (c) As of the Closing Date, there shall be no litigation or administrative agency or other governmental proceeding of any kind whatsoever, pending or threatened, which was not disclosed in writing to Buyer during the Due Diligence Period and which, after Closing would, in Buyer's reasonable opinion, materially adversely affect the value of the Property or the ability of Buyer to operate the Property in the manner in which it is currently being operated, and no proceedings shall be pending or threatened which could or would cause the redesignation or other modification of the zoning classification of, or of any building or environmental code requirements applicable to, any of the Property. (d) Seller shall terminate at or prior to the Closing Date, at no cost or expense to Buyer, any and all contracts or other agreements affecting the Property that are not Assumed Contracts. (e) Seller shall have substantially complied with all of Seller's material duties and obligations contained in this Agreement. (f) Seller shall have delivered to Buyer tenant certificates ("Tenant Certificates") dated within thirty (30) days of the Closing Date in a form substantially similar to Exhibit "L" attached hereto from tenants under Leases of the Property representing ninety percent (90%) of the gross revenue of the Property; provided, that in the event that any state agency, including but not limited to the Texas Workforce Commission, requires the use of a different form, Buyer shall accept such different form for such tenant. 7. Remedies. (a) In the event the sale of the Property is not consummated solely because of a breach or default under this Agreement on the part of Buyer, the Earnest Money shall be paid to and retained by Seller as liquidated damages. The parties have agreed that Seller's actual damages, in the event of a default by Buyer, would be extremely difficult or impracticable to determine. THEREFORE, BY PLACING THEIR INITIALS BELOW, THE PARTIES ACKNOWLEDGE THAT FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($500,000.00) HAS BEEN AGREED UPON, AFTER NEGOTIATION, AS THE PARTIES' REASONABLE ESTIMATE OF SELLER'S DAMAGES AND AS SELLER'S EXCLUSIVE REMEDY AGAINST BUYER, AT LAW OR IN EQUITY, IN THE EVENT OF A DEFAULT UNDER THIS AGREEMENT ON THE PART OF BUYER. INITIALS: Seller __________ Buyer __________ (9) 11 (b) In the event the sale of the Property is not consummated solely because of a material default under this Agreement on the part of Seller occurring after the expiration of the Due Diligence Period (other than a delay by Seller in providing any of the Preliminary Documents as provided for above, which delay shall not be deemed a default hereunder), Buyer shall have the option of either (1) terminating this Agreement and receiving back the Earnest Money, or (2) continue this Agreement pending Buyer's action for specific performance of this Agreement. 8. Closing and Escrow. (a) Upon mutual execution of this Agreement, the parties hereto shall deposit an executed counterpart of this Agreement with Escrow Holder and this Agreement shall serve as instructions to Escrow Holder for consummation of the purchase and sale contemplated hereby. (b) The parties shall conduct an escrow Closing. The Closing shall take place at the offices of Seller's legal counsel, Dodd & Batla, A Professional Corporation, located at 800 Brazos, Suite 1400, Austin, Texas 78701. D. Michael Dodd shall handle the Closing as agent of the Title Company. The Closing shall be on or before sixty (60) days from the Effective Date (as extended, if applicable, pursuant to section 4 (a) and Paragraph 6), or on such other date mutually agreed upon between Buyer and Seller in writing (the "Closing Date"). In the event the Closing does not occur on or before the Closing Date, Escrow Holder shall, unless it is notified by both parties to the contrary within five (5) days after the Closing Date, return to the depositor thereof items which were deposited hereunder; provided, however, that in the event Escrow Holder receives conflicting notices, Escrow Holder may place such items in the registry of the District Court of Travis County, Texas. Any such return shall not, however, relieve either party of any liability it may have for its wrongful failure to Close. (c) At or before the Closing, Seller shall deliver to Escrow Holder or Buyer the following: (i) a duly executed and acknowledged Deed; (ii) a duly executed Bill of Sale; (iii) originals of all Leases and a duly executed and acknowledged Assignment of Leases; (iv) originals of the Assumed Contracts not previously delivered to Buyer (to the extent originals are available; provided if originals are not available Seller shall provide Buyer with true, correct and complete copies); (v) a duly executed Assignment of Intangible Property; (10) 12 (vi) originals of the building permits and certificates of occupancy for the Improvements and all tenant-occupied space included within the Improvements and all Warranties and Guaranties not previously delivered to Buyer; (vii) notices to the Tenants, each prepared and completed by Seller for each Tenant, in the form attached as Exhibit J, each duly executed by Seller; (viii) the Tenant Certificates; (ix) a duly executed affidavit that Seller is not a "foreign person" within the meaning of Section 1445(e)(3) of the Internal Revenue Code of 1986 (the "Code") in the form attached as Exhibit K; (x) such resolutions, authorizations, bylaws or other corporate and/or partnership documents or agreements relating to Seller and its partners as shall be reasonably required by Buyer; (xi) a full release of all monetary encumbrances affecting the Property, including without limitation any mechanics' liens and such bond, indemnity or other arrangements as shall be necessary to cause the Title Company to insure title to the Property as vested in Buyer without any exception for such matters; (xii) a closing statement in form and content satisfactory to Buyer and Seller (the "Closing Statement") duly executed by Seller; (xiii) all keys to the Property (except for keys in the possession of the tenants); (xiv) evidence of termination of any contracts and other agreements affecting the Property that are not Assumed Contracts; and (xv) any documents or agreements reasonably required by the Title Company to issue the Title Policy. Buyer may waive compliance on Seller's part under any of the foregoing items by an instrument in writing. (d) At or before the Closing, Buyer shall deliver to Escrow Holder or Seller the following: (i) a duly executed Assignment of Leases; (ii) a duly executed Assignment of Intangible Property; (iii) the Closing Statement, duly executed by Buyer; and (11) 13 (iv) the Purchase Price less any holdbacks and proration credits provided for this Agreement. (e) Seller and Buyer shall each deposit such other instruments as are reasonably required by Escrow Holder or Title Company or otherwise required to close the escrow and consummate the purchase of the Property in accordance with the terms hereof. (f) Prorations, Closing Costs and Adjustments. (1) The following are to be apportioned as of 12:01 AM on the Closing Date, as follows: (i) Rent. Rent under the Leases shall be apportioned as of the Closing Date. With respect to any rent arrearages arising under the Leases, after Closing, Buyer shall pay to Seller any rent actually collected which is applicable to the period preceding the Closing Date; provided, however, that all rent collected by Buyer shall be applied first to all unpaid rent accruing after the Closing Date, and then to unpaid rent accruing prior to the Closing Date. Buyer shall not be obligated to take any steps to recover any rent arrearages. Seller shall be permitted to pursue its remedy for collection of any rent arrearages applicable to the period prior to the Closing Date, provided that Buyer shall incur no cost, expense or liability in connection therewith, but Seller shall not be permitted to enforce any other legal or equitable remedies specifically including commencing eviction procedures. (ii) Leasing Costs. Seller shall pay as of the Closing all leasing commission and tenant improvement costs, if any, in connection with any Lease executed on or before the Closing that are or will become due and payable as of or after the Closing. Buyer shall be entitled to a credit against the Purchase Price for any such commissions or costs incurred in connection with any Lease executed on or before the Closing. (iii) Security Deposits. Buyer shall be entitled to a credit against the Purchase Price for the total sum of all security deposits paid to Seller by tenants under any Leases, and any interest earned thereon which, by law or the terms of such Leases, is payable to such tenants. (iv) Unexpired Concessions. Buyer shall be entitled to a credit against the Purchase Price for any free rent, abatements, or other unexpired concessions under any Leases to the extent they apply to any period after the Closing. (v) Tenant Charges. Where the Leases contain tenant obligations for taxes, common area expenses, operating expenses or additional charges of any other nature, and where Seller has collected any portion thereof in excess (12) 14 of amounts owed by tenants for such items for the period prior to the Closing Date, then there shall be an adjustment and credit given to Buyer on the Closing Date for such excess amounts collected. Buyer shall apply all such excess amounts to the charges owed by tenants for such items for the period after the Closing Date and, if required by the Leases, shall rebate or credit tenants with any remainder. If it is determined that the amount collected during Seller's ownership period exceeded the tenants' obligation to pay for such expenses incurred during the same period by more than the amount previously credited to Buyer at Closing, then Seller shall promptly pay to Buyer the deficiency upon demand after the Closing. (vi) Utility Charges. Seller shall cause all the utility meters to be read on the Closing Date, and will be responsible for the cost of all utilities used prior to the Closing Date, except to the extent such utility charges are billed to and paid by tenants directly. (vii) Real Estate Taxes and Special Assessments. General real estate taxes payable for the 1997 calendar year and all prior years shall be paid by Seller. General real estate taxes payable for the 1998 calendar year shall be prorated between Seller and Buyer as of the Closing Date. Seller shall pay on or before Closing the full amount of any bonds or assessments against the Property including interest payable therewith, including any bonds or assessments that may be payable after the Closing Date as a result of or in relation to the construction or operation of any Improvements or any public improvements that took place or for which any assessment was levied prior to the Closing Date. Buyer shall pay the full amount of any bonds or assessments incurred after the Closing Date that are not subject to the immediately preceding sentence. If the amount of general real estate taxes for the 1998 calendar year cannot be determined on the Closing Date, then a proration shall be made by the parties based on a reasonable estimate of the real property taxes applicable to the Property and the parties shall adjust the proration when the actual amount becomes known upon the written request of either party made to the other. (viii) Other Apportionments. Amounts payable under the Assumed Contracts, annual or periodic permit and/or inspection fees (calculated on the basis of the period covered), and liability for other Property operation and maintenance expenses and other recurring costs shall be apportioned as of the Closing Date. (ix) Preliminary Closing Adjustment. Seller and Buyer shall jointly prepare and approve a preliminary Closing adjustment on the basis of the Leases and other sources of income and expenses, and shall deliver such computation to Escrow Holder prior to Closing. (13) 15 (x) Post-Closing Reconciliation. Subject to the provisions of Subparagraph vii above, if any of the aforesaid prorations cannot be definitely calculated on the Closing Date, then they shall be estimated at the Closing and definitely calculated as soon after the Closing Date as feasible, but in any event within sixty (60) days after the Closing Date. As soon as the necessary information is available, Buyer shall conduct a post-Closing audit to determine the accuracy of all prorations made to the Purchase Price (the "Post-Closing Audit"). Either party owing the other party a sum of money based on such subsequent proration(s) or the Post-Closing Audit shall promptly pay said sum to the other party, together with interest thereon at the rate of two percent (2%) over the "prime rate" (as announced from time to time in the Wall Street Journal) per annum from the Closing Date to the date of payment if payment is not made within ten (10) days after delivery of a bill therefor. (2) Closing Costs. Seller shall pay for the Survey, the Title Commitment and the premium for the Title Policy, the charge for the survey deletion, the cost of any Endorsements, the chain of title search any escrow fees or costs and sales tax (if any). Recording fees, shall be paid fifty percent (50%) by Buyer and fifty percent (50%) by Seller. Seller shall be responsible for all costs incurred in connection with the prepayment or satisfaction of any loan or bond secured by the Property including, without limitation, any prepayment fees, penalties or charges. All other costs and charges of the escrow for the sale not otherwise provided for in this Agreement shall be allocated in accordance with the closing customs for Travis County, Texas. Buyer and Seller shall each be responsible for their respective legal fees to negotiate and execute this Agreement. In the event this Agreement is terminated or Closing occurs, the foregoing allocation of costs shall survive such termination or Closing. (3) Survival. The provisions of this Subparagraph (f) shall survive the Closing. 9. Representations, Warranties and Covenants of Seller. As of the date hereof and again as of Closing, Seller represents and warrants to, and covenants with, Buyer as follows: (a) To Seller's knowledge, (i) there are now, and at the time of Closing will be, no material physical or mechanical defects of the Property, including, without limitation, the structural and load-bearing components of the Property, the parking lots, the plumbing, heating, air conditioning and electrical and life safety systems, and (ii) all roofs have approximately ten (10) years of useful life remaining (assuming the roofs are subject to a normal maintenance program), provided, however, Buyer shall verify to its satisfaction during the Due Diligence Period the number of years of remaining useful life of all roofs and this representation shall not serve as a warranty or covenant and shall not survive closing. (b) All documents delivered by Seller to Buyer, or made available to Buyer for review in connection with the transactions contemplated hereunder, including without (14) 16 limitation, all documents described in Paragraph 4, above, are and at the time of Closing will be complete copies of all such documents in Seller's possession and/or control. (c) To Seller's knowledge, there are no condemnation, environmental, zoning or other land-use regulation proceedings, either instituted or planned to be instituted, affecting the Property (other than as set forth in the Title Commitment). Seller shall notify Buyer promptly of any such proceedings of which Seller becomes aware. (d) Seller has not been served with, Seller has no knowledge of any pending, and Seller has received no written notice of any threatened litigation against Seller or any basis therefor that arises out of the ownership of the Property. Seller shall notify Buyer promptly of any such litigation of which Seller becomes aware. (e) (i) To Seller's knowledge, Seller and the Property is in compliance in all material respects with all Environmental Laws; (ii) Seller has not received any notice, order, directive, complaint or other communication, written or oral, from any governmental agency or other person or entity alleging the occurrence of any violation of any Environmental Laws; and (iii) to Seller's knowledge, the Property does not contain any building materials that contain Hazardous Material. For the purposes of this subparagraph, the following words shall have the following meanings: (1) "Environmental Law" means federal, state and local laws, statutes, ordinances, rules, regulations (including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended from time to time (42 U.S.C. Sections 9601 et seq.) ("CERCLA"), the Federal Insecticide Fungicide and Rodenticide Act of 1976 (7 U.S.C. Sections 136, et. seq. ("FIFRA") and the applicable provisions of the Texas Health and Safety Code, and Texas Water Code, as amended from time to time (the "Texas Codes") and rules and regulations promulgated thereunder), authorizations, judgments, decrees, administrative orders, concessions, grants, franchises, agreements and other governmental restrictions and requirements relating to the environment or to any Hazardous Material. (2) "Hazardous Material" means, at any time, (a) any substance, product, chemical, compound, material, mixture, waste or other material of any nature whatsoever (i) which is now or hereafter listed, defined or otherwise classified pursuant to any Environmental Laws as a "hazardous substance", "hazardous waste", "infectious waste", "hazardous material", "extremely hazardous waste", "toxic substance", "toxic pollutant" or any other formulation intended to define, list or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, toxicity or reproductive toxicity; (ii) which is now or hereafter regulated or listed by any local, state or federal governmental authority, entity or agency pursuant to any Environmental Laws; or (iii) which may give rise to any liability under any Environmental Laws or under any statutory or common law theory based on negligence, trespass, intentional tort, nuisance or strict liability or under any reported decisions of state or federal court; (b) asbestos and (15) 17 asbestos-containing materials; and (c) radon; (d) PCB's, petroleum and petroleum products or fractions thereof, including without limitation, crude oil, and any fraction thereof, natural gas, natural gas liquids, liquefied natural gas or synthetic gas usable for fuel or any mixture thereof. (f) Seller has not filed or been the subject of any filing of a petition under the Federal Bankruptcy Law or any federal or state insolvency laws or laws for composition of indebtedness or for the reorganization of debtors. (g) There are no free rent, abatements, incomplete tenant improvements, rebates, allowances, or other unexpired concessions (collectively referred to as "Offsets") or rights under any existing or pending Leases that will be outstanding as of the Closing Date and Seller has paid in full any of landlord's leasing costs or obligations. (h) No brokerage, finders fee or commission, locator fee or similar fee or commission is due or unpaid by Seller with respect to any Lease. (i) The copies of the Leases delivered by Seller to Buyer contain all of the information pertaining to any rights of any parties to occupy the Property, including, without limitation, all information regarding any rent concessions, tenant improvements, or other inducements to lease. (j) The Rent Roll is true, complete and accurate and, except as disclosed by Seller to Buyer in writing, there exist no defaults or events which, with the giving of notice or passage of time, or both, would constitute a default by Seller as landlord under the Leases listed thereon. To Seller's knowledge, there exist no defaults and no events which, with the giving of notice or passage of time, or both, would constitute a default by any tenants thereon. (k) Seller is a limited partnership, duly organized and validly existing and in good standing under the laws of the State of Texas; this Agreement and all documents executed by Seller which are to be delivered to Buyer at the Closing are and at the time of Closing will be duly authorized, executed and delivered by Seller, are and at the time of Closing will be legal, valid and binding obligations of Seller enforceable against Seller in accordance with their respective terms, are and at the time of Closing will be sufficient to convey title (if they purport to do so), and do not and at the time of Closing will not violate any provision of any agreement or judicial order to which Seller or the Property is subject. Seller has obtained all necessary authorizations, approvals and consents to the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. (l) Seller is not a "foreign person" within the meaning of Section 1445(f)(3) of the Code. (m) Seller is the legal and equitable owner of the Property, with full right to convey the same, and without limiting the generality of the foregoing, Seller has not granted any (16) 18 option or right of first refusal or first opportunity to any party to acquire any interest in any of the Property. For purposes of this Agreement, whenever the phrase "to Seller's knowledge" or words of similar import are used, they shall be deemed to refer to the knowledge after due and diligent inquiry of Seller's files of (i) North Austin Office, Ltd., (ii) all general partners of the entities comprising Seller, (iii) all individuals who have acted as property managers of the Property while it has been owned by Seller, (iv) all employees or agents of Seller or a general partner of Seller with supervisory responsibilities concerning the Property, and (v) such other persons at a management or supervisory level who would, in the ordinary course of their responsibilities as employees or agents of Seller, receive notice from other agents or employees of Seller or from other persons or entities of any of the matters described in the representations and warranties in this Agreement which are limited by the knowledge of Seller. 10. Representations and Warranties of Buyer. Buyer hereby represents and warrants to Seller that Buyer is a real estate investment trust organized under the laws of the State of Texas; this Agreement and all documents executed by Buyer which are to be delivered to Seller at the Closing are or at the time of Closing will be duly authorized, executed and delivered by Buyer, and are or at the Closing will be legal, valid and binding obligations of Buyer, and do not and at the time of Closing will not violate any provisions of any agreement or judicial order to which Buyer is subject. 11. Continuation and Survival. All representations, warranties and covenants by the respective parties contained herein or made in writing pursuant to this Agreement are intended to and shall be deemed made as of the date of, this Agreement or such writing and again-at the Closing, shall be deemed to be material, and unless expressly provided to the contrary shall survive and shall survive the execution and delivery of this Agreement and the Closing until the second (2nd) anniversary of the Closing Date and shall terminate upon such date except as to any claim asserted by Buyer to Seller by notice given before such date. 12. Indemnity. (a) Seller shall hold harmless, indemnify and defend Buyer, its successors and assigns and their respective agents, employees, officers, trustees, members and retirants and the Property from and against any and all obligations, liabilities, claims, liens or encumbrances, demands, losses, damages, causes of action, judgments, costs and expenses (including attorneys' fees), whether direct, contingent or consequential and no matter how arising ("Losses and Liabilities") in any way (i) related to the Property and arising or accruing during the time prior to the Closing; (ii) related to or arising from any act, conduct, omission, contract or commitment of Seller with respect to the Property; or (iii) resulting from any misrepresentation of Seller or any inaccuracy in or breach of any representations and warranties by Seller or resulting from any breach or default by Seller under this Agreement. (b) Except for Losses and Liabilities arising directly or indirectly from or out of a circumstance resulting from a breach of any of Seller's representations or warranties, or which shall have arisen out of any aspect of the Property, its management or operations prior to (17) 19 Closing, Buyer shall hold harmless, indemnify and defend Seller, its successors and assigns and their respective agents, employees, officers and partners, from and against any and all Losses and Liabilities in any way (i) related to the Property and arising or accruing during the time that Buyer owns or has any interest in the Property; (ii) related to or arising from any act, conduct, omission, contract or commitment of Buyer at any time or times, including, without limitation, any claim arising or occurring under any Lease or any Assumed Contract during the time that Buyer owns or has any interest in the Property; or (iii) resulting from any misrepresentation of Buyer or any inaccuracy in or breach of any representation or warranty of Buyer or resulting from any breach or default by Buyer under this Agreement. (c) The provisions of Paragraph 12 shall survive Closing. 13. Risk of Loss. In the event any of the Property is damaged or destroyed prior to the Closing Date, and such damage or destruction (a) is fully covered by Seller's insurance, except for the deductible amounts and any coinsurance contribution due from Seller thereunder, and the insurer agrees to timely pay for the entire cost of such repair less such deductible and coinsurance, and (b) would cost Two Hundred Thousand Dollars ($200,000.00) or less to repair or restore, then this Agreement shall remain in full force and effect and Buyer shall acquire the Property upon the terms and conditions set forth herein. In such event, Buyer shall receive a credit against the Purchase Price equal to such deductible and coinsurance amounts, and Seller shall assign to Buyer all of Seller's right, title and interest in and to all proceeds of insurance on account of such damage or destruction. In the event any of the Property is damaged or destroyed prior to the Closing Date, and such damage or destruction (c) is not fully covered by Seller's insurance, other than the deductible and coinsurance amounts, and (d) would cost less than Two Hundred Thousand Dollars ($200,000.00) to repair or restore, then the transaction contemplated by this Agreement shall be consummated with Buyer receiving a credit against the Purchase Price at the Closing in an amount reasonably determined by Seller and Buyer (after consultation with unaffiliated experts) to be the cost of repairing such damage or destruction, but in no event more than Two Hundred Thousand Dollars ($200,000.00). In the event (e) any of the Property is damaged or destroyed prior to the Closing and the cost of repair would exceed Two Hundred Thousand Dollars ($200,000.00), or (f) if condemnation proceedings are commenced against any of the Property, then, notwithstanding anything to the contrary set forth in this Paragraph, Buyer shall have the right, at its election, either to terminate this Agreement in its entirety, or only as to that portion of the Property subject to condemnation proceedings (in which case there shall be an equitable adjustment to the Purchase Price), or to not terminate this Agreement and purchase the Property. Buyer shall have thirty (30) days after Seller notifies Buyer that any portion of the Property is subject to condemnation proceedings to make such election by delivery to Seller of an election notice (the "Election Notice"). Buyer's failure to deliver the Election Notice within such thirty (30) day period shall be deemed an election to terminate this Agreement in its entirety. In the event this Agreement is terminated in its entirety or in part pursuant to this Paragraph, by delivery of notice of termination to Seller, Buyer and Seller shall each be released from all obligations hereunder pertaining to that portion of the Property affected by such termination. In the event Buyer elects not to terminate this Agreement, Seller shall notify Buyer that Buyer shall receive a credit against the Purchase Price at the Closing in the amount equal to the value agreed upon by Buyer and Seller of any Property taken as a result of such proceeding, in which case this Agreement shall otherwise remain in full force and effect, and Seller shall be entitled to any condemnation (18) 20 awards. Any repairs elected to be made by Seller pursuant to this Paragraph shall be made within one hundred and eighty (180) days following such damage or destruction and the Closing shall be extended until the repairs are substantially completed. As used in this Paragraph, the cost to repair or restore shall include the cost of lost rental revenue. 14. Possession. Possession of the Property shall be delivered to Buyer on the Closing Date (subject to the rights of the tenants in possession under Leases), provided, however, that prior to the Closing Date Seller shall afford authorized representatives of Buyer reasonable access to the Property for purposes of satisfying Buyer with respect to the representations, warranties and covenants of Seller contained herein and with respect to satisfaction of any Conditions Precedent to the Closing contained herein, including, without limitation, a Phase I environmental investigation. In the event this Agreement is terminated, Buyer shall restore the Property to substantially the condition in which it was found. Buyer hereby agrees to indemnify and hold Seller harmless from any damage or injury to persons or property caused by Buyer or its authorized representatives during their entry and investigations prior to the Closing. The indemnity contained in the preceding sentence shall survive the termination of this Agreement or the Closing, as applicable, provided that Buyer shall have no liability under such indemnity unless Seller gives Buyer written notice of any claim it may have against Buyer under such indemnity within twelve (12) months of such termination or the Closing Date, as applicable. 15. Maintenance of the Property and Property Personnel. Between Seller's execution of this Agreement and the Closing, Seller shall maintain the Property in good order, condition and repair, reasonable wear and tear excepted, shall perform all work required to be performed by the landlord under the terms of any Lease, and shall make all repairs, maintenance and replacements of the Improvements and any Tangible Personal Property and otherwise operate the Property in the same manner as before the making of this Agreement, as if Seller were retaining the Property. After full execution of this Agreement and until the Closing, Seller shall maintain all existing personnel on the Property, if any, in their current employment positions at their current (or an increased) rate of compensation. Any changes in such personnel, other than in the ordinary course of business which would not result in a reduction in the level of management attention or service to the Property, shall be subject to Buyer's reasonable approval. 16. Leasing; Buyer's Consent to New Contracts Affecting the Property; Termination of Existing Contracts. Seller shall use commercially reasonable efforts until Closing to lease any vacant space in the Improvements to tenants pursuant to Space Leases in form and content acceptable to Buyer. Seller shall not, after the date of Seller's execution of this Agreement, enter into any Lease or contract affecting the Property, or any amendment thereof, or permit any tenant to enter into any sublease, assignment or agreement pertaining to the Property, or waive, compromise or settle any rights of Seller under any contract or Lease, or agree to return any security deposit, or modify, amend, or terminate any Assumed Contract, without in each case obtaining Buyer's prior written consent thereto, which consent shall not be unreasonably withheld or delayed (unless Seller's permission or consent is otherwise required in such lease or related agreement or such lease or related agreement provides that Seller is not to unreasonably withhold consent to such action, it being hereby specifically agreed that Seller need not obtain Buyer's prior written consent to any matter in which the lease or agreement provides that Seller's permission or consent is not to be unreasonably (19) 21 withheld, but Seller will provide prior written notice of any such required action). Buyer shall be deemed to have disapproved any request for consent made by Seller pursuant to this paragraph if Buyer fails to respond to Seller with Buyer's approval or disapproval within five (5) business days of Seller's request for Buyer's approval. Seller shall terminate prior to the Closing, at no cost or expense to Buyer, any and all management agreements or contracts affecting the Property that Purchaser requests be terminated. 17. Insurance. Through the Closing Date, Seller shall maintain or cause to be maintained, at Seller's sole cost and expense: (a) a policy or policies of insurance in amounts equal to the full replacement value of the Improvements and the Tangible Personal Property, insuring against all insurable risks, including, without limitation, fire, vandalism, malicious mischief, lightning, windstorm, water, earthquake and other perils customarily covered by casualty insurance and the costs of demolition and debris removal; and (b) a policy or policies of workers' compensation an employers' liability insurance, commercial general liability insurance, and automobile liability insurance, each in the amount and form maintained by Seller prior to the date of this Agreement. 18. Cooperation with Buyer. Seller shall cooperate and do all acts as may be reasonably required or requested by Buyer with regard to the fulfillment of any Condition Precedent but Seller's representations and warranties to Buyer shall not be affected or released by Buyer's waiver or fulfillment of any Condition Precedent. Seller hereby irrevocably authorizes Buyer and its agents to make all reasonable inquiries with and applications to any third party, including any governmental authority, as Buyer may reasonably require to complete its due diligence. 19. Brokers and Finders. Pursuant to separate agreement, Seller shall pay CB Commercial Real Estate Group, Inc., Capital Leasing, Management & Sales, and Wes Kirkham Properties, a brokerage commission for their services in this transaction. Except as provided in the foregoing sentence, neither party has had any contact or dealings regarding the Property, or any communication in connection with the subject matter of this transaction, through any real estate broker or other person who can claim a right to a commission or finder's fee in connection with the sale contemplated herein. In the event that any other broker or finder claims a commission or finder's fee based upon any contact, dealings or communication, the party through whom the broker or finder makes its claim shall be responsible for said commission or fee and all costs and expenses (including reasonable attorneys' fees) incurred by the other party in defending against the same. The party through whom any other broker or finder makes a claim shall hold harmless, indemnify and defend the other party hereto, its successors and assigns, agents, employees, officers, trustees, members and retirants and the Property from and against any and all obligations, liabilities, claims, demands, liens, encumbrances and losses (including attorneys' fees), whether direct, contingent or consequential, arising out of, based on, or incurred as a result of such claim. The provisions of this Paragraph shall survive the Closing or termination of this Agreement. (20) 22 20. INTENTIONALLY OMITTED. 21. Publicity and Confidentiality. The parties shall at all times keep this transaction and any documents received from each other confidential, except to the extent necessary to (a) comply with applicable law and regulations, or (b) carry out the obligations set forth in this Agreement. Any such disclosure to third parties shall indicate that the information is confidential and should be so treated by the third party. No press release or other public disclosure may be made by Seller or any of its agents concerning this transaction without the prior written consent of Buyer. 22. Miscellaneous. (a) Notices. Any notice, consent or approval required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given upon (i) hand delivery, (ii) one (1) business day after being deposited with Federal Express or another reliable overnight courier service or next day delivery, (iii) being transmitted by facsimile telecopy, or (iv) two (2) business days after being deposited in the United States mail, registered or certified mail, postage prepaid, return receipt required, and addressed as follows: If to Seller: North Austin Office, Ltd. ------------ 580 5th Avenue, Room 617 New York, New York 10036 Attn: Morris Friedman Fax No.: 212-221-1834 Telephone No.: 800 225-5844 And a copy to: Dodd & Batla, A Professional Corporation -------------- 800 Brazos, Suite 1400 Austin, Texas 78701 Attn: D. Michael Dodd Fax No.: 512-472-1522 Telephone No.: 512-472-1520 If to Seller: American Industrial Properties REIT ------------ 6210 North Beltline, Suite 170 Irving, Texas 75063-2656 Attn: Mr. Lewis D. Friedland Fax No.: (972) 550-6037 Telephone No.: (972) 550-6053 And a copy to: Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. 2001 Ross Avenue, Suite 3000 Dallas, Texas 75201-8001 Attn: Brad B. Hawley Fax No.: (214) 849-5599 Telephone No.: (214) 849-5588 or such other address as either party may from time to time specify in writing to the other. (21) 23 (b) Successors and Assigns. This Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors, heirs, administrators and assigns. Neither Buyer nor Seller shall assign its right, title and interest in and to this Agreement without the other party's prior written consent unless any such assignment is to an affiliate of Buyer or Seller, as the case may be, in which event no such consent shall be required. (c) Amendments. Except as otherwise provided herein, this Agreement may be amended or modified only by a written instrument executed by Seller and Buyer. (d) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas. (e) Merger of Prior Agreements. This Agreement and the exhibits hereto constitute the entire agreement between the parties and supersede all prior agreements and understandings between the parties relating to the subject matter hereof, as the same may have been amended, which shall be of no further force or effect upon execution of this Agreement by Buyer and Seller. (f) Enforcement. In the event a dispute arises concerning the performance, meaning or interpretation of any provision of this Agreement, the defaulting party or the party not prevailing in such dispute shall pay any and all costs and expenses incurred by the other party in enforcing or establishing its rights hereunder, including, without limitation, court costs and attorneys' fees. In addition to the foregoing award of attorneys' fees to the prevailing party, the prevailing party in any lawsuit on this Agreement shall be entitled to its attorneys' fees incurred in any post judgment proceedings to collect or enforce the judgment. This provision is separate and several and shall survive the merger of this Agreement into any judgment on this Agreement. (g) Time of the Essence. Time is of the essence of this Agreement. (h) Severability. If any provision of this Agreement, or the application thereof to any person, place, or circumstance, shall be held by a court of competent jurisdiction to be invalid, unenforceable or void, the remainder of this Agreement and such provisions as applied to other persons, places and circumstances shall remain in full force and effect. (i) Exhibits. All exhibits attached hereto are incorporated herein as though fully set forth herein. (22) 24 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. Buyer: AMERICAN INDUSTRIAL PROPERTIES REIT A Texas real estate investment trust By: /s/ LEWIS D. FRIEDLAND ------------------------------------ Name: Lewis D. Friedland ---------------------------------- Title: Vice President --------------------------------- Seller: NORTH AUSTIN OFFICE, LTD., A Texas limited partnership By: 9001 IH35, Inc. A Texas corporation Its General Partner By: /s/ MORRIS FRIEDMAN ------------------------------------ Morris Friedman, President Texas Professional Title, Inc. agrees to act as Escrow Holder and disburse and/or apply the Earnest Money in accordance with the terms of this Agreement and to comply with the terms and provisions of Paragraph 21 of this Agreement. Texas Professional Title, Inc. agrees to comply with all reporting requirements of Section 6045 of the United States Internal Revenue Code and the regulations promulgated thereunder. TEXAS PROFESSIONAL TITLE, INC. By: /s/ JEANINE M. WEST ------------------------------------ Its: Sr. Vice President ----------------------------------- Dated: February 19, 1998 --------------------------------- (23) 25 LIST OF EXHIBITS Exhibit A - Description of Land Exhibit B - Inventory of Tangible Personal Property Exhibit C - Deed Exhibit D - Bill of Sale Exhibit E - Assignment and Assumption of Intangible Property Exhibit F - Assignment of Leases Exhibit G - Surveyor's Certificate Exhibit H - Environmental Reports Exhibit I - Rent Roll Exhibit J - Notice of Lease Assignment Exhibit K - Transferor's Certification of Non-Foreign Status Exhibit L - Tenant Certificate (24) 26 EXHIBIT A REAL PROPERTY Lot One (1), RESUBDIVISION OF LOT 1, GREENWAY PLAZA SECTION ONE, a subdivision in Travis County, Texas, according to the map or plat thereof, recorded in Volume 93, Page 300, Plat Records of Travis County, Texas 27 EXHIBIT B PERSONAL PROPERTY INVENTORY 28 EXHIBIT C SPECIAL WARRANTY DEED RECORDING REQUESTED BY: WHEN RECORDED MAIL TO: - ----------------------------- - ----------------------------- - ----------------------------- - ----------------------------- - ----------------------------- MAIL TAX STATEMENT TO: American Industrial Properties REIT 6210 North Beltline Road Suite 170 Irving, Texas 75063-2656 Attn: Mr. Marc Simpson - ------------------------------------------------------------------------------ (Space Above Line for Reorder's Use Only) SPECIAL WARRANTY DEED THE STATE OF TEXAS ) ) KNOW ALL MEN BY THESE PRESENTS: COUNTY OF TRAVIS ) NORTH AUSTIN OFFICE, LTD., a Texas limited partnership ("Grantor"), and for and in consideration of the sum of Ten Dollars ($10.00) and other good and valuable consideration to it in hand paid by AMERICAN INDUSTRIAL PROPERTIES REIT, a Texas real estate investment trust ("Grantee"), whose address is 6210 North Beltline Road, Suite 170, Irving, Texas 75063-2656 the receipt and sufficiency of which is hereby acknowledged and confessed, has GRANTED, BARGAINED, SOLD, ASSIGNED and CONVEYED, and by these presents does GRANT, BARGAIN, SELL, ASSIGN and CONVEY, unto Grantee: (A) that certain real property located in Austin, Travis County, Texas, and being more particularly described in Exhibit A attached hereto and incorporated herein for all purposes (the "Land"); (B) all rights, privileges and easements appurtenant to the Land, including, without limitation, all minerals, oil, gas and other hydrocarbon substances on and under and 29 that may be produced from the Land, as well as all development rights, land use entitlements, including without limitation building permits, licenses, permits and certificates, utilities commitments, air rights, water, water rights, riparian rights, and water stock relating to the Land and any rights-of-way or other appurtenances used in connection with the beneficial use and enjoyment of the Land and all of Seller's right, title and interest in and to all roads, easements, rights of way and alleys adjoining, serving or servicing the Land (collectively, the "Appurtenances"); (C) All improvements and fixtures located on the Land and Appurtenances, including, without limitation, that certain office building and related improvements located on the Land, and all apparatus, and equipment used in connection with the operation or occupancy of the Land and appurtenances, such as heating and air conditioning systems and facilities used to provide any utility, refrigeration, ventilation, garbage disposal or other services on the Land and appurtenances, and along with all on-site parking facilities (collectively the "Improvements") (the Land, Appurtenances and Improvements being herein collectively called the "Property"). TO HAVE AND TO HOLD the Property, together with all and singular any other rights and appurtenances thereto in anywise belonging, unto Grantee, its legal representatives, successors and assigns, FOREVER, subject to those restrictions and encumbrances listed on Exhibit B, attached hereto and incorporated herein by reference for all purposes, to the extent (but no further) that same are valid and subsisting as of the date hereof and affect title to the Property (collectively, the "Encumbrances"); and Grantor does hereby bind itself, its legal representatives, successors and assigns, to WARRANT AND FOREVER DEFEND all and singular the Property unto Grantee, its legal representatives, successors and assigns, against every person whomsoever lawfully claiming or to claim the same or any part thereof subject, however, to the Encumbrances, when the claim is by, through or under Grantor but not otherwise. Ad valorem taxes and assessments and maintenance fees, if any, for the year 1998 have been prorated between Grantor and Grantee as of the date hereof, and Grantee assumes the obligations to pay same as they become due and payable subsequent to the date hereof. Grantor warrants and represents that all ad valorem taxes and assessments and all maintenance fees for the Conveyed Property for 1997 and all prior years have been fully paid and all such taxes and assessments have been assessed and paid on the full assessed value without any abatement, exemption, or credit for special uses, agricultural use, or other land use which would create an additional tax obligation upon the conveyance to Grantee or upon the lapse of time. All such taxes and assessments for each year prior to the current year and for the current year to the date hereof shall be paid by Grantor. If the proration as of the date hereof is based upon an estimate of ad valorem taxes and assessments and maintenance fees for the current year, then upon demand by either party hereto, the parties shall, if necessary, promptly and equitably adjust all such ad valorem taxes and assessments and maintenance fees as soon as reasonably practical after the date actual figures for such items for the current year are available. 30 IN TESTIMONY WHEREOF, this instrument is executed effective as of the ____ day of ___________________, 199__. NORTH AUSTIN OFFICE, LTD., A Texas limited partnership By: 9001 IH35, Inc. A Texas corporation Its General Partner By: ---------------------------- Morris Friedman, President Exhibit A - Land Exhibit B - Encumbrances STATE OF ___________ ) ) COUNTY OF _________ ) This instrument was acknowledged before me on , 199__, by MORRIS FRIEDMAN, President of 9001 IH35, INC., a Texas Corporation, on behalf of said corporation as General Partner of NORTH AUSTIN OFFICE, LTD., a Texas limited partnership, on behalf of said limited partnership. --------------------------------------- Notary Public in and for the State of __________ My Commission Expires: --------------------------------------- Exhibit A - Land Exhibit B - Existing Encumbrances 31 EXHIBIT A to Exhibit C LEGAL DESCRIPTION 32 EXHIBIT B to EXHIBIT C ENCUMBRANCES 33 EXHIBIT D BILL OF SALE FOR VALUE RECEIVED, the undersigned ("Seller") hereby sells, conveys and assigns to AMERICAN INDUSTRIAL PROPERTIES REIT, a Texas real estate investment trust ("Buyer"), all of the undersigned's right, title and interest in and to all equipment, fixtures, inventory and other tangible personal property of any kind and nature owned by Grantor and attached to or located on the real property described on Exhibit A attached hereto ("Real Property"), including without limitation all furniture, furnishings, floor coverings; office equipment and supplies; heating, lighting, refrigeration, plumbing, ventilating, incinerating, cooking, laundry, communication, electrical, air conditioning fixtures, systems and equipment; disposals; window screens; storm windows; sprinklers; hoses; tools; lawn equipment; elevators and escalators; compressors; engines; boilers, and all other related machinery, equipment, fixtures, supplies, replacement parts and other tangible personal property whatsoever, including, without limitation, the personal property described in Schedule 1 which is attached hereto and incorporated herein. TO HAVE AND TO HOLD the foregoing personal property unto Buyer and its successors and assigns forever. The undersigned warrants that it owns good and marketable title to the foregoing personal property and will defend title to said personal property against all persons claiming a prior right thereto to the extent that such prior right is alleged to exist on or before the date of this Bill of Sale. Said personal property is used in connection with that certain office building commonly known as WHITNEY JORDAN PLAZA in Austin, Travis County, Texas. IN WITNESS WHEREOF, the undersigned has executed this Bill of Sale on this ____ day of ________________, 19__, in . NORTH AUSTIN OFFICE, LTD., A Texas limited partnership By: 9001 IH35, Inc. A Texas corporation Its General Partner By: --------------------------- Morris Friedman, President 34 Schedule 1 PERSONAL PROPERTY 35 EXHIBIT E ASSIGNMENT AND ASSUMPTION OF SERVICE CONTRACTS, WARRANTIES, GUARANTIES, PERMITS AND OTHER INTANGIBLE PROPERTY THIS ASSIGNMENT AND ASSUMPTION OF SERVICE CONTRACTS, WARRANTIES, GUARANTIES AND OTHER INTANGIBLE PROPERTY (this "Assignment") is made and entered into as of the ____ day of , 199__, by NORTH AUSTIN OFFICE, LTD., a Texas limited partnership ("Assignor"), to AMERICAN INDUSTRIAL PROPERTIES REIT, a Texas real estate investment trust ("Assignee"). WITNESSETH: WHEREAS, Assignor is contemporaneously herewith selling pursuant to that certain Purchase and Sale Agreement dated , 1998, by and between Assignor and Assignee (the "Purchase Agreement") that certain real property and improvements thereon located in the City of Austin, County of Travis, State of Texas, the real property which is more particularly described on Schedule 1 attached hereto and incorporated herein by this reference ("Real Property"). Terms used in this Agreement and not otherwise defined shall be given the meanings defined in the Purchase Agreement. WHEREAS, except for the Names and Marks as hereafter provided for, Assignor desires to assign its interest in and to the following to Assignee as of the date on which title to the Real Property is vested in Assignee (the "Transfer Date"), and Assignee desires to accept the assignment thereof and assume Assignor's obligations thereunder from and after the Transfer Date: (a) All service contracts described in Schedule 2 attached hereto and incorporated herein by this reference (the "Contracts"); (b) All Warranties and Guaranties (the "Warranties and Guaranties", hereafter defined); (c) All Names and Marks (the "Names and Marks", hereafter defined); (d) All Intangible Property (the "Intangible Property", hereafter defined); and (e) All Permits (the "Permits", hereafter defined). NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 36 1. As of the Transfer Date, Assignor hereby assigns and transfers unto Assignee all of its right, title, claim and interest in, to and under the (a) Contracts; (b) Warranties and Guarantees; (c) Names and Marks; (d) Intangible Property and (e) Permits (collectively the "Assigned Interests"). Assignor hereby agrees to indemnify, defend and hold harmless Assignee from and against any and all cost, liability, loss, damage or expense, including, without limitation, reasonable attorneys' fees and expenses (collectively, "Losses and Liabilities"), which arise out of or are in any way related to the Assigned Interests after the Transfer Date caused by a material default thereunder by Assignor occurring or existing on or prior to the Transfer Date. 2. Assignee, as of the Transfer Date, hereby accepts the foregoing assignment and assumes all of the Assignor's obligations under the Assigned Interests which arise or relate to the period after the Transfer Date. Assignee hereby agrees to indemnify, defend and hold harmless Assignor from and against any and all Losses and Liabilities arising out of or in any way related to the Assigned Interests after the Transfer Date, except for Losses and Liabilities which arise out of or are in any way related to the Assigned Interests after the Transfer Date caused by a material default thereunder by Assignor occurring or existing on or prior to the Transfer Date. 3. The following terms shall have the following meanings: (a) The term "Warranties and Guaranties" as used herein shall mean and include all warranties and guarantees to the extent assignable, whether or not written, for all or any portion of the Property, including, without limitation, the Improvements and the tangible Personal Property, including, without limitation, construction warranties from contractors and subcontractors. (b) The term "Names and Marks" as used herein shall mean the name "Whitney Jordan Plaza." Notwithstanding anything herein or in any other agreement to the contrary, Assignee is acquiring merely the right to continue to use the name "Whitney Jordan Plaza" as the name of the office building now located at 9001 IH35, Austin, Travis County, Texas. In the event Assignee ever ceases using the name "Whitney Jordan Plaza" for such purpose, Assignee's right to use said name shall terminate. In this regard, Assignee acknowledges and agrees that the name "Whitney Jordan" is a name used by Assignor in its businesses and Assignor is not selling, assigning, granting or conveying ownership of said name. (c) The term "Intangible Property" as used herein shall mean and include all intangible property owned by Asssignor and used in connection with the Property, including without limitation, all of the Real Property which is held or deemed to constitute intangible personal property; to the extent assignable, all plans and specifications, working drawings, site elevation and as-built surveys, soil and substrata studies, architectural plans, engineering plans and studies, floor plans, landscape plans, appraisals, and other technical reports of any kind, character or description; to the extent assignable, all promotional material, market studies, tenant data and other related material of any kind; all claims, demands or causes of action, including without limitation, any arising out of or relating to or caused by any defects in design or construction; all rights under any restrictive or protective covenants or declarations or other matters affecting title to any of the property herein conveyed. 37 (d) The term "Permits" as used herein shall mean and include all environmental, air pollution control, waste water, building, occupancy, governmental permits and approvals of every kind and nature relating to the construction, operation, use or occupancy of the Property. 4. In the event of any litigation between Assignor and Assignee arising out of the obligations of the parties under this Assignment or concerning the meaning or interpretation of any provision contained herein, the losing party shall pay the prevailing party's costs and expenses of such litigation, including, without limitation, reasonable attorneys' fees and expenses. In addition to the foregoing award of attorneys' fees to the prevailing party, the prevailing party in any lawsuit on this Agreement shall be entitled to its reasonable attorneys' fees incurred in any post judgment proceedings to collect or enforce the judgment. This provision is separate and several and shall survive the merger of this Assignment into any judgment on this Assignment. 5. This Assignment shall be binding on and inure to the benefit of the parties herein, their heirs, executors, administrators, successors-in-interest and assigns. 6. This Assignment shall be governed by and construed in accordance with the laws of the State of Texas. 7. This Assignment may be executed in any number of counterparts, each of which shall be deemed an original and all of which taken together shall constitute one and the same agreement. 8. Nothing contained herein shall be deemed or construed as relieving the Assignor or Assignee of their respective duties and obligations under the Purchase Agreement. ASSIGNOR: NORTH AUSTIN OFFICE, LTD., A Texas limited partnership By: 9001 IH35, Inc. A Texas corporation Its General Partner By: --------------------------- Morris Friedman, President ASSIGNEE: AMERICAN INDUSTRIAL PROPERTIES REIT A Texas real estate investment trust By: --------------------------- --------------------------- (Print Name and Title) 38 Schedule 1 LEGAL DESCRIPTION OF REAL PROPERTY 39 Schedule 2 DESCRIPTION OF THE CONTRACTS 40 EXHIBIT F ASSIGNMENT AND ASSUMPTION OF LEASES THIS ASSIGNMENT AND ASSUMPTION OF LEASES (this "Assignment") dated as of the day of ___________________, 199__, is made and entered into by and between NORTH AUSTIN OFFICE, LTD., a Texas limited partnership ("Assignor"), and AMERICAN INDUSTRIAL PROPERTIES REIT, a Texas real estate investment trust ("Assignee"). WITNESSETH: WHEREAS, Assignor is the lessor under certain leases executed with respect to that certain real property located in the City of Austin, County of Travis, State of Texas, incorporated herein by this reference (the "Property") more particularly described on Schedule 1, attached hereto and incorporated herein by this reference, which leases are described in Schedule 2 attached hereto and incorporated herein by this reference (the "Leases"). WHEREAS, Assignor is contemporaneously herewith selling the Property to Assignee pursuant to that certain Purchase and Sale Agreement dated ______________, 199__, by and between Assignor and Assignee (the "Purchase Agreement"). WHEREAS, Assignor desires to assign its interest in and to the Leases to Assignee as of the date on which title to the Property is vested in Assignee (the "Transfer Date"), and Assignee desires to accept the assignment thereof and assume Assignor's obligations thereunder from and after the Transfer Date. NOW, THEREFORE, in consideration of the covenants and agreements contained herein, the parties hereby agree as follows: 1. As of the Transfer Date, Assignor hereby assigns to Assignee all of its right, title and interest in and to the Leases. On the Transfer Date, Assignor has transferred those security deposits in the amounts and under the Leases listed on Schedule 3 attached hereto to Assignee (the "Transferred Security Deposits"). 2. Assignor warrants and represents that as of the Transfer Date, the attached Schedule 2 includes all of the Leases affecting the Property and there are no assignments of or agreements to assign the Leases to any other party. 3. Assignor hereby agrees to indemnify, defend and hold harmless Assignee from and against any and all cost, liability, loss, damage or expense, including, without limitation, reasonable attorneys' fees and expenses (collectively, "Losses and Liabilities"), caused by a material default by Assignor under the Leases described in Schedule 2 occurring prior to or on the Transfer Date. 4. Assignee, as of the Transfer Date, hereby accepts the foregoing assignment and assumes all of the lessor's obligations under the Leases described in Schedule 2 relating to the period from and after the Transfer Date, including the obligation to return the Transferred Security Deposits 41 in accordance with the terms of the Leases. Assignee hereby agrees to indemnify, defend and hold harmless Assignor from and against any and all Losses and Liabilities arising out of Lessor's obligations under the Leases described in Schedule 2 and related to the period after the Transfer Date, except for Losses and Liabilities caused by a material default by Assignor under the Leases described in Schedule 2 occurring prior to or on the Transfer Date. 5. In the event of any litigation between Assignor and Assignee arising out of the obligations of the parties under this Assignment or concerning the meaning or interpretation of any provision contained herein, the losing party shall pay the prevailing party's costs and expenses in such litigation, including, without limitation, reasonable attorneys' fees and expenses. In addition to the foregoing award of attorneys' fees to the prevailing party, the prevailing party in any lawsuit on this Agreement shall be entitled to its reasonable attorneys' fees incurred in any post judgment proceedings to collect or enforce the judgment. This provision is separate and several and shall survive the merger of this Assignment into any judgment on this Assignment. 6. This Assignment shall be binding on and inure to the benefit of the parties herein, their heirs, executors, administrators, successors-in-interest and assigns. 7. This Assignment may be executed in any number of counterparts, each of which shall be deemed an original and all of which taken together shall constitute one and the same agreement. 8. Nothing contained herein shall be deemed or construed as relieving the Assignor or Assignee of their respective duties and obligations under the Purchase Agreement. IN WITNESS WHEREOF, Assignor and Assignee have executed this Assignment the date and year first above written. ASSIGNOR: NORTH AUSTIN OFFICE. LTD. A Texas limited partnership By: 9001 IH35, Inc. A Texas corporation Its General Partner By: ----------------------- Morris Friedman, President ASSIGNEE: AMERICAN INDUSTRIAL PROPERTIES REIT A Texas real estate investment trust By: -------------------------------- Name: ------------------------------ Title: ---------------------------- 42 Schedule 1 LEGAL DESCRIPTION OF REAL PROPERTY 43 Schedule 2 DESCRIPTION OF THE LEASES 44 Schedule 3 TRANSFERRED SECURITY DEPOSITS 45 EXHIBIT G SURVEYOR'S CERTIFICATE I hereby certify that on the ____ day of ________________, 199__: (a) this survey was made on the ground as per the field notes shown on this survey and correctly shows (i) the boundaries and areas of the subject property and the size, location and type of buildings and improvements thereon (if any) and the distance therefrom to the nearest facing exterior property lines of the subject property (ii) the location of all rights-of-way, easements and any other matters of record (or of which are visible or of which I have knowledge or have been advised, whether or not of record) affecting the subject property including, without limitation, those described on the Commitment); (iii) the location of the parking areas on the subject property showing the number of parking spaces provided thereby; (iv) all abutting dedicated public streets providing access to the subject property together with the width and name thereof; and (v) all other significant items on the subject property; (b) except as shown on the survey, there are no (i) encroachments upon the subject property by improvements on adjacent property; (ii) encroachments on adjacent property, streets or alleys by any improvements on the subject property; (iii) party walls, or (iv) conflicts or protrusions; (c) adequate ingress to and egress from the subject property is provided by (name of street), the same being paved, dedicated public right(s)-of-way maintained by (name of maintaining authority); (d) all required building setback lines on the subject property are located as shown hereon; (e) no part of the subject property lies within a flood plain or flood prone area or flood way of any body of water; (f) this survey conforms to the current Texas Society of Professional Surveyors Standards and Specifications for a Category 1 A, Condition II Survey; (g) I have reviewed the latest available maps of geological faults in the Austin metropolitan area prepared by the U.S. Department of the Interior, U.S. Geological Survey, and have located the subject property on the map titled " " and dated ___________________. None of the geological fault lines shown on that map affects the subject property, and I saw no evidence of any displacement of the surface or other evidence of the existence of an active geological fault on or affecting the property. (h) The description of the property shown hereon corresponds to the boundaries of the property shown on the Title Commitment, and such description closes by engineering calculation. 46 (i) No covenants, restriction or easements that are of records, discoverable upon visual inspection, or otherwise known to me, appear to me to have been violated in any respect except as follows: ___________________________ (if none, so state). ------------------------------------------ (Signature of Surveyor) Registered Public Surveyor Registration No. -------------------------- (Name, address, telephone number and job number of Surveyor) 47 EXHIBIT H ENVIRONMENTAL REPORTS 1. Phase I (MBA) Environmental Study for 9001 IH 35, Austin, Texas dated April 8, 1993, prepared by Maxwell Envirotech, Inc. 2. Reports referenced in that certain correspondence (including Statement of Certification) dated November 15, 1994 pertaining to Project No. 093-01 regarding asbestos abatement, from Maxwell Envirotech, Inc., which reports include the following: a. ACBM (Asbestos Containing Building Material) inspection reports prepared by Hall-Kimbrell, Inc. and Maxwell Envirotech, Inc. b. The Final Inspection and Final Clearance Air Monitoring (Building interior 9/14/94, exterior soffits 10/7/94) 48 EXHIBIT I RENT ROLL 49 EXHIBIT J NOTICE OF LEASE ASSIGNMENT ________________, 199___ To: [Tenant] --------------------------- --------------------------- --------------------------- --------------------------- Re: [Property name][Property address] Gentlemen: Please be advised that the undersigned Seller, as Landlord under your Lease at the above location (as said Lease may have been amended, the "Lease") has transferred and conveyed all of its interest in the lease to American Industrial Properties REIT ("Buyer") effective as of the date hereof, and Buyer has assumed the obligations of the Landlord under the Lease. Therefore, effective immediately, all correspondence, communications and rent and/or other charges due under the Lease (including past rent due, if any) should be directed as follows: American Industrial Properties REIT ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- Attn: ------------------------------ Phone: ----------------------------- Your security deposit in connection with the Lease in the amount of $____________ has been transferred to the Buyer. Buyer acknowledges receipt of the deposit and responsibility for the return of any such security deposit subject to the terms of the Lease. SELLER: BUYER: - ---------------------------- AMERICAN INDUSTRIAL PROPERTIES a REIT --------------------------- By: ----------------------------- By: Name: ------------------------------- --------------------------- Name: Title: ----------------------------- -------------------------- Title: ---------------------------- 50 EXHIBIT K TRANSFEROR'S CERTIFICATION OF NON-FOREIGN STATUS To inform _____________________________________, a ___________________ ("Transferee"), that withholding of tax under Section 1445 of the Internal Revenue Code of 1954, as amended ("Code"), will not be required upon the transfer of certain real property to the Transferee by __________________________________________, a _____________________ ("Transferor"), the undersigned hereby certifies the following on behalf of the Transferor: 1. The Transferor is not a foreign corporation, foreign partnership, foreign trust, foreign estate or foreign person (as those terms are defined in the Code and the Income Tax Regulations promulgated thereunder); 2. The Transferor's U.S. employer or tax (social security) identification number is ------------------------------; 3. The Transferor understands that this Certification may be disclosed to the Internal Revenue Service by the Transferee and that any false statement contained herein could be punished by fine, imprisonment, or both. 4. The Transferor understands that the Transferee is relying on this Certification in determining whether withholding is required upon said transfer. 5. The Transferor hereby agrees to indemnify, defend and hold the Transferee harmless from and against any and all obligations, liabilities, claims, losses, actions, causes of action, rights, demands, damages, costs and expenses of every kind, nature or character whatsoever (including, without limitation, reasonable attorneys' fees and court costs) incurred by the Transferee as a result of: (i) the Transferor's failure to pay U.S. Federal income tax which the Transferor is required to pay under applicable U.S. law; or (ii) any false or misleading statement contained herein. 6. Under penalty of perjury I declare that I have examined this Certification and to the best of my knowledge and belief it is true and correct and complete, and I further declare that I have authority to sign this document on behalf of the Transferor. Date: , 199 ----------- --- ---------------------------------------- By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- 51 EXHIBIT L TENANT CERTIFICATE American Industrial Properties REIT 6210 North Beltline, Suite 170 Irving, Texas 75063-2656 "Buyer" - ------------------------------ - ------------------------------ - ------------------------------ - ------------------------------ "Landlord" Ladies and Gentlemen: Landlord, as owner of the property (the "Property") of which the leased premises are a part, intends to sell the Property to American Industrial Properties REIT or an affiliate thereof ("Buyer") who, as a condition to the purchase of the Property and to satisfy the requirements of Lender, has required this Tenant Certificate. Buyer is about to make, execute and deliver its Promissory Note ("Note") to a financial institution ("Lender") which Note shall be secured by, among other security, a lien encumbering the Property pursuant to a Deed of Trust, Security Agreement and Assignment of Leases and Rents (as thereafter amended and modified, the "Mortgage"). The Mortgage and all other instruments securing the Note are herein collectively called the "Security Documents". In consideration of Buyer's agreement to purchase the Property, Tenant agrees and certifies to Landlord, Buyer and Lender as follows: ACKNOWLEDGMENT OF LEASE 1. Tenant is the tenant under that certain lease dated (the "Lease"), the undersigned ("Tenant") has leased from Landlord, or its predecessors in interest the leased premises consisting of _______ net rentable square feet located at as more particularly described in the Lease. A true and correct copy of the Lease together with all amendments, modifications and/or renewals is attached as Exhibit "A". 2. The leased premises and possession thereof are accepted and Tenant is in actual occupancy of the leased premises; the lease is in full force and effect; the term of the Lease commenced as of _____________________________ and ______________________________________ the expiration date of the Lease is _______________________________________. 3. Rental at the rate provided by the Lease is payable in accordance with its terms, all minimum rent and additional rent have been paid through and is not paid and will not be paid more than one month in advance of the due date set forth in the Lease. Minimum monthly base rent of $ plus monthly estimated operating expenses of $__________ (with the tenant responsible for taxes, insurance and common area operating expenses in excess of $__________) are due on the of each month. 4. Landlord is holding a security deposit in the amount of $_________ as of the date hereof. Tenant is not entitled to any interest on the security deposit except as follows:__________________________________________. 5. Tenant claims no present charge, lien or claim of offset against rent. 6. Tenant has no option to extend the lease except as follows: _______ ______________________________________________________________________________. 52 7. Tenant has not subleased nor assigned all or any portion of the Leased premises, except as follows: ________________________________________. 8. Tenant is not in default in the performance of any covenant, agreement or condition contained in the Lease and no circumstances exist which, with the passage of time, would result in Tenant being in default in the performance of any covenant, agreement or condition contained in the Lease. 9. To the best of Tenant's knowledge, its use, maintenance and operation of the leased premises complies with, and will at all times comply with, all applicable federal, state, county or local statutes, laws, rules and regulations of any governmental authorities relating to environmental, health or safety matters. Except for de minimis quantities that are used in connection with the ordinary course of Tenant's business, and then only in strict compliance with all applicable laws, rules and regulations, Tenant does not and will not engage in any activity, which would involve the use of the leased premises for the storage, generation, use, treatment, transportation or disposal of any chemical, material or substance which is regulated as toxic or hazardous or exposure to which is prohibited, limited or regulated by any federal, state, county, regional, local or other governmental authority or which, even if not so regulated, may or could pose a hazard to the health and safety of the other tenants and occupants of Landlord's property. 10. Tenant does not have any rights or options to purchase the Property. 11. Tenant's interest in the Lease is not subject to any mortgage, liens or other encumbrances except as follows: _______________________________. 12. There are no existing defaults under the Lease by reason of any act or omission of the Landlord and no circumstances exist which, with the passage of time, would place Landlord in default under the Lease, except as follows: ____________________________________________________________________. 13. There are no outstanding unsatisfied obligations of Landlord under the Lease except as follows: _________________________________________________. 14. The following is (are) guarantor(s) or Tenant's obligations under the lease: __________________________________________________________________, and [its] [his] [her] [their] current address(es) [is] [are] as follows: ______ _______________________________________________________________________________ _______________________________________________________________________________ SUBORDINATION The Lease and all right, title and interest in the Property created thereby (including without limitation any purchase options, rights of first refusal, lease renewal rights, etc.) are, shall be and shall at all times remain and continue to be subject and subordinate in all respects to the liens, terms, covenants, provisions and conditions of the Security Documents. NON-DISTURBANCE So long as the Lease is in full force and effect and Tenant is not in default under the Lease (beyond any period given to Tenant in the Lease to cure such default) or under this Agreement: (a) Tenant's possession of the Property and Tenant's rights and privileges under the Lease shall not be diminished or interfered with by Lender, and Tenant's occupancy of the Premises shall not be disturbed by Lender for any reason whatsoever during the term of the Lease or any extensions or renewals thereof; and (b) Lender will not join Tenant as a party defendant in any action or proceeding to foreclose the Mortgage or to enforce any rights or remedies of Lender under the Mortgage which would cut-off, destroy, terminate or extinguish the Lease or Tenant's interest and estate under the Lease. Notwithstanding the foregoing provisions of the paragraph, if it would be procedurally disadvantageous for Lender not to name or join Tenant as a party in a foreclosure proceeding with respect to the Mortgage, Lender may so name or join Tenant without in any way diminishing or otherwise affecting the rights and privileges granted to, or inuring to the benefits of, Tenant under this Agreement. 53 ATTORNMENT (a) After notice is given by Lender that a default has occurred under the Mortgage and that the rentals and all other payments to be made by Tenant under the Lease should be paid to Lender, Tenant will attorn to Lender and pay to Lender, or in accordance with the directions of Lender, all rentals and other monies due and to become due to Current Landlord (as hereinafter defined) under the Lease or otherwise in respect to the Property, such payments will be made regardless of any right of set-off, counterclaim or other defense which Tenant may have against Current Landlord, whether as tenant under the Lease or otherwise; and (b) in addition, if Lender (or its nominee or designee) shall succeed to the rights of Current Landlord under the Lease through possession or foreclosure action, delivery of a deed or otherwise or another person purchases the Property upon or following foreclosure of the Mortgage, then at the request of Lender (or its nominee or designee) or such purchaser (Lender, its nominees and designees, and such purchaser, each being a "Successor-Landlord"), Tenant shall attorn to and recognize Successor-Landlord as Tenant's landlord under the Lease and shall promptly execute and deliver any instrument that Successor-Landlord may reasonably request to evidence such attornment. Upon such attornment, the lease shall continue in full force and effect as, or as if it were, a direct lease between Successor-Landlord and Tenant upon all terms, conditions and covenants as are set forth in the Lease, except that Successor-Landlord shall not: i) be liable for any previous act or omission of Current Landlord under the Lease; ii) be subject to any off-set, defense or counterclaim which shall have previously accrued to Tenant against Current Landlord; iii) be bound by any modification of the Lease or by any previous prepayment of rent or additional rent for more than one month which Tenant might have paid to Current Landlord, unless such modification or prepayment shall have been expressly approved in writing by Lender; or iv) be liable for any security deposited under the Lease unless such security has been physically delivered to Lender. LEASE MODIFICATION Tenant agrees that without the prior written consent of Lender, it shall not: (a) amend, modify, terminate or cancel the Lease or any extensions or renewals thereof; (b) tender a surrender of the Lease or make a prepayment of any rent or additional rent in excess of one (1) month; or (c) subordinate or permit the subordination of the Lease to any lien subordinate to the Mortgage. Any such purported action without such consent shall be void as against the holder of the Mortgage. NOTICE OF DEFAULT; OPPORTUNITY TO CURE a) Any notice required or permitted to be given by Tenant to Current Landlord shall be simultaneously given also to Lender, and any right of Tenant dependent upon notice shall take effect only after such notice to Lender is so given. Performance by Lender shall satisfy any conditions of the Lease requiring performance by Current Landlord, and Lender shall have a reasonable time to complete such performance as provided in section (b) below. b) Without limiting the generality of the foregoing, Tenant shall promptly notify Lender of any default, act or omission of Current Landlord which would give Tenant the right, immediately or after the lapse of a period of time, to cancel or terminate the Lease or to claim a partial or total eviction (a "Landlord Default"). In the event of a Landlord Default, Tenant shall not exercise any rights available to it: (i) until it has given written notice of such Landlord Default to Lender; and (ii) unless Lender has failed, within thirty (30) days after Lender receives such notice, to cure or remedy the Landlord Default or, if the same is not reasonably capable of being remedied by Lender within such thirty (30) day period, until a reasonable period for remedying such Landlord Default has elapsed following the giving of such notice and following the time when Lender shall have become entitled under the Security Documents to remedy the same (which reasonable period shall in no event be less than the period to which Current Landlord would be entitled under the Lease or otherwise, after similar notice, to effect such remedy); provided that Lender shall with due diligence commence and prosecute a remedy for such Landlord Default. If Lender cannot reasonably remedy a Landlord Default until after Lender obtains possession of the Property, Tenant may not terminate or cancel the Lease or claim a partial or total eviction by reason of such Landlord Default until the expiration of a reasonable period necessary for the remedy after Lender institutes proceedings to obtain possession of the Property through a foreclosure or otherwise, or for the appointment of a receiver for the Property, 54 provided that Lender institutes and prosecutes such proceedings with due diligence. Lender shall have no obligation hereunder to remedy any Landlord Default. NOTICE OF LIEN To the extent that the Lease entitles Tenant to notice of the existence of any mortgage and the identity of any lender, this Agreement shall constitute such notice to Tenant with respect to the Mortgage. REMEDIES Upon and after the occurrence of a default under the Mortgage, Lender shall be entitled, but not obligated, to exercise the claims, rights, powers, privileges and remedies of Current Landlord under the Lease and shall be further entitled to the benefits of, and to receive and enforce performance of, all of the covenants to be performed by Tenant under the Lease as though Lender were named therein as Current Landlord. LIMITATION OF LIABILITY Except as specifically provided in this Agreement, Lender shall not, by virtue of this Agreement, the Mortgage or any other instrument to which Lender may be a party, be or become subject to any liability or obligation to Tenant under the Lease or otherwise. PRIORITY (a) Tenant acknowledges and agrees that this Agreement supersedes (but only to the extent inconsistent with) any provisions of the Lease relating to the priority or subordination of the Lease and the interests or estates created thereby to the Mortgage. (b) Tenant agrees to enter into a subordination, non-disturbance and attornment agreement with any entity which shall succeed Lender with respect to the Property, or any portion thereof, provided such agreement is substantially similar to this Agreement. NOTICES Any notice, consent, request or other communication required or permitted to be given hereunder shall be in writing and shall be: (a) personally delivered; (b) delivered by Federal Express or other comparable overnight delivery service; or (c) transmitted by postage prepaid registered or certified mail, return receipt requested. All such notices, consents, requests or other communications shall be addressed to Tenant or Lender at the address for such party previously set forth in this Agreement, or to such other address as Tenant or Lender shall in like manner designate in writing. All notices and other communications shall be deemed to have been duly given on the first to occur of actual receipt of the same or; (i) the date of delivery if personally delivered; (ii) one (1) business day after depositing the same with the delivery service if by overnight delivery service; and (iii) three (3) days following posting if transmitted by mail. Any party may change its address for purposes hereof by notice to the other parties given in accordance with the provisions hereof. GENERAL This Agreement may not be modified or terminated orally. This Agreement shall inure to the benefit of and be binding upon the parties hereto, their successors and assigns. The term "Lender" shall include the then holder of any interest in the Mortgage. The term "Current Landlord" shall mean the then holder of the lessor's interest in the Lease. The term "person" shall mean any individual, joint venture, corporation, partnership, trust, unincorporated association or other entity. All references herein to the Lease shall mean the Lease as modified by this Agreement and any amendments or modifications to the Lease which are consented to in writing by the Lender. Any inconsistency between the Lease and the provisions of this Agreement shall be resolved in favor of this Agreement. This Tenant Certificate is being executed and delivered by Tenant to induce Lender to make the Loan which is to be secured in part by an assignment to Lender of Landlord's interest in the Lease and with the intent and understanding that the above statements will be relied upon by Lender. This Tenant Certificate shall inure to the benefit of and be binding upon the parties hereto, their successors and permitted assigns, and any purchaser or purchasers at foreclosure of the Property, and their respective heirs, personal representatives, successors and assigns. 55 WAIVERS Both Tenant and Lender hereby irrevocably waive all right to trial by jury in any action, proceeding or counterclaim arising out of or relating to this Agreement. GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the State in which the Property is located. IN WITNESS WHEREOF, the parties hereto have executed this Tenant Certificate to be effective as of the day and year first stated above. "LENDER" ------------------------------------------- a ----------------------------------------- By: ---------------------------------------- Printed Name: ------------------------------ Title: ------------------------------------- "TENANT" ------------------------------------------- a ----------------------------------------- By: ---------------------------------------- Printed Name: ------------------------------ Title: ------------------------------------ AGREED AND CONSENTED TO: "BUYER" American Industrial Properties REIT, a Texas real estate investment trust, By: ---------------------------------- Printed Name: ------------------------ Title: ------------------------------- Date: -------------------------- 56 ACKNOWLEDGMENTS STATE OF __________________ ) ) COUNTY OF ________________ ) BEFORE ME, the undersigned authority on this day personally appeared ________________________, the ______________ of ____________________________________, a ________________, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed the same for the purposes and consideration therein expressed, and as the act and deed of said _______________________, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, in this ____ day of __________, 199__. -------------------------------------------- NOTARY PUBLIC, State of -------------------- 57 ACKNOWLEDGMENTS STATE OF __________________ ) ) COUNTY OF ________________ ) BEFORE ME, the undersigned authority on this day personally appeared ________________________, the ______________ of ____________________________________, a ________________, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed the same for the purposes and consideration therein expressed, and as the act and deed of said _______________________, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, in this ____ day of __________, 199__. -------------------------------------------- NOTARY PUBLIC, State of Texas 58 ACKNOWLEDGMENTS STATE OF TEXAS ) ) COUNTY OF ) BEFORE ME, the undersigned authority on this day personally appeared ________________________, the ______________ of American Industrial Properties REIT, a Texas real estate investment trust, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed the same for the purposes and consideration therein expressed, and as the act and deed of said real estate investment trust [and ______________________], and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, in this ____ day of __________, 199__. -------------------------------------------- NOTARY PUBLIC, State of --------------------- 59 EXHIBIT "A" Leases EX-21.1 10 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21.1 ENTITY: AMERICAN INDUSTRIAL PROPERTIES REIT, A TEXAS REAL ESTATE INVESTMENT TRUST
OWNERSHIP PERCENTAGE SUBSIDIARY/PARTNER ---------- ------------------ 100% American Industrial Properties REIT, Inc., a Maryland corporation 100% AIP Tamarac, Inc., a Texas corporation 99% Limited Partner AIP Properties #1, L.P., a Delaware limited partnership 100% AIP Properties #3, GP, Inc., a Texas corporation 99% Limited Partner AIP Properties #3, L.P., a Delaware limited partnership 100% AIP-SWAG GP, Inc., a Texas corporation 98% Limited Partner AIP-SWAG Operating Partnership, L.P., a Delaware limited partnership 99% AIP Operating, L.P., a Delaware limited partnership 100% DDR Office Flex I, LLC, an Ohio Limited Liability Company 100% DDR Office Flex II, LLC, an Ohio Limited Liability Company 100% AIP/Battlefield GP, Inc., a Texas corporation 100% AIP/Greenbrier GP, Inc., a Texas corporation 100% AIP/Post Office GP, Inc., a Delaware corporation 49% Limited Partner DDR/Post Office L.P., a Delaware corporation 85.5% Limited Partner DDR/Tech 29 Limited Partnership 55.84% Joint Venture USAA Chelmsford Associates Joint Venture
ENTITY: AIP TAMARAC, INC., A TEXAS CORPORATION
OWNERSHIP PERCENTAGE PARTNER ---------- ------- 1% General Partner AIP Properties #1, L.P., a Delaware limited partnership
ENTITY: AIP PROPERTIES #3 GP, INC., A TEXAS CORPORATION
OWNERSHIP PERCENTAGE PARTNER ---------- ------- 1% General Partner AIP Properties #3, L.P., a Delaware limited partnership
2 ENTITY: AIP SWAG GP, INC., A TEXAS CORPORATION
OWNERSHIP PERCENTAGE PARTNER ---------- ------- 98% General Partner AIP-SWAG Operating Partnership, L.P., a Delaware limited partnership
ENTITY: AIP/POST OFFICE GP, INC., A DELAWARE CORPORATION
OWNERSHIP PERCENTAGE PARTNER ---------- ------- 1% General Partner DDR/Post Office L.P., a Delaware corporation
EX-23.1 11 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-46699), the Registration Statement on Form S-3 (No. 333-48555), the Registration Statement on Form S-3 (No. 333-52879), and the Registration Statement on Form S-8 (No. 333-69625) of American Industrial Properties REIT of our report dated February 10, 1999, except for Note 19, as to which the date is March 26, 1999 with respect to the consolidated financial statements and schedule of the American Industrial Properties REIT included in its Annual Report on Form 10-K for the year ended December 31, 1998. /s/ ERNST & YOUNG LLP Dallas, Texas March 26, 1999 EX-27.1 12 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1998 DEC-31-1998 11,567 0 0 0 0 0 505,132 (33,449) 500,330 287,805 0 0 0 1,721 203,858 500,330 0 49,062 0 28,158 (28) 10,060 15,139 0 0 (4,267) 0 (5,803) 0 (10,070) (.082) (.082)
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